Investors shy away from unrest

Foreign investment flows into Egypt, Bahrain, Syria and Yemen are expected to be low this year as investors steer clear of signs of unrest, a UN official says.

Any dip in foreign direct investment (FDI) is a concern at a time when regional governments are increasing public spending in a bid to create jobs and improve living standards.

"Syria is a real problem," said Nazha Benabbes Taarji-Aschenbrenner, the officer in charge of the investment and enterprise division of the UN Conference on Trade and Development (Unctad). "I don't know how [FDI] can pick up. Bahrain is also worrying. This instability factor will certainly have some effect, but we don't know yet to what extent."

Egypt and Yemen would also be affected, she said on the sidelines of the Annual Investment Meeting in Dubai.

High government expenditure on subsidies and other incentives in Egypt, Syria, Bahrain and Yemen is being complicated by cooling economic growth and growing fiscal deficits.

Globally, FDI is expected to rise moderately to between US$1.3 trillion (Dh4.77tn) and $1.5tn this year, from $1.2tn last year, according to Unctad. A strengthening world economy, higher corporate profits and improved business confidence will encourage investment, the agency forecasts.

But those countries plagued by unrest are likely to miss out on increasing flows of investment to emerging markets.

Before the recent turmoil in parts of the Middle East and North Africa, much of the region had been taking steps to open their economies to foreign investors. Creating a foreign exchange market, slashing taxes and streamlining business regulations made Egypt the darling of the global investment community.

Bahrain regularly won plaudits as the freest economy in the Arab world, while Syria last year relaxed limits on foreign ownership of local banks.

Yet a desire for economic and political reform triggered varying levels of citizen unrest in those economies.

"You might have beautiful rules in place, but where sometimes there is a problem is the implementation," said Mrs Benabbes Taarji-Aschenbrenner.

Officials in countries affected by less serious instability say some investors are increasing their scrutiny of investment decisions.

In Jordan, several foreign companies opted to delay or abandon decisions to invest, said Nour al Hmoud, the director of the investment promotion department at the Jordan Investment Board.

But generally, those investors aware of the country's stability were pursuing plans, she said.

"There's some short-term impact on inflows, but for many companies Jordan is still on their list of places to be," she said.

FDI in Morocco surged 30 per cent last year from the previous year, according to Fathallah Sijilmassi, the general director of the Moroccan Investment Development Agency. The agency has had to reassure some investors after receiving inquiries from prospective investors asking about the security situation in the country, he said.

"The revolution in the region has encouraged Morocco to accelerate the pace of reform, although the process of reform had already started years ago," he said.

The country is pinning its hopes on growing interest from Brazil, Russia, India and China as austerity measures weigh on Spain and France, two of its biggest investment partners of the past decade.

tarnold@thenational.ae