Foreign direct investment (FDI) inflows in the GCC increased by 12.4% to US$27.7bn in 2020, led by strong increases in inflows into Saudi Arabia, Oman and the UAE, according to the UN’s annual World Investment Report (WIR), released on June 21st. A combination of resistance from countries whose corporation tax is less than 15%, carveouts for important industries and difficulties in ratification by the US Congress are likely to limit progress towards this goal in Europe.

The region was a global anomaly; FDI inflows shrank by 35% worldwide on the back of the multifarious negative impacts of the coronavirus (Covid-19) pandemic. This reflected both ongoing policies designed to enlist foreign investment to help diversify oil-dependent economies, and acceleration of their implementation during 2020 in response to the fiscal strains caused by the health crisis and associated oil-price slump. The UAE remained by far the preferred destination, attracting 71.7% (US$19.9bn) of inward investment—up 11.2%, year on year, and exceeding outflows (US$18.9bn) for the first time since 2013, although more than half was accounted for by state-owned Abu Dhabi National Oil Company’s sale of a US$10.1bn stake in its gas-pipeline network. In the GCC, Saudi FDI increased by the most, up by 20.2% to US$5.5bn, validating the huge drive under way to harness foreign capital to realise Vision 2030 goals. Nonetheless, the figure remains less than one-fifth of that recorded a decade ago. The more dramatic change last year was in outflows, which shrank by almost two-thirds, to US$4.86bn, as the Public Investment Fund (a sovereign wealth vehicle) re-focused on domestic investments.

Of the smaller economies, only Oman’s FDI inflows increased, by an impressive 19.7% to US$4.1bn, partly reflecting its weak fiscal position and increasing use of public-private partnerships (PPPs) for infrastructure development. FDI inflows to Bahrain, with the UAE the most open of the Gulf economies, shrank in line with the global downturn, by 33%, to US$1bn. Meanwhile, Qatar’s inflows were registered as negative for the third consecutive year, by US$2.4bn, assumed to reflect withdrawals triggered by the recently ended economic boycott by several regional states. Kuwait, which routinely attracts very low levels of FDI owing to a highly unattractive investment environment, also recorded negative inflows. 

The upward regional trend is expected to continue in 2021 and beyond, as new laws passed last year—notably, the UAE’s FDI Decree, permitting 100% foreign ownership of onshore companies, and Saudi Arabia’s Private Sector Participation Law, setting out a clear framework for privatisation as PPPs bed in, and as global investment picks up.

We monitor the world to help you prepare for what’s ahead. Find out more about EIU Viewpoint, all the political, economic and market insights you need to succeed.