FDI in the GCC Countries SAMA Quarterly Workshop 7 March 2016 - PowerPoint PPT Presentation

FDI in the GCC Countries SAMA Quarterly Workshop 7 March 2016 Salah Alsayaary 1

Agenda: • Concepts • Global Trend • GCC Trend • Aggregate • Country- Level • Factors Affecting FDI in GCC • Recommendations 2

Definition: The investment that is made by nonresident in another country while maintaining effective management control (at least 10 percent of the voting power according to the IMF). Types of FDI inward or outward Horizontal or Vertical Greenfield or Brownfield 3

“FDI has beneficial impact but it may have a cost..” Benefits: Costs : • • Technology and knowledge transfer. Hindering domestic investment in some cases. • • Job creation Adverse effects on the BOP • • Improving labor force skills It may have Negative Influence on Exchange • Improves the countries’ infrastructures Rates • • Diversification of revenues (corporate tax) Lower the comparative advantage of the country • Good effect on Balance-of-payments (BOP) 4

Global Trend World’s FDI Net Flow ($ bill) 2500 2000 36% 1500 Global FDI flows jumped 36% in 2015 to an estimated US$1.7 trillion ( UNCTAD, 1000 World Investment Report, 2015) 500 0 2010 2011 2012 2013 2014 2015 Source: WDI and UNCTAD 5

Global Trend FDI Net Flow (2014) FDI inflow 2015 Top 10 Economies (bill. $) East Asia & Pacific 33% France 44 Europe & Central Asia 21% North America 20% Canada 45 Latin America & Caribbean 19% Brazil 56 South Asia 4% India 59 Middle East & North Africa 2% Sub-Saharan Africa 1% Singapore 65 0% 10% 20% 30% 40% United Kingdom 68 Source: WDI Netherlands 90 FDI Net Flow (2010-14) China 136 High income Middle income Low income Hong Kong SAR, China 163 1% United States 384 31% 0 100 200 300 400 500 Source: WDI 69% Source: WDI 6

GCC Trend Net FDI Flow to GCC Countries FDI Stock in GCC Countries (Billion $) 60 500 416.4 40 400 20 300 0 200 24.7 2010 2011 2012 2013 2014 -20 100 United Arab Emirates Kuwait 0 Oman Qatar 1995 2011 2012 2013 2014 Bahrain Saudi Arabia Source: UNCTAD Source: UNCTAD Net FDI flow to GCC Countries FDI Stock in GCC Countries (% of total) 90 4.5 4.2 Bahrain, 5% 80 4 Kuwait, 4% GCC FDI ($ billion, LHS) 70 3.5 60 Oman, 5% Share of World FDI (%, RHS) 60 3 52 United Arab 50 2.5 Emirates, 43 28% Qatar, 7% 1.6 40 2 30 27 30 24 1.5 20 1 10 0.5 Saudi Arabia, 52% 0 0 Source: UNCTAD 2008 2009 2010 2011 2012 2013 Source: UNCTAD 7

GCC Trend FDI inflow (% gross fixed capital Distribution of FDI by Sector (2013) formation) 56% Qatar 35 22% 12% 30 29% 61% Kuwait 22.4 25 3% 20 26% 17% Saudi Arabia 15 26% 11.2 72% 10 Bahrain 5.3 27% 4.4 1% 5 1.7 1.4 39% 0 UAE 47% 8% Bahrain Saudi Kuwait Oman Qatar UAE -5 Arabia 0% 10% 20% 30% 40% 50% 60% 70% 80% Non-Tradables Commercial Services 2005-07 2012 2013 2014 Non-Oil Manufacturing Source: WDI Resources and Oil Manufacturing Source: the World Bank 8

Bahrain FDI Net Flow (Million $) FDI Stock (Billion $) 1200 20 989 958 1000 891 18.8 19 781 800 17.8 18 600 16.8 17 400 15.9 16 200 15 0 14 2011 2012 2013 2014 2011 2012 2013 2014 Source: WDI source: UNCTAD FDI Net Flow (% GDP) 3.10 3.01 3.00 2.90 2.90 2.83 2.80 2.69 2.70 2.60 2.50 2011 2012 2013 2014 Source: WDI 9

Kuwait FDI Stock (Billion $) FDI Net Flow (Million $) 19 3259 3500 18.1 2873 3000 18 2500 17 16.1 2000 16 15.4 1434 15.2 1500 15 1000 486 14 500 13 0 2011 2012 2013 2014 2011 2012 2013 2014 Source: UNCTAD Source: WDI FDI Net Flow (% GDP) 2.50 2.12 2.00 1.65 1.50 0.82 1.00 0.50 0.30 0.00 2011 2012 2013 2014 Source: WDI 10

Oman FDI Net Flow (Million $) FDI stock (billion $) 1800 1626 25 1600 19.7 18.5 1400 20 16.9 15.9 1200 1040 874 15 1000 739 800 10 600 400 5 200 0 0 2011 2012 2013 2014 2011 2012 2013 2014 Source: WDI Source: UNCTAD FDI Net Flow (%GDP) 2.50 2.08 2.00 1.36 1.29 1.50 0.90 1.00 0.50 0.00 2011 2012 2013 2014 Source: WDI 11

