FDI in the Arab World Overview

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<ul><li><p>7/29/2019 FDI in the Arab World Overview</p><p> 1/12</p><p>UNIVERSITY OF TRENTO</p><p>FACULTY OF ECONOMICS AND MANAGEMENT</p><p>MASTER IN INTERNATIONAL MANAGEMENT</p><p>Overviews of The Masters Thesis</p><p>Foreign Direct Investment in the Arab world:an Analysis of Flows and an Evaluation of Country Specific Business Environment</p><p>(AuthorAbed El-Azez Safi, Under Supervisor Prof.Marco Zamarian)</p><p>The main goal of this research is focusing on analysis of the empirical data of the foreign direct</p><p>investment (FDI) in the Arab countries and evaluating the business environment. FDIisthenet</p><p>in+lows of investment toacquire a lasting management interest (10% or more ofvoting</p><p>stock)inan enterpriseoperating inaneconomyotherthanthat ofthe investor. Itis the</p><p>sumof equity capital, reinvestment of earnings, other long-term capital, andshort-term</p><p>capitalasshowninthebalanceofpayments.FDIis akeydriverofinternationaleconomic</p><p>integration, anditisoneofthemost importantfactorsofinternationalglobalization. With</p><p>the right policy framework, FDI can provide +inancial stability, promote economic</p><p>developmentandenhancethewellbeingofsocietiesandculturaldiversity.</p><p>This study research is substantial because it highlighted the role and significance of the FDI in</p><p>the economic of the Arab World, and because this is the first time to analyze the empirical data of</p><p>the whole 22 Arab countries and the country performance of sectors and sources of investment</p><p>particularly the Gulf Cooperation Council economy (Saudi Arabia, Qatar, Bahrain, Oman,</p><p>Kuwait, and United Arab Emirates). In addition, to the analysis of the FDI I evaluate the</p><p>investment business environment in the Arab World through the six dimensions of the Worldwide</p><p>Governance Indicators (WGIs), and the eleventh topics doing business reports.</p><p>The methodology, which was used in this research, is to analyze the empirical data of the FDI in</p><p>the central banks of the Arab World, United Nations Conference on Trade and Development</p><p>(UNTCAD), World Bank, International Monetary Fund (IMF), Economic and Social</p><p>Commission for Western Asia (ESCWA) Institute,books, international reports, articles, and FDI</p><p>websites researches. For more details there was a screening of the GCC countries websites, and</p><p>other reliable investments agencies. Nevertheless, the evaluation of that empirical data for the</p><p>business environment in the Arab World was through my background knowledge and</p><p>1</p></li><li><p>7/29/2019 FDI in the Arab World Overview</p><p> 2/12</p><p>interpretation of the Arab countries situation and culture experience.</p><p>However, Global FDI flows rose to $1.24 trillion in 2010, but were still 15% below their pre-</p><p>crisis average. This is in contrast to global industrial output and trade, which were back to pre-</p><p>crisis levels. The UNCTAD estimates that global FDI will regain its pre-crisis level in 2011,</p><p>increasing $1.41.6 trillion, and approaching its 2007 peak in 2013.</p><p>This research consists of four chapters, and in regards to the essential conclusion of those four</p><p>chapters. The first chapter concentrates on former recent scholars studies of the FDI analysis are</p><p>done in the Arab World and the scholars theories of the FDI. The recent research of (Krogstrup &amp;</p><p>Matar, 2005) on the FDI and growth through absorptive capacity in the Arab world showed that</p><p>the performance of the Arab World is very poor in attracting FDI inflows relative to other</p><p>developing countries since the early 1990s, and they receive only a small fraction of FDI inflows</p><p>comparing to developing countries, both in absolute terms and relative to GDP. Only Jordan, and</p><p>very recently also Tunisia and Morocco, appear to have performed well above the average ratio</p><p>as compared with the rest of the world in its ability to attract FDI. In addition, I discuss the four</p><p>types theories (the market imperfections theory, international production theory</p><p>internationalization theory and the eclectic paradigm theory) which were developed by</p><p>Hymer, Dunning, Buckley and Casson.