FDI Flows in the MENA Region: Features and Impacts
One of the most important aspects of globalization during the last three decades has been the spectacular surge of Foreign Direct Investment (FDI) and the increasing role emerging markets have played in recent years. The research examines the significance of MENA FDI flows by evaluating the impact of they have on economic growth, employment, technology transfer, productivity, infrastructure, trade, and other side effects.
Some of the more salient findings of the paper include:
Although FDI inflows for MENA countries have increased considerably, especially since 2003, they were only 5.5% of total FDI flows in comparison to the peak of 20% reached in the early 1980s.
Corruption, bureaucratic red tape, and trade protection, in addition to political instability, are the primary reasons why the MENA region receives less FDI than other developing regions.
The fact remains that outside the Gulf Cooperation Council (GCC), the MENA region is not an easy place to do business. Over half of these MENA countries are currently ranked in the bottom half in the ease of doing business.
While FDI flows have historically been directed toward the hydrocarbon sector (dominated by the Gulf States), a considerable proportion of the recent FDI flows to these countries have been in the form of greenfield investments.
FDI has not had any noticeable positive spillovers on technology and productivity in the region. This surprising result can be explained by the nature of some FDI concentrated in low technology sectors like textiles, extraction of some natural resources, and real estate.
The paper concludes that the outcome of the “Arab Spring,” whether it results in free market democracy or more authoritarianism regimes, will ultimately determine whether the MENA region (particularly outside the GCC), is heading. For the short run, however, FDI flows, moving in both directions, are likely to be muted until some semblance of stability returns to the region.