Investing in the growth revival: international economic analyst Moin Siddiqi presents a special end-of-year roundup and looks at what 2011 may have in store for the regional economy.

Author:Siddiqi, Moin
Position::Business: ECONOMY 2011
 
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Foreign direct investment (FDI) flows to energy-rich the Middle East and North Africa (MENA) region were hindered during 2009, but not halted by credit crunches and the global recession. Trends for project finance this year suggest that FDI, especially in the Gulf countries led by Saudi Arabia, has regained upward momentum. The International Monetary Fund (IMF) projects an economic growth rate of 5.1% for the broader MENA region in 2011, which, combined with vast natural resources and an expanding consumer market, make this region attractive for strategic foreign investors.

The latest published figures (for 2009) from the Geneva-based United Nations Conference on Trade and Development (UNCTAD) show that FDI to the 18 MENA economies, including the Palestinian Territory, fell by almost 24% year on year to $86.58 billion, after six years of consecutive increase. This compared with an average of $101.46 billion between 2006 and 2008. Flows to all developing economies fell by $151.66 billion, or 24%, to $478.35 billion, with Latin America and the Caribbean and Eastern Europe hit the hardest, according to UNCTAD.

As elsewhere, 'deleveraging' pressures (i.e. a sharp decline in cross-border funding) and risk aversion adversely impacted mergers and acquisitions (M&As) activity and development projects in the region that involved significant external capital. In the case of Turkey, Tunisia and Morocco, a weakening international trade also weighed on export-oriented FDI. The value of crossborder M&A sales in the region (excluding Maghreb North Africa) plunged by 78% to $3.54 billion, affecting all industries except utilities (electricity, gas and water).

FDI inflows declined in all of the MENA countries except Algeria, Iran, Kuwait, Qatar and Lebanon. Qatar recorded a stunning 112% rise of FDI to $8.72 billion, chiefly in the liquefied natural gas (LNG) sector, with two more LNG trains due onstream by end-year. Qatargas CEO Sheikh Khalid bin Khalifa Al Thani said: "To help the State of Qatar achieve its vision, Qatargas embarked on an expansion programme to build the world's largest LNG trains. Mega-trains, as we like to call them, produce 7.8 million tonnes of LNG per year."

FDI to Iran almost doubled from a relatively low base ($1.61 billion) in 2008 to $3 billion, reflecting growing Chinese involvement in the hydrocarbons sector, whilst inflows to Lebanon rose by 11% to $4.8 billion, largely in the real estate and services sectors. Algeria received slightly more FDI flows totalling $2.84 billion, despite recent measures deemed investor unfriendly. Kuwait--after receiving no FDI in 2008--managed to attract $145 million last year, but still lagged well behind other MENA countries except the Palestinian Territory, which received $33 million.

The biggest absolute falls in FDI inflows were in Turkey, the United Arab Emirates (UAE) and Egypt, declining by $10,537 million, $9,697 million and $2,783 million...

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