The foreign direct investment (FDI) in the Gulf Cooperation Council (GCC) states dropped by 14.6 percent in 2014, said Tuesday a report by the National Bank of Kuwait citing UN data.
The NBK report stated that fell for the fifth consecutive year in 2013 to USD 24 billion against USD 28 billion in 2012, down 14.6 percent, according the United Nations Conference on Trade and Development (UNCTAD).
"This comes despite an improvement in world FDI, which increased by 9.1 percent from its level in 2012 to reach USD 1.5 trillion in 2013. As a result, the GCC's share of world FDI has fallen to 1.6 percent - having been as high as 4.2 percent in 2009," reads the report.
The NBK pointed out that part of the decline in FDI to the GCC can be explained by the completion of major projects as well as the social tensions and political uncertainty that have affected the broader Middle East.
"Nevertheless, the GCC, with its ample hydrocarbon resources has, to a large extent, been buffered by the regional unrest, and so the reduction in FDI is likely more a reflection of the tailing-off in investments following the completion of major hydrocarbon projects and the reduction of foreign exposure to certain sectors within GCC economies." The report noted that the UAE led the GCC in FDI for the first time in 2013, with USD 10.5 billion, pushing Saudi Arabia into second place.
"Along with Bahrain, the UAE is the only country to record four consecutive years of increasing FDI inflows, as investors return to the property, manufacturing and services sectors and as the country gears up for the Dubai World Expo in 2020," said the report.
Meanwhile, Saudi Arabia, which is historically the region's largest recipient of foreign investment, has experienced five consecutive years of declining FDI flows. FDI decreased by 24 percent from USD 12.2 billion in 2012 to USD 9.3 billion in 2013.
The report unveiled that the FDI flows to Kuwait are estimated to have decreased in 2013, to USD 2.3 billion.
"Nevertheless, Kuwait has, since 2009, experienced something of resurgence in FDI as a string of acquisitions by mainly GCC based-entities helped to boost investment in the country. The most high profile of these was Qatar Telecom's purchase of Wataniya in 2012 for USD 1.8 billion.
"The government, for its part, last year unveiled an update to its FDI law of 2001 in order to streamline the FDI approvals process and expand the list of eligible investments. A fully resourced and independent public authority (KDIPA) for the promotion of FDI has been set up to replace the previous FDI office and approvals committee. The unit will have full control over its own budget and hiring and be able to assess and approve FDI applications more quickly through the creation of a 'one stop shop.' It went on to say that Kuwaiti "Minister of Finance will continue to preside over the new structure. Foreign investors will continue to enjoy exemptions from income tax and other taxes for a period of ten years." The report added that the new regulation has also coincided with a move by the Central Bank of Kuwait to liberalize financial services in the country.
"Foreign banks will now be able to apply for a license to open multiple branches having been limited to just a single branch previously," reads the report.
The data also showed that Kuwait emerged once again as the GCC and the Arab world's largest overseas investor, with USD 8.4 billion in FDI outflows in 2013.
"The country almost tripled its investments on the year before. Through its sovereign wealth fund, the Kuwait Investment Authority (KIA), and the investments of private individuals, Kuwait has consistently topped the regional rankings in FDI outflows," reads the report.
"Qatar and Saudi Arabia were the second and third largest overseas investors, respectively, with USD 8 billion and USD 5 billion in FDI outflows. Qatar more than quadrupled its outflows." Furthermore, the report disclosed that the aggregate GCC outflows increased by 93 percent from the year before to reach USD 26.7 billion as the member states continued to direct their burgeoning foreign exchange reserves into overseas projects and acquisitions.
"GCC petrochemicals producers, for example, have increasingly featured as overseas investors, with US companies involved in the shale gas revolution in that country proving particularly attractive propositions, "Saudi Basic Industries Corporation (SABIC), Qatar Petroleum and Abu Dhabi's state-owned International Petroleum Investment Company have all been active in downstream processing or unconventional energy-related investments in North America," said the report.