The "bitter reality"
In the wake of the US attacks on Iraq, Arabs are exploring home-grown ways of nurturing investment in the region. Shamel Darwish reports from Dubai
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From top: Donald Rumsfeld and Saudi Arabia's Prince Abdullah meet in the kingdom; Jay Garner visits an oil refinery in Basra; burning Iraqi currency in Baghdad
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Chronic economic decline has long been one of the Arab world's most insurmountable problems. Until recently, it was believed Arab states could appeal to patriotic sympathies to urge wealthy Arabs to reinvest a portion of their enormous assets abroad at home. Though it appeared simple, the strategy has not paid off.
Recent events have not only highlighted the Arab world's inability to handle the political and social crises that have arisen over the past 50 years but have demonstrated the region's economic failures as well. Dubai, the Gulf emirate that has made its mark on the global economy as one of the world's most important financial markets, has just hosted the International Investment Summit. Beginning on Saturday and lasting three days, it gathered prominent Arab, regional and international economic experts to discuss opportunities for investment in the Arab world in general and the Gulf in particular. Interestingly, they did not discuss how to repatriate Arab assets abroad, which are estimated at over a trillion dollars.
Representatives of major economic powers attributed the relative paucity of foreign investment in the Arab world to "bureaucratic obstacles and nationalist perceptions". Arab speakers confirmed this "bitter reality" and urged the opening of all possible avenues to foreign investment.
Keynote speaker Donald Johnston, secretary-general of the Organisation of Economic Cooperation and Development (OECD), appealed to Arabs to create what he termed a unified, multi-sourced economic realm in order to diversify the sources of income in the region and reduce dependency on oil revenues. This, he said, would have "a great impact on drawing foreign investment to the region in view of its enormous market consisting of over 300 million people". He added that the Arab world must decide how to create a unique and attractive environment to draw a greater share of foreign direct investment (FDI).
In response to a question by Al- Ahram Weekly about the possibilities of bringing Gulf money invested in the West back to the Arab world, Johnston said, "Finding a solution to the reluctance of most Gulf investors to reinvest their money in the region necessarily entails creating a regional investment mechanism, which will be instrumental in encouraging Gulf assets to remain in the region instead of looking for investment opportunities elsewhere."
A second keynote speaker was Carlos Magarinos, director general of the United Nations Industrial Development Organisation (UNIDO), who highlighted various economic sectors in the region that could be better poised to receive investment. Heading the list was the energy sector, "not only in those fields related to the petroleum industry, but also in the fields of other modern energy resources". Other prime candidates were the IT and biotechnology sectors.
Nevertheless, Arab participants readily acknowledged that much work has to be done in order to better position the Arab world to receive a greater share of FDI. Addressing the opening plenary session, conference sponsor HH General Sheikh Mohamed Bin Rashid Al-Maktoum, crown prince of Dubai and UAE minister of defence, stressed that the ability of Arab nations to draw a higher ratio of the flow of international investments "will depend on [their] ability to introduce radical changes to make our region more attractive to international and regional investments alike".
So far, he said, the Arabs have had a very poor showing in this regard. "Changing the way we operate is vital to realising the necessary leap in attracting foreign investment. The performance of Arab countries in attracting FDI has been very modest, in spite of the considerable and diverse resources they possess. The Arