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UNIVERSITY OF TRENTO

FACULTY OF ECONOMICS AND MANAGEMENT

MASTER IN INTERNATIONAL MANAGEMENT

Overviews of The Masters Thesis

Foreign Direct Investment in the Arab world:an Analysis of Flows and an Evaluation of Country Specific Business Environment

(AuthorAbed El-Azez Safi, Under Supervisor Prof.Marco Zamarian)

The main goal of this research is focusing on analysis of the empirical data of the foreign direct

investment (FDI) in the Arab countries and evaluating the business environment. FDIisthenet

in+lows of investment toacquire a lasting management interest (10% or more ofvoting

stock)inan enterpriseoperating inaneconomyotherthanthat ofthe investor. Itis the

sumof equity capital, reinvestment of earnings, other long-term capital, andshort-term

capitalasshowninthebalanceofpayments.FDIis akeydriverofinternationaleconomic

integration, anditisoneofthemost importantfactorsofinternationalglobalization. With

the right policy framework, FDI can provide +inancial stability, promote economic

developmentandenhancethewellbeingofsocietiesandculturaldiversity.

This study research is substantial because it highlighted the role and significance of the FDI in

the economic of the Arab World, and because this is the first time to analyze the empirical data of

the whole 22 Arab countries and the country performance of sectors and sources of investment

particularly the Gulf Cooperation Council economy (Saudi Arabia, Qatar, Bahrain, Oman,

Kuwait, and United Arab Emirates). In addition, to the analysis of the FDI I evaluate the

investment business environment in the Arab World through the six dimensions of the Worldwide

Governance Indicators (WGIs), and the eleventh topics doing business reports.

The methodology, which was used in this research, is to analyze the empirical data of the FDI in

the central banks of the Arab World, United Nations Conference on Trade and Development

(UNTCAD), World Bank, International Monetary Fund (IMF), Economic and Social

Commission for Western Asia (ESCWA) Institute,books, international reports, articles, and FDI

websites researches. For more details there was a screening of the GCC countries websites, and

other reliable investments agencies. Nevertheless, the evaluation of that empirical data for the

business environment in the Arab World was through my background knowledge and

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interpretation of the Arab countries situation and culture experience.

However, Global FDI flows rose to $1.24 trillion in 2010, but were still 15% below their pre-

crisis average. This is in contrast to global industrial output and trade, which were back to pre-

crisis levels. The UNCTAD estimates that global FDI will regain its pre-crisis level in 2011,

increasing $1.41.6 trillion, and approaching its 2007 peak in 2013.

This research consists of four chapters, and in regards to the essential conclusion of those four

chapters. The first chapter concentrates on former recent scholars studies of the FDI analysis are

done in the Arab World and the scholars theories of the FDI. The recent research of (Krogstrup &

Matar, 2005) on the FDI and growth through absorptive capacity in the Arab world showed that

the performance of the Arab World is very poor in attracting FDI inflows relative to other

developing countries since the early 1990s, and they receive only a small fraction of FDI inflows

comparing to developing countries, both in absolute terms and relative to GDP. Only Jordan, and

very recently also Tunisia and Morocco, appear to have performed well above the average ratio

as compared with the rest of the world in its ability to attract FDI. In addition, I discuss the four

types theories (the market imperfections theory, international production theory

internationalization theory and the eclectic paradigm theory) which were developed by

Hymer, Dunning, Buckley and Casson.

In other words, the second chapter focuses on the analyzing of the empirical data of FDI during

the period 2006-2010 by using the framework of the UNCTAD that makes the comparison

between inflows and outflows of the developed economies and developing economics. However,

the FDI analysis of 2010 shows for the first time developing economies are absorbed close to

half of global FDI inflows comparing to the developed economies. The developing countries

have not been spared from the effects of the crisis, but still they managed to deal with it better

than the developed world, both in terms of economic growth and attracting FDI. while the Arab

World consider as developing economy. Nonetheless, Saudi Arabia was ranked among the 10 top

countries of FDI recipient. So, the concept of transforming the FDI to developed world is not any

more reliable. In addition, I explained the estimation of the increasing and decreasing inflows

and outflows of the FDI statistical data of the 22 Arab countries through the same period and the

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FDI percentage from the GDP of each country during 2008, 2009 and 2010. Also, I found out the

FDI inflows to the Arab world reached its highest peak ever in 2008 ( See Table 1). Arab world

countries have witnessed a major increase in the level of FDI inflows over the past decade. FDI

inflows to Arab countries from 2006 till 2010 were fluctuating from one year to the other. The

GCC countries are the highest receiver of FDI in the Arab World during the last five years; it

increased from 54% to 60% in 2006 till 2010. This showed the economic stability and

development of economic situation in the GCC region to confirm that. The FDI and stocks is

concentrated in few countries for instance about 80% of the FDI in 2010 is concentrated in six

countries: Saudi Arabia 42%, Egypt 10%, Qatar 8%, Lebanon 7%, United Arab Emirates 6% and

Libyan Arab Jamahiriya 6%. The More Diversified Economics MDEs (Algeria, Egypt, Libyan

Arab Jamahiriya, Morocco, Tunisia, Iraq, Jordan, Lebanon, Palestinian Territory, and the Syrian

Arab Republic) were 39% during 2006 and decreased by 6% in 2008 and it recover back this

decline in 2010 to become 38% in comparing to GCC and Least Developed Countries

LDCs (Mauritania, Comoros, Djibouti, Somalia, Sudan, and Yemen). The reason of declined in

MDEs comparing to LDCs and GCC region in the Arab world it was because of the

attractiveness of FDI inflows to the GCC region.

