Five Arab nations alone attracted 88% of the Arab region's overall investment volume in 2022, while the rest accounted for a mere 12% share.
Ali Noureddine
This article was translated from Arabic to English
In 2022, the Arab region experienced a significant surge in foreign direct investment projects, witnessing a 74 per cent annual increase, totaling 1,617 projects by year-end, according to data from the Arab Corporation for the Guarantee of Investment and Export Credit. The cumulative worth of these projects reached $200 billion, marking a remarkable 358 per cent surge from the preceding year.
In 2023, the Arab region’s appeal to foreign investments continued, with a 28 per cent rise in project numbers during the initial third of the year compared to the corresponding period in the prior year. Moreover, the collective value of these projects rose by 70 per cent.
These figures underscore a striking and unexpected investment upswing in the Arab region, distinguishing it from the past decade. A closer examination reveals that this investment surge was primarily driven by five leading Arab nations: Egypt, Qatar, Morocco, Saudi Arabia and the United Arab Emirates.
In 2022, these five countries alone attracted investments totaling approximately $176.1 billion, comprising 88 per cent of the Arab region’s overall investment volume. In contrast, the remaining Arab nations collectively accounted for a mere 12 per cent share.
This trend underscores the influence of distinct circumstances, along with political and economic aspirations that propelled these five nations to spearhead the FDI boom in the Arab region. This phenomenon highlights a selective focus, with the remaining Arab countries not benefiting from this particular investment surge.
Egypt: Foreign investment to address hard currency scarcity
According to the report by the Arab Corporation for the Guarantee of Investment and Export Credit, Egypt secured approximately $107 billion in foreign direct investment projects in 2022, accounting for 54 per cent of the total investments in the Arab region. These figures stemmed from a series of overarching policies adopted by the Sisi government to address Egypt’s current liquidity crisis.
As widely recognized, Egypt has long grappled with mounting challenges in servicing its foreign debts due to limited inflow of foreign currency into its financial system. In the latter half of 2023, Egypt’s immediate debt obligations are estimated at around $3.86 billion, alongside longer-term debts of $11.38 billion.
Among these obligations, approximately $2.95 billion is earmarked for payments to the International Monetary Fund, while $1.58 billion is owed to foreign bondholders. This situation presents a significant conundrum, especially considering the complexities involved in renegotiating these debts in the absence of ample liquidity within the Egyptian government’s resources.
Against this backdrop, President Abdel Fattah al-Sisi’s administration is counting on attracting foreign direct investment to infuse essential foreign currency into Egypt’s financial ecosystem. In this vein, the World Climate Summit held in Sharm El-Sheikh played a pivotal role, with Sisi aiming to position Egypt as a key investment hub within the renewable energy sector.
The Egyptian government is strategically focused on privatizing a portion of state-owned companies across various economic sectors, aiming to attract Gulf capital inflows. Concurrently, it seeks to tap into the substantial investment potential within the real estate sector, evidenced by a Q1 2023 valuation of approximately $309.9 billion. This perspective sheds light on the assortment of incentives and concessions granted by the Egyptian government to real estate development firms and construction enterprises, alongside measures that ease restrictions on foreign property ownership.
A closer examination of FDI statistics in Egypt underscores the correlation between this governmental strategy and the surge in investment activity witnessed by the nation. Notably, a substantial segment of these investments originates from 15 accords inked between Cairo and major global firms specializing in hydrogen and green ammonia production. Additionally, 20 per cent of FDI emanates from the divestiture of state assets and enterprises.
The real estate sector contributes significantly, accounting for 9 per cent of total FDI influx, while 29 per cent stems from the establishment of novel enterprises. The establishment of new companies is buoyed by fresh tax incentives and facilitations implemented by the Egyptian government as part of its overarching drive to attract foreign investors.
Predicting the trajectory of the Egyptian financial crisis remains uncertain, mirroring the challenge of ascertaining the efficacy of policies pursued under the Sisi regime. Nevertheless, it is evident that Egypt has achieved notable advancements in the energy sector, particularly through securing new investments and project initiatives.
Yet, several Egyptian experts have expressed concerns regarding the implications of expanded public asset sales and government enterprise divestitures. Such actions, transpiring amid a financial crisis, could potentially lead to undervalued transactions. These experts contend that while such endeavors may provide immediate foreign currency reserves, they lack the sustainability required to address the underlying monetary predicament over the long term.