</p><p>In other words, the second chapter focuses on the analyzing of the empirical data of FDI during</p><p>the period 2006-2010 by using the framework of the UNCTAD that makes the comparison</p><p>between inflows and outflows of the developed economies and developing economics. However,</p><p>the FDI analysis of 2010 shows for the first time developing economies are absorbed close to</p><p>half of global FDI inflows comparing to the developed economies. The developing countries</p><p>have not been spared from the effects of the crisis, but still they managed to deal with it better</p><p>than the developed world, both in terms of economic growth and attracting FDI. while the Arab</p><p>World consider as developing economy. Nonetheless, Saudi Arabia was ranked among the 10 top</p><p>countries of FDI recipient. So, the concept of transforming the FDI to developed world is not any</p><p>more reliable. In addition, I explained the estimation of the increasing and decreasing inflows</p><p>and outflows of the FDI statistical data of the 22 Arab countries through the same period and the</p><p>2</p></li><li><p>7/29/2019 FDI in the Arab World Overview</p><p> 3/12</p><p>FDI percentage from the GDP of each country during 2008, 2009 and 2010. Also, I found out the</p><p>FDI inflows to the Arab world reached its highest peak ever in 2008 ( See Table 1). Arab world</p><p>countries have witnessed a major increase in the level of FDI inflows over the past decade. FDI</p><p>inflows to Arab countries from 2006 till 2010 were fluctuating from one year to the other. The</p><p>GCC countries are the highest receiver of FDI in the Arab World during the last five years; it</p><p>increased from 54% to 60% in 2006 till 2010. This showed the economic stability and</p><p>development of economic situation in the GCC region to confirm that. The FDI and stocks is</p><p>concentrated in few countries for instance about 80% of the FDI in 2010 is concentrated in six</p><p>countries: Saudi Arabia 42%, Egypt 10%, Qatar 8%, Lebanon 7%, United Arab Emirates 6% and</p><p>Libyan Arab Jamahiriya 6%. The More Diversified Economics MDEs (Algeria, Egypt, Libyan</p><p>Arab Jamahiriya, Morocco, Tunisia, Iraq, Jordan, Lebanon, Palestinian Territory, and the Syrian</p><p>Arab Republic) were 39% during 2006 and decreased by 6% in 2008 and it recover back this</p><p>decline in 2010 to become 38% in comparing to GCC and Least Developed Countries</p><p>LDCs (Mauritania, Comoros, Djibouti, Somalia, Sudan, and Yemen). The reason of declined in</p><p>MDEs comparing to LDCs and GCC region in the Arab world it was because of the</p><p>attractiveness of FDI inflows to the GCC region.</p><p>Table 1FDI inflows in Arab Countries, 2006-2010 (Millions of US dollars and % GDP)</p><p>FDI inflows (Millions of US$) FDI/GD (perce tage)</p><p>Region / Economy 2006 2007 2008 2009 2010 2008 2009 2010</p><p>Bahrain 2 915 1 756 1 794 257 156 8.19 1.25 </p><p>Kuwait 121 112 - 6 1 114 81 0.00 1.02 </p><p>Oman 1 588 3 431 2 528 1 471 2 045 4.87 3.22 </p><p>Qatar 3 500 4 700 3 779 8 125 5 534 3.41 8.26 </p><p>Saudi Arabia 17 140 22 821 38 151 32 100 28 105 8.28 9.78 4.96</p><p>United Arab Emirates 12 806 14 187 13 724 4 003 3 948 5.25 1.74 </p><p>GCC Economy 38 070 47 007 59 970 47 069 39 870</p><p>Mauritania 106 138 338 - 38 14 9.43 -1.27 0.37</p><p>Comoros 1 8 8 9 9 1.42 1.70 1.74</p><p>Djibouti 108 195 229 100 27 23.17 9.23 </p><p>Somalia 96 141 87 108 112 ... </p><p>Sudan 3 534 2 426 2 601 2 682 1 600 4.48 4.87 4.66</p><p>Yemen 1 121 917 1 555 129 - 329 5.78 0.49 </p><p>Least developed countries 4 965 3 825 4 817 2 990 1 433</p><p>Algeria 1 795 1 662 2 594 2 761 2 291 1.52 1.96 1.44</p><p>3</p></li><li><p>7/29/2019 FDI in the Arab World Overview</p><p> 4/12</p><p>Egypt 10 043 11 578 9 495 6 712 6 386 5.83 3.55 2.92</p><p>Libyan Arab Jamahiriya 2 013 4 689 4 111 2 674 3 833 4.41 2.74 </p><p>Morocco 2 449 2 805 2 487 1 952 1 304 2.77 2.16 1.36</p><p>Tunisia 3 308 1 616 2 758 1 688 1 513 6.46 3.67 3.41</p><p>Iraq 383 972 1 856 1 452 1 426 2.14 2.23 1.74</p><p>Jordan 3 544 2 622 2 829 2 430 1 704 12.45 9.67 6.17</p><p>Lebanon 3 132 3 376 4 333 4 804 4 955 14.41 13.75 12.65</p><p>Palestinian Territory 19 28 52 265 115 </p><p>Syrian Arab Republic 659 1 242 1 467 