Foreign Direct Investment in the Middle East and North Africa Region

 

Foreign Direct Investment in the Middle East and North Africa Region 

What are the FDI immediate/ medium term/ long term prospects for FDI in a) Egypt b) Libya c) Saudi Arabia?

The short-term objective for MENA countries will be that development will be hammered by ongoing political uncertainty.  The extensive supposition will be that essentials that culminated to the uncertainties will not go away briskly and that the perils of unrest will remain unless systems of government take important steps to contain the anomaly. Whereas stable in the short term, Saudi Arabia is the largest potential concern owing to its status as the world’s largest oil producer and also the regions largest economy. When it comes to the long-term objective, MENA nations exhibit high optimism and enormous prospects that could catapult the region strongly for the coming years. While this is dependant on how the government conduct it business, the number of significant benefits packages and economic compromises pronounce indicate how positively the government will react. Again, after the abyss of the monetary crunch and global meltdown, the corporate world is becoming more able while facing a better functional environment, nonetheless, the unrest implies that any optimism should be watchful (Almezaini, 2011)

 

How important is FDI to the development and overall well-being of these countries?

 

Foreign direct investment (FDI) will play a very significant role in the MENA business as it has been a global case. FDI has the capability of providing MENA organizations with new marketing channels as well as new markets, very cheap production facilities, application of new technology, skills products, as well as if financing. For MENA countries and the foreign firm which get the investment, it is capable of providing sources of improved technologies, processes, capital, products, as well as management skills. Therefore, it is capable of providing a robust impetus both to economic growth and development. Improved systems of information technology, reduction in the cost of worldwide communication have made the administration of foreign investments very acceptable as compared to the recent past. The great change in investment and trade policies as well as the authoritarian environment worldwide in the last ten years, including trade tariff liberalization, trade policy, lessening of restrictions on the foreign investment as well as acquisition in numerous countries, and the privatization and deregulation of a number of industries, has possibly been a very important catalyst for the expanded role of FDI (Barnard, 2009).

 

Foreign Direct Investment will also play an important role in the MENA’s economy since it will bridge the gap between these economies developed nations. In addition, multinational corporations are also significant since they create employment opportunities for the MENA countries’ population thereby improving general living standards of the people. FDI will also help to encourage specialization and comparative advantage principle which in turn improves global productivity and spur economic growth and development (Dhu, 2010). Saudi Arabia and some of the Middle East countries have been able to attract FDI because of their natural resources like oil and gas. With the resources in place, these countries have been regarded to poses high level of instability which is normally associated with investment risk as compared to the developed countries. This has become a challenge to them in discouraging FDI into the region. Risk assessment therefore is very useful to investors (Bremmer & Robert, 2009). Apart from the natural resources, these countries have also put their focus in creating a world class environment that makes the running of business easier and cost effective. This has been enabled further by several underlying factors such as the availability of low price facilities and services, low cost governmental financing opportunities, the leading in export and import size in the Arab world, within the first seven countries of least inflation rated in the world.

 

 

1. What measures can these countries take to attract FDI?

 

MENA nations should exhibit the highest goodwill and promise good faith and fairness in their business dealings to attract FDI. These countries should also formulate a policy that would help their financial systems avert risks that are related with currency convertibility and transfer.  They should put in place a universally accepted currency upon which revenues and expenditures are based by indexing local currency to foreign currency to provide a return to investors in their currency would help reduce the risk. But some nations may not readily adopt this policy because it is associated with “economic colonialism”. Another way out would be to adopt political risk insurance (Abdallah, 2001).

Foreign investment risks that emerge from cases of substantial contract changes should be curtailed through smooth transitions. New legal enactments or litigations through courts and the change of existing bylaws should not hamper the foreign policy. If the opposite we to be true this would significantly affect the foreign investment contracts in place because such actions are never anticipated or planned for. Incoming governments should not interfere with foreign investment agreements established under the previous regimes. Such reasons may be based on allegations of corruption involved during the contract set up.