Qatar: Impact of infrastructure projects
Qatar ranked second in the Arab region in terms of FDI volume, attracting $29.8 billion in 2022. The surge in projects was propelled by the Qatari government’s substantial allocation of funds to ready the nation for the World Cup with the goal of expanding Qatar’s infrastructure and priming it to host an unprecedented number of visitors in November 2022. Practically, this expenditure drew in project-executing companies and tourism investments seeking to capitalize on the occasion.
It’s worth noting that prior to the World Cup kickoff, infrastructure initiatives included Doha International Airport expansion, doubling its capacity, along with the development of Lusail City, construction of the Doha Metro, establishment of Hamad Port, reconstruction of downtown Doha and free economic zone advancement. Reports by Deloitte indicate an allocation of nearly $200 billion by Qatar to fulfill these ambitious projects.
After the end of the Qatar World Cup, the nation is poised to reap the rewards of infrastructural progress, bolstered by investments attracted through the public-private partnership model. These collective investments will steer Qatar toward the vision of Emir Tamim bin Hamad Al Thani – to elevate Qatar into a regional hub for tourism and allure.
Investment promotion policies in Morocco
In 2022, Morocco secured the third spot in the Arab region in terms of foreign direct investment volume, amassing $15.3 billion. Unlike Egypt and Qatar, these investments weren’t tied to recent political shifts or extraordinary events. Rather, they were a product of Morocco’s ongoing strategies initiated since 2010, aiming to transform into an industrialized nation and reduce reliance on imports.
By 2023, Morocco reached first place in the African continent in terms of added value contribution to the manufacturing sector. This industrial surge resulted from a comprehensive range of measures implemented over recent years, including expanding investment in industrial infrastructure, enhancing governance and public administration systems, and extending incentives and support for foreign manufacturing enterprises.
This momentum allowed Morocco to continually attract new production lines for significant foreign industrial players, spanning sectors such as automotive manufacturing, aircraft components, fertilizers, apparel, electronics and renewable energy products. Throughout 2022, Morocco persisted in this trajectory, with the first five months alone attracting 40,000 applications for new company establishments.
Saudi Arabia tops the UAE in attracting foreign investment
The Kingdom of Saudi Arabia secured the fourth position in 2022, drawing in fresh foreign investments of nearly $13.2 billion, while the United Arab Emirates claimed the fifth spot with investments totaling $10.8 billion. Saudi Arabia has thus effectively emerged as a strong contender alongside the UAE, in its pursuit of attracting regional hubs for foreign corporations within the area.
It is worth noting that the UAE has traditionally served as the principal regional center, attracting the financial activities of foreign enterprises in the Middle East. The UAE’s historical ability to fulfill this role can be attributed to its robust financial system, open and liberal economy, as well as its provision of favorable tax incentives and adaptable administrative regulations.
Consequently, the UAE has often been regarded as a secure tax haven, appealing to foreign entrepreneurs seeking to invest in an attractive business environment, shielded from tax scrutiny in their home nations. Particularly, the real estate sector in Dubai has flourished as a magnet for foreign capital, fueling the influx of foreign direct investments.
Nonetheless, with the ascent of Saudi Crown Prince Mohammed bin Salman to power, a project was initiated to transform Riyadh into an alternative financial magnet, vying with Dubai for its erstwhile role.
In line with this endeavor, Saudi authorities mandated that foreign corporations relocate their regional centers to Riyadh to be able to engage with the Saudi public sector. Saudi Arabia also extended substantial tax incentives to foreign investors, including access to tax-exempt free economic zones. As a result, Saudi Arabia effectively achieved this milestone in 2022.
It is clear that the nations within the region are each employing diverse strategies to attract foreign direct investments, recognizing the potential economic growth, employment prospects and foreign currency liquidity they bring.
Nevertheless, the primary challenge remains the absence of participation from other Arab countries in this competitive arena, stemming from the lack of competitive attributes or coherent public policies to allure foreign investments. This underscores the need for other Arab nations to study and evaluate these five models, contemplating the feasibility of adopting similar policies or conceiving alternative strategies to attract foreign investors.