GCC: the Next International
Investment Destination
Attracting International Investment –
the UAE Experience
Mohamed Ali Alabbar
Director General
Department of Economic Development
Government of Dubai
May 4, 2004
The UAE: A Success Story
UAE GDP in 2003 US $79 billions
UAE ranked as top investment
destination in the Arab world
One of the highest per capita incomes
in the world at nearly $19,000 in 2003
Average annual growth in GDP of 6 per
cent over ten years
A dynamic global economy
Strategic re-export market
Blue chip MNCs use Free Zones as strategic
access points for global markets
16 commercial ports with capacity of 70
million tons
Among top five locations in the world for ship
supplies and bunkering
Annual turnover in ship supplies of $300
million
Dubai’s trade in re-export rising on average
by 14 per cent per annum
A blue chip destination
UAE is the destination of choice for many
business sectors
Information Technology
Banking and Financial
Shipping and transportation
Oil & Gas
Media
…and more
Global endorsement
“Good infrastructure and a businessfriendly environment, particularly in the
free trade zones, have made the UAE a
very attractive place to invest for
companies wishing to serve the growing
markets of the Middle East, North Africa
and Asia.”
Source: IMF Country Report-United Arab Emirates, Article IV
Consultation
Sound fundamentals
“Executive Directors noted that the UAE’s
open, market-oriented economic system,
and the authorities’ sound economic
management have helped sustain robust
economic growth, low inflation and a
comfortable external position,
notwithstanding the wide fluctuations of
global crude oil prices over the years.”
Source: IMF Article IV Consultation
Successful diversification
100%
Non-oil % of GDP
90%
80%
70%
Oil % of GDP
60%
50%
40%
30%
20%
10%
0%
1993
2002
Huge potential
Third largest Arab economy after Saudi Arabia &
Egypt
$8.2 billion private investment in industry and other
productive sectors in 2003
Combined public and private investments - $17.4
billion in 2003 compared to $463 million in 1972
Reform process well underway with utilities
privatization and corporatization
Liberalisation of most sectors especially telecom
WTO member since 1996
Dubai International Financial Centre set to repatriate
billions of dollars of Arab funds
The UAE: A Success Story?
The most attractive country for FDI
flows – A Global ranking
1
China
2
India
3
United States
4
Thailand
5
Poland and the Czech Republic
7
Malaysia and Mexico
9
Singapore, UK and the Republic of
Korea
Source: UNCTAD 2004
Inward FDI Performance Index
Ratings
1988-1990
1991-2001
Bahrain
23
56
Qatar
110
98
Oman
32
129
Kuwait
102
132
UAE
92
136
Source: UNCTAD (Index covers 140 economies)
As per UNCTAD figures
The UAE is the least favored
investment destination
in the Gulf!
FDI as % of Gross Capital Formation
1990
2000
East Asia and Pacific
3.5
8.2
Europe and Central
Asia
0.4
13.6
Latin America and
Caribbean
3.8
19.1
Middle East and North
Africa
2.2
2.7
South Asia
0.5
2.3
-
12.3
Sub-Saharan Africa
Source: World Development Indicators from the World
Bank
In Sum
The UAE and the rest of the Arab World
have historically failed to capture their
fair share of global FDI flows
We are not alone
Inward FDI Stock as a percentage of the world’s total
UAE
0.02
Saudi Arabia
0.45
Bahrain
0.10
Kuwait
0.01
Oman
0.04
Qatar
0.03
Source: UNCTAD
So why the discrepancy
between potential and
reality?
The usual suspects
Limited liquidity of Arab
Stock Markets
Small economies
Family based businesses
not ready for transparency
Lack of integration of
regional stock markets
Ineffective public
enterprise reform and
privatisation
Mismatch between labour
skills and market needs
No database of skilled
educated labor for
recruitment
Political instability
Corruption
Inadequate reform of state
and its institutions
Insufficient liberalization of
trade, investment and
prices
Unsatisfactory labour
market reforms
The international perspective
Conflict and regional instability
Unpredictable macroeconomic conditions and
public policy choices
Weak institutions and high administrative
barriers
Inadequate infrastructure
Underdeveloped financial sector
Inadequate availability of a skilled and flexible
workforce
Sami Haddad, Director MENA Department
International Finance Corporation
What we need to increase the flows
Integration of regional financial markets
Improved quality of government
Elimination of red tape
Elimination of corruption
Enabling legal and regulatory
environment
And provide the catalyst
Employment growth needs to rise
sharply
Raise labour productivity
Higher investment
Reforms to energise the private sector
Raise efficiency with which labour and
capital are used
The Action Plan
Develop clear investment promotion
laws consistent with international best
practice
Create single central agency
responsible for FDI
Ensure sound regulatory framework to
protect investor rights
Introduce reforms on company
legislation
And a new philosophy
The promotion of entrepreneurship
The creation of new financial
instruments
Supportive role of multilateral agencies
Extensive role of knowledge
management
Promotion of entrepreneurship
Government and Investment Promotion
Agencies (IPAs) to market small
businesses
as investment opportunities
in terms of their products
putting them in touch with sources of FDI
Business plan competitions
Creating new financial instruments
Private equity instruments
Institutional support for such funds
Stronger regulatory and legislative
support for new products
Role of multilateral organisations
Lend credibility to operations
Share expertise
Link financing to microeconomic
financial fundamentals
Encourage good business practices
Role of knowledge management
Research and teaching of entrepreneurial
economics and finance
Creating programmes that encourage new
firm creation
Creation of regional training centres for small
businesses
Equity funds to link loans to firms that
participate in education programmes
Creation of institutions that leverage the
region’s potential and create more
competitive investment opportunities
Future UAE initiatives
Create a regional momentum for
securing greater FDI inflows
Lead the way by addressing critical
issues
Create a role model for the Arab world
Finally…
“The message emerging from this survey is
that countries are expected to intensify their
efforts to attract FDI, reflecting increased
competition worldwide for FDI projects….The
general expectation is that countries will
become more active in promoting FDI, in
particular, through further liberalisation
measures, additional incentives and
increased targeting.”
UNCTAD – Corporate Location 2004
Worldwide survey of 87 international direct investment location