The United Nations Conference on Trade and Development (UNCTAD) revealed, in its handout number 1/2006, that the global FDI flows grew by 29% in 2005, up to $897 billion or just 2% of the world GDP, in turn amounting to $44,168 billion according to the IMF estimates. More specifically, 70% of the total global FDI were funneled to the developed countries, while the remaining $324 billion were channeled and distributed to the developing countries, South East Europe, and independent states, including the Russian Federation, as follows: 53% for Asian and Oceanian countries, 22% for Latin American countries, 16% for South East Europe, and 9% for the African states. As for West Asia group (comprising 11 Arab States in addition to Turkey and Iran), it only received 8% of the total global Foreign Direct Investments (FDI).
Back in 2004, and as revealed the then available data on FDI in 13 Arab countries (Algeria, Bahrain, Egypt, Jordan, Kuwait, Libya, Morocco, the Sultanate of Oman, Saudi Arabia, Sudan, Syria, Tunisia, and Yemen), the FDI flow to the Arab States apparently accounted for $8.8 billion, while the outflow stood at $5.2 billion. In other words, the FDI-to-GDP ratio equaled there some 2.3%, which is obviously higher than the aforementioned 2% world average. Despite this relatively encouraging situation, the Arabs still call for more FDI. In this regard, we cannot but ask the following question: Why do we need more FDI? Is it because chasing the foreigner and running after his investments and advices have become nowadays a fashionable means to deflect attention from our high-ranking officials, who must, by themselves, promote development in the Arab countries, where the production structures are still imbalanced and the human resources seeking a productive work for themselves and their economies are squandered? In truth, God has endowed us with remarkable natural resources, mainly oil and gas. Without them, we wouldn't have compensated for the 2004 $118 billion resource deficit by a "surplus" expected to have swollen further in 2005. Alas, the Arab countries failed, as a group, to invest their savings in 2004 - a trend unlikely to have changed in 2005. From $870 billion in 2004, the Arab GDP is forecasted to have climbed to $922 billion in 2005. Likewise, with the gross public and private consumption totaling some $576 billion in the Arab countries, the total savings are likely to have reached $294 billion, equivalent to 34% of GDP. As for the total Arab investment spending, it equaled $176.5 billion or just 20% of the Arab GDP. But if we add the net income generated by the factors of production, the cornerstone of the 5-billion-dollar Arab investments abroad, we notice that the 122-billion-dollar surplus financial resources generated by the local Arab investments were searching for investment opportunities abroad.
With no doubt, such figures mask the disparities among Arab countries. But truthfully speaking, only nine countries, i.e. Jordan, Tunisia, Djibouti, Sudan, Iraq, Lebanon, Egypt, Morocco, and Mauritania, grappled in 2004 with a resource deficit of $20.4 billion, 70% of which was registered in Lebanon and Morocco. As for the other Arab countries, they sustained a surplus of $138 billion.
Accordingly, the Arab region does not seed financing. But does it need FDI?
As we all know, the Foreign Direct Investments are additional resources to the recipient economy. So, if the available resources are efficiently used and absorbed at work, the country's productivity and GDP can be enhanced. In parallel, three basic factors help attract FDI. First, the political framework in the host country, i.e. political stability, laws and regulations governing the foreign companies' activities, privatization, regulated market competition, exchange rate, foreign trade, and taxes. Second, measures to facilitate the work of investors, such as bureaucratic and administrative practices as well as social and entertainment services. Third, the economic factors that specify the kind of direct investment in three fields: market-oriented investments relying on the per capita income growth and free trade areas; investments favoring an effective production in terms of costs of labor force, infrastructure, and transportation means within the country and beyond with the trade partners; and finally, investments requiring resources and assets, mainly natural resources. With no doubt, all these factors play an important role in attracting or driving foreign and local investors away.
For instance, the market-oriented foreign direct investments are not funneled to most Arab countries, where markets are small. Though the Great Arab Free Trade Area (GAFTA) was established, the inter-Arab trade is still hindered. Its total size has certainly grown. But its share of the total foreign trade is still at a standstill.
In short, attention is drawn to the FDI. As proof, many seminars and conferences are held on this issue, mainly the "Ministerial Meeting for MENA Investment Program" the Jordanian Investment Promotion Corporation held in Jordan on February 14, 2006 in cooperation with the Organization for Economic Cooperation and Development (OECD). Nonetheless, we still need accurate information on the flow of Arab and foreign financial resources, their size, the recipient countries, and concerned sectors. In addition, field studies need to be conducted at the level of Arab States and some foreign countries so as to determine the factors that either attract or deter the Arabs and foreigners from investing further in the Arab world. Without such accurate, comprehensive, and modern information on any issue, especially on foreign investments and the motives and demands of investors, whether foreigners or local, our deliberations will remain futile, trivial, and of no avail.

Ali Toufic Sadek Al-Hayat
* Mr. Ali Toufic Sadek is an economic consultant at the Canadian Institute for Middle East Studies.
[daralhayat.com]