Abu Dhabi: Greater diversification of the economies, privatisation of industry and establishment of a monetary union are the essential factors in increasing foreign direct investment (FDI) in the Gulf Cooperation Council (GCC) countries, a leading economist said in the capital Tuesday.
Currently, the level of foreign investment in the GCC is unstable and mostly concentrated in the oil and gas sector, followed by the financial services and transportation sectors, said Dr Zayri Bel Kasem, head of economics at Wahran University in Algeria.
Significant strides
"The UAE and Saudi Arabia have currently made significant strides in diversifying their economies away from oil and gas, but even more is required to guarantee steady flows of FDI," Dr Bel Kasem told Gulf News.
He was speaking on the sidelines of the 19th International Conference on Investment Rules and International Agreements, which saw academicians and government representatives from across the Middle East and North Africa (Mena) discuss ways to improve the investment climate in the region.
Among GCC nations, Saudi Arabia and the UAE attract the most FDI while Kuwait and Saudi Arabia have the greatest amount of outbound FDI.
The flow of foreign direct investment into the GCC however declined by $9.3 billion between 2008 and 2009, and has shown relative instability, Dr Bel Kasam said.
"While part of this fall in FDI was precipitated by the economic crisis, there is still need for improvements to be made in the investment climate. For instance, privatisation in the GCC has been limited and cautionary, especially because the majority of companies are family-owned or part of the oil and gas sector. This means that administrative procedures are slow, and bureaucracy often hinders industrial efficiency," he added.
Judicial independence
The economist also added the establishment of a monetary union would contribute greatly to inbound FDI.
"The pegging of certain GCC currencies to the US dollar has been a roadblock to establishing a common GCC currency.
"However, if this could be overcome and the GCC currency were pegged to a basket of other currencies, the investment attractiveness of the GCC would improve significantly," Dr Bel Kasam said.
Possibility of business crime
Dr Samah Al Agha, professor of law at the University of Damascus, said the possibility of business crime and lack of judicial independence were also stifling the flow of global FDI into the GCC economies.
"Certain arbitrations and disputes have dragged on in GCC courts due to judicial interference. Foreign investors watch such cases carefully and tend to shy away from investing in countries where dispute settlement takes time. So there is a need to increase judicial independence and efficiency," she said.