Table 1FDI inflows in Arab Countries, 2006-2010 (Millions of US dollars and % GDP)

FDI inflows (Millions of US$) FDI/GD (perce tage)

Region / Economy 2006 2007 2008 2009 2010 2008 2009 2010

Bahrain 2 915 1 756 1 794 257 156 8.19 1.25

Kuwait 121 112 - 6 1 114 81 0.00 1.02

Oman 1 588 3 431 2 528 1 471 2 045 4.87 3.22

Qatar 3 500 4 700 3 779 8 125 5 534 3.41 8.26

Saudi Arabia 17 140 22 821 38 151 32 100 28 105 8.28 9.78 4.96

United Arab Emirates 12 806 14 187 13 724 4 003 3 948 5.25 1.74

GCC Economy 38 070 47 007 59 970 47 069 39 870

Mauritania 106 138 338 - 38 14 9.43 -1.27 0.37

Comoros 1 8 8 9 9 1.42 1.70 1.74

Djibouti 108 195 229 100 27 23.17 9.23

Somalia 96 141 87 108 112 ...

Sudan 3 534 2 426 2 601 2 682 1 600 4.48 4.87 4.66

Yemen 1 121 917 1 555 129 - 329 5.78 0.49

Least developed countries 4 965 3 825 4 817 2 990 1 433

Algeria 1 795 1 662 2 594 2 761 2 291 1.52 1.96 1.44

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Egypt 10 043 11 578 9 495 6 712 6 386 5.83 3.55 2.92

Libyan Arab Jamahiriya 2 013 4 689 4 111 2 674 3 833 4.41 2.74

Morocco 2 449 2 805 2 487 1 952 1 304 2.77 2.16 1.36

Tunisia 3 308 1 616 2 758 1 688 1 513 6.46 3.67 3.41

Iraq 383 972 1 856 1 452 1 426 2.14 2.23 1.74

Jordan 3 544 2 622 2 829 2 430 1 704 12.45 9.67 6.17

Lebanon 3 132 3 376 4 333 4 804 4 955 14.41 13.75 12.65

Palestinian Territory 19 28 52 265 115

Syrian Arab Republic 659 1 242 1 467 1 434 1 381 2.79 4.76 2.34

More diversified economies 27 345 30 590 31 981 26 169 24 907

Total of FDI inflows to Arab World 70 380 81 422 96 767 76 228 66 210 4.97 4.70 3.24

Furthermore the basic goal of the third chapter in this research was focusing on FDI in Arab

World through studying the role and significance of FDI flows in the economical performance by

sectors and sources of the six countries GCC economy. In addition, to political side, and the new

policies and regulations that have been followed in the recent years to encourage the FDI in the

GCC economy. Also, I showed the effect of Dubai Crisis and the declined price of the oil cost in

2009 on the FDI inflows and outflows of the GCC region experience. However, I found the

majority of foreign investment trend by sectors are concentrated in Arab countries focusing

mainly on the real estate, oil and gas, and hotel sectors. In addition to the big share of FDI

inflows to the GCC region by sources was from non-Arab countries USA first rank followed by

United Arab Emirates and Kuwait, respectively from Arab countries.

Finally, in the fourth chapter I interpreted the empirical data through my background knowledge

about country specific business environment based on the statistical data of the six dimensions of

WGIs (Voice and Accountability, Political Stability and Absence of Violence/Terrorism,

Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption) in

linked with the FDI inflows, Arab literacy and Arab Spring (Arab Revolution, 2011) after the

previous interpretation, I tried to show the dimensions correlation and I also estimated the

eleventh Doing Business topics of 2012 (starting a business, dealing with construction permits,

getting electricity, registering property, getting credit, protecting investors, paying taxes, trading

across borders, enforcing contracts and resolving insolvency) were mainly aggregated by the

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World Bank captured by the multinational agencies and the non-governmental organizations

(NGOs). The interpretation results shows the business environment and the economic

performance of the Arab World still improving and the new policy and regulation that have been

implemented in the Arab countries increased the attractiveness level of the FDI toward Arab

countries. Also, Despite the low rank of WGI in Arab World and the correlation of investment in

some of the six indicators between countries in the Arab world especially in the highest receiver

of FDI flows and in particular the GCC region the Business Doing reported great rank in regards

to the proper business atmosphere for foreign investors. The six of the Arab countries Saudi

Arabia, UAE, Qatar, Bahrain, Tunisia and Oman have climbed the scale on the ease of doing

business ranked among the top 50 out of 183 countries, while Algeria, Comoros Mauritania, Iraq

and Djibouti ranked very low on the same scale (see figure 1). The new policy and modification,

which has been confirmed from World Bank by the Doing Business reports about the business

environment of Arab World, show that their domestic laws in these countries pay attention to

foreign companies to increase the investment in Arab world.

Figure 1How Arab World Rank on the Ease of Doing Business, 2012

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In the End, I found out the 2010 WGIs can give the foreign and local investors a general

overview about the situation of the Arab World, but still isnt confident enough to be reliable for

some countries special in case of Tunisia, and it can be exaggerating from the expert who made

the survey or the local citizen and institutes have the fear to contribute in give this information.

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