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

Abstract

Currently, Foreign Direct Investments (FDIs) are considered to be one of the most attractive tools of international business for large investments in foreign countries. International business is transforming the world in a way that has not been possible in previous years. On the other hand, FDI is growing faster than international production within the framework of international trade. This makes it possible for FDI to become a major instrument of spreading wealth. 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 $1.4-1.6 trillion, and approaching its 2007 peak in 2013. This positive scenario holds, barring any unexpected global economic shocks that may arise from a number of risk factors still in play. Concerning the Arab world for the last two decades the FDI has been grown very fast regarding to the new policy. The political instability discourages investors to pay attention to risky spot. Arab world FDI and stocks is concentrated in few countries and sectors, 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 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. 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. 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.