Development projects across West Asia have been hit by tightening global credit markets and the global recession, particularly since the third quarter of 2008, an UNCTAD report has revealed.
According to the United Nations Conference on Trade and Development's annual review of investment trends, the number of international banks able or willing to lend to projects in West Asia has shrunk sharply.
The World Investment Report 2009: Transnational Corporations, Agricultural Production and Development says: "As a result, some major oil and gas,industrial and infrastructure projects have been cancelled or postponed, which is likely to cause a decline in FDI inflows to the region in 2009."
On the other hand, the fall in global equity markets offers new investment opportunities for Sovereign Wealth Funds (SWFs) and other government-controlled entities. Indeed, some funds, such as those controlled by the Government of Abu Dhabi, have already begun to make foreign acquisitions in support of their national economic development objectives. This could contribute to an increase in FDI outflows from the region in 2009, it said.
This downward trend brings to an end six consecutive years of growth in FDI inflows to West Asia: in 2008, incoming FDI rose by 16 per cent to $90 billion. This was largely the result of a significant 57 per cent rise in inflows to Saudi Arabia, which received a total of $38 billion for the year.
That consolidated the country's position as the region's top recipient. By contrast, FDI growth turned negative in the other two major recipient countries of the region — Turkey and the UAE.
In Turkey, inflows fell 17 per cent to $18 billion, after an exceptionally good 2007, when a number of big trans-border mergers and acquisitions took place in the financial sector. In the UAE, a 3 per cent decline in inflows was mainly due to the impact of global crisis on Dubai's tourism, real estate and banks, the report said.
Among other countries, Qatar saw a 43 per cent rise in inflows, mainly in liquefied natural gas, power, water, and telecommunications; Lebanon's inflows rose 32 per cent, led by real estate and Syrian Arab Republic attracted 70 per cent more funds, thanks to growing business opportunities due to the country's increasing economic openness and improving international relations.
However, FDI inflows rose only slightly in Bahrain, Iraq, and the Palestine. Inflows maintained their 2007 level in Jordan and fell in Kuwait, Yemen and Oman.
In terms of sectoral distribution of inward FDI, the main drivers were real estate, petrochemicals, refining, construction, and trade in Saudi Arabia and Turkey, the two leading recipient countries in the region, which together attracted 63 per cent of total inward FDI to the region in 2008.
FDI outflows from West Asia slumped in 2008 by 30 per cent to $34 billion, largely due to a significant decline (-45 per cent) in the value of net cross-border M&A purchases by West Asian transnational corporations (TNCs).
The strongest decrease in FDI came from Saudi Arabia (from $13 billion to $1 billion) and Qatar (from $5.3 billion to $2.4 billion).
