The World Investment Report 2006, issued by the World Conference on Trade and Development (UNCTAD), has depicted a rather positive picture of the developing countries at large, notably countries located in the Middle East.

Worldwide inflows of foreign direct investments (FDI) amounted to $916 billion, showing a rise of 29 per cent. The report attributed this phenomenal progress to three main factors, namely strong economic growth, global oil demand and an improved investment environment in the region.

Still, developing economies accounted for a hefty $334 billion or 35 per cent of total FDI inflows. Yet, the Middle East which includes the Gulf Cooperation Countries (GCC), accounted for $35 billion of total FDI inflows last year, thereby showing a growth of 85 per cent.

This is the best result achieved by any regional group. The UAE topped its fellow GCC states in the amount of inward FDI in 2005 by attracting a whopping $12 billion, showing growth of 43 per cent.

The UAE accounted for more than 34 per cent of total FDI to Middle East countries.

Saudi Arabia came second with FDI inflows of $4.6 billion in 2005, up from $1.9 billion in 2004. The extraordinary development reflects implementation of economic reforms ahead of joining the World Trade Organisation (WTO) in late 2005.

Qatar came third with FDI of nearly $1.5 billion. Bahrain occupied the fourth place with more than $1 billion of foreign investments, followed by Oman with $715 million and finally Kuwait with $250 million.

The report ranked the UAE No 15 worldwide on Inward FDI Performance Index in 2005, showing an advance of 10 positions. Not surprisingly, this marked the best result within the GCC. Likewise, Bahrain improved its ranking by 10 positions to occupy 22nd place worldwide.

The enhancement was made possible through steady economic reforms, which saw foreign firms gaining control of power plants and port management.

Qatar (54th), Oman (91st) and Saudi Arabia (110th) had a less convincing performance on the index. Still, Kuwait was ranked 132nd, one of the worst performances in the world amongst 141 nations covered in the rankings. Clearly, Kuwait needs to improve its business environment in order to entice international investors.

Potential forecast

Qatar topped regional countries by clinching the 10th place amongst 141 countries in the world on Inward Potential FDI Index. The index, which dates back to 2004, ranks countries on the basis of their ability to attract fresh investments based on 12 economic and policy variables. Qatar achieved the same outstanding ranking in the earlier report.

The UAE was ranked 27th, thereby losing four positions in a span of one year. Bahrain occupied 30th position. Saudi Arabia lost four rankings and therefore ranked 35th worldwide. Similarly, Kuwait lost two positions, hence ranked 42nd. Finally, Oman lost three positions and therefore ranked 57th, in turn the worst position within the GCC.

The 2006 report focused on FDI from developing and transition economies, noting growing appreciation amongst these countries to invest abroad. Global FDI outflows amounted to $779 billion (figure is different from inward FDI due to collecting and reporting methods of countries).

Services notably telecommunications, financial services and real estate made substantial gains. But the sharpest rise occurred in natural resources, a reflection of firm prices of oil and gas.

The results suggest that other countries are leaping further ahead in amending their business laws and worker productivity in order to attract foreign investments. This reflects growing appreciation of the role of FDI in helping address local economic challenges.

The writer is head of the Economic Research Unit, University of Bahrain.