Qatar FDI Net Flow (Million $) FDI Stock (Billion $) 1500 1040 939 32 1000 31.5 31.5 31 396 30.9 500 31 30.5 0 29.9 30 2011 2012 2013 2014 29.5 -500 29 -1000 -840 2011 2012 2013 2014 Source: WDI Source: UNCTAD FDI Net Flow (%GDP) 0.80 0.55 0.50 0.60 0.40 0.21 0.20 0.00 2011 2012 2013 2014 -0.20 -0.40 -0.42 -0.60 Sourse: WDI 12

Saudi Arabia FDI Net Flow (Million $) FDI Stock (Billion $) 18000 215.9 220 16308 16000 207.9 210 14000 12182 199 12000 200 8865 10000 8012 186.8 190 8000 6000 180 4000 170 2000 2011 2012 2013 2014 0 2011 2012 2013 2014 Source: UNCTAD Source: WDI FDI Net Flow (% GDP) 3.00 2.44 2.50 2.00 1.66 1.50 1.19 1.07 1.00 0.50 0.00 2011 2012 2013 2014 Source: WDI 13

UAE FDI Stock (Billion $) FDI Net Flow (Million $) 140 12000 10488 10066 115.6 9602 120 105.5 10000 95 7679 100 85.4 8000 80 6000 60 4000 40 2000 20 0 0 2011 2012 2013 2014 2011 2012 2013 2014 Source: UNCTAD Source: WDI FDI Net Flow (% GDP) 3.00 2.71 2.57 2.52 2.50 2.20 2.00 1.50 1.00 0.50 0.00 2011 2012 2013 2014 Source: WDI 14

Factors Affecting FDI in GCC Countries Natural Resources: Rent 15

Factors Affecting FDI in GCC Countries Natural Resources: Oil Prices Foreign direct investment, net inflows (million, current US$) (LHS) US $/ bbl (RHS) 70000 120 60000 100 50000 80 40000 30000 60 20000 40 10000 20 0 -10000 0 Sources: WDI, OPEC 16

Factors Affecting FDI in GCC Countries Exchange Rates; Dollar Movement Foreign direct investment, net inflows (million, current US$) (LHS) Trade Weighted U.S. Dollar Index: Broad, Index January 1997=100, Monthly, Not Seasonally Adjusted (RHS) 70000 140 60000 120 50000 100 40000 80 30000 60 20000 40 10000 20 0 -10000 0 Sources: FRED, WDI 17

Factors Affecting FDI in GCC Countries Economic Growth 18

Factors Affecting FDI in GCC Countries Growth in Advanced Economies Foreign direct investment, net inflows (million, current US$) (LHS) Average GDP Growth in the G-7 (RHS) 70000 5.0 4.0 60000 3.0 50000 2.0 40000 1.0 30000 0.0 -1.0 20000 -2.0 10000 -3.0 0 -4.0 -10000 -5.0 Source: WDI & IMF 19

Factors Affecting FDI in GCC Countries FDI in major Emerging Economies FDI Net Flows to GCC Countries ($ million, LHS) FDI Net Flows to EM Countries ($ million, RHS) 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 -10000 source: WDI 20

Factors Affecting FDI in GCC Countries Trade Openness 21

Factors Affecting FDI in GCC Countries Inflation The Relationship between FDI and Inflation The Relationship between FDI and Inflation 30 5 BHR 4 20 ARE QAT 3 SAU 10 OMN 2 0 1 KWT -10 0 0 10 20 30 40 2 3 4 5 Foreign Direct Investment inflow (% GDP) Foreign Direct Investment inflow (% GDP) Source: WDI Source: WDI 22

Factors Affecting FDI in GCC Countries Government Expenditures The Relationship between FDI and Government Expenditure The Relationship between FDI and Government Expenditure 30 5 BHR 4 20 ARE SAU 3 10 2 OMN 0 QAT 1 KWT -10 0 10 20 30 40 50 15 20 25 30 Foreign Direct Investment inflow (% GDP) Foreign Direct Investment inflow (% GDP) Source: WDI Source: WDI 23

Factors Affecting FDI in GCC Countries Quality of Institutions The Relationship between FDI and Quality of Institutions The Relationship between FDI and Quality of Institutions 15 5 BHR 4 10 3 5 2 SAU QAT OMN ARE 0 1 KWT -5 0 0 .2 .4 .6 .8 1 0 .05 .1 .15 Foreign Direct Investment inflow (% GDP) Foreign Direct Investment inflow (% GDP) Source: WDI & Polity IV project and Authors Calculation Source: WDI & Polity IV project and Authors Calculation 24

Recommendations • It is important to learn from experiences when applying new policy regarding FDI. • Countries should build their FDI strategy based on their needs and set targets to be achieved by FDI promotion. • The focus should be on investments that provide added value and job creation in the economy. • It is important to have updated data for all aspects of FDI on aggregate and sectoral levels. • Provide more information about investment opportunities. 25