Foreign investors often face environmental liability risks in the international community. The recent past have seen growing concerns regarding the profound dangers to which the global environment is exposed through industrial and societal activities. As a result, these Arab nations should develop laws that to regulate investments in projects to comply with safety standards and human rights requirements. Violation of environmental requirements is likely to expose foreign investors to uncertainty risks, which should not be the case if attraction of FDI is anything to go by (Development,  2001).

MENA countries are endowed with natural resources such as oil. But the energy has been seen to exhibit greater investment risks in contemporary society. A clear oil policy should be formulated to manage tensions and uncertainties that tend to shift with oil supply trends. These countries should therefore move fast to renegotiate existing contracts whenever oil markets tighten and push oil prices higher. Owing to the high global stakes in the energy sector, compounded with the lack of a universal regulatory mechanism on foreign investment in the sector, these nations should lead the world in formulating a framework that harmonizes the security threats in the energy sector; this will win foreign investors (Wilson, 2004).

 

 

Foreign investment has been said to be limited in practical scope due to institutional obstacles and uncertainties. This is one aspect that has caused objection to global diversification in the recent past. Some markets may too small, and relatively inefficient and less liquid to attract foreign investors especially from developed nations like the US. To attract FDI, these countries should collapse their currency into a single unit; this would give them the economic muscle and bargaining power to trade with large economies. Respective countries should desist from presenting misleading market capitalization and statistics under the pretext that banks and holding companies are majority shareholders (Ocampo, 2010) . Arab nations have the prerogative to embrace modern technology and best practices that would enhance market efficiency in terms how information flows and responses obtained, this is likely to attract an array of foreign investors (Moran,et al.  2008).The nations should also work around easing institutional rigidities and bureaucracy that make foreign investment an expensive venture. To attract massive foreign investment security ownership discrimination based on nationality, differential taxation based on investor nationality, and exchange regulations should be streamlined in favor of foreign investment. In the end, modern infrastructures should be put in place to enhance accessibility to markets, and first data from the ground (Mababaya, 2003).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

Abdallah, W. M. 2001, Managing multinationals in the Middle East: accounting and tax issues. Washington, D.C: Greenwood Publishing Group, US. Print.

Almezaini, K. 2011, Reformation in the Middle East – the Implications of the Region’s Political Unrest for Foreign Direct Investment. Available at: http://www.ibde.org/component/content/article/87-reformation-in-the-middle-east-the-implications-of-the-regions-political-unrest-for-foreign-direct-investment.html [Accessed July 21 2011]

Barnard, B, 2009, Dubai Separates DP World from Debt Troubles. The Journal of Commerce Online Available at:  http://www.joc.com/maritime/dubai-separates-dp-world-debt-troubles [Accessed July 21 2011]

Bremmer, I & Robert, J. 2009, The Rise and Fall of Resource Nationalism. Survival, Global Politics and Strategy 51 (2): 149–158

Dhu, A. 2010, Why invest in Saudi Arabia?  Available at: http://www.arriyadh.com/Eng/AbArriyad/Left/Investment1/getdocument.aspx?f=/openshare/Eng/Ab-Arriyad/Left/Investment1/Why-invest-in-Saudi-Arabia.doc_cvt.ht [Accessed July 21 2011]

Development, O. 2001. Foreign direct investment, development and corporate responsibility. Paris: OECD Publishing.

Moran, T. H., West, G. T., & Martin, K. 2008, International Political Risk Management: Needs of the Present, Challenges of the Future. Washington, DC: World Bank

Ocampo, J. A. 2010, Rethinking Foreign Investment for Sustainable Development: Lessons from Latin America. London: Anthem Press

Wilson, R. 2004, Economic development in Saudi Arabia. London: Routledge

Mababaya P. M, 2003, The Role of Multinational Companies in the Middle East: The Case of Saudi Arabia Florida: Universal-Publishers

 

 

 

 

 

 

 

 

 

 

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