1 434 1 381 2.79 4.76 2.34</p><p>More diversified economies 27 345 30 590 31 981 26 169 24 907</p><p>Total of FDI inflows to Arab World 70 380 81 422 96 767 76 228 66 210 4.97 4.70 3.24</p><p>Furthermore the basic goal of the third chapter in this research was focusing on FDI in Arab</p><p>World through studying the role and significance of FDI flows in the economical performance by</p><p>sectors and sources of the six countries GCC economy. In addition, to political side, and the new</p><p>policies and regulations that have been followed in the recent years to encourage the FDI in the</p><p>GCC economy. Also, I showed the effect of Dubai Crisis and the declined price of the oil cost in</p><p>2009 on the FDI inflows and outflows of the GCC region experience. However, I found the</p><p>majority of foreign investment trend by sectors are concentrated in Arab countries focusing</p><p>mainly on the real estate, oil and gas, and hotel sectors. In addition to the big share of FDI</p><p>inflows to the GCC region by sources was from non-Arab countries USA first rank followed by</p><p>United Arab Emirates and Kuwait, respectively from Arab countries.</p><p>Finally, in the fourth chapter I interpreted the empirical data through my background knowledge</p><p>about country specific business environment based on the statistical data of the six dimensions of</p><p>WGIs (Voice and Accountability, Political Stability and Absence of Violence/Terrorism,</p><p>Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption) in</p><p>linked with the FDI inflows, Arab literacy and Arab Spring (Arab Revolution, 2011) after the</p><p>previous interpretation, I tried to show the dimensions correlation and I also estimated the</p><p>eleventh Doing Business topics of 2012 (starting a business, dealing with construction permits,</p><p>getting electricity, registering property, getting credit, protecting investors, paying taxes, trading</p><p>across borders, enforcing contracts and resolving insolvency) were mainly aggregated by the</p><p>4</p></li><li><p>7/29/2019 FDI in the Arab World Overview</p><p> 5/12</p><p>World Bank captured by the multinational agencies and the non-governmental organizations</p><p>(NGOs). The interpretation results shows the business environment and the economic</p><p>performance of the Arab World still improving and the new policy and regulation that have been</p><p>implemented in the Arab countries increased the attractiveness level of the FDI toward Arab</p><p>countries. Also, Despite the low rank of WGI in Arab World and the correlation of investment in</p><p>some of the six indicators between countries in the Arab world especially in the highest receiver</p><p>of FDI flows and in particular the GCC region the Business Doing reported great rank in regards</p><p>to the proper business atmosphere for foreign investors. The six of the Arab countries Saudi</p><p>Arabia, UAE, Qatar, Bahrain, Tunisia and Oman have climbed the scale on the ease of doing</p><p>business ranked among the top 50 out of 183 countries, while Algeria, Comoros Mauritania, Iraq</p><p>and Djibouti ranked very low on the same scale (see figure 1). The new policy and modification,</p><p>which has been confirmed from World Bank by the Doing Business reports about the business</p><p>environment of Arab World, show that their domestic laws in these countries pay attention to</p><p>foreign companies to increase the investment in Arab world.</p><p>Figure 1How Arab World Rank on the Ease of Doing Business, 2012</p><p>5</p></li><li><p>7/29/2019 FDI in the Arab World Overview</p><p> 6/12</p><p>In the End, I found out the 2010 WGIs can give the foreign and local investors a general</p><p>overview about the situation of the Arab World, but still isnt confident enough to be reliable for</p><p>some countries special in case of Tunisia, and it can be exaggerating from the expert who made</p><p>the survey or the local citizen and institutes have the fear to contribute in give this information.</p><p>6</p></li><li><p>7/29/2019 FDI in the Arab World Overview</p><p> 7/12</p><p>Bibliography</p><p>About League of Arab states, www.arableagueonline.org.</p><p>Abu Dhabi gives Dubai $10 bln bailout, www.finanznachrichten.de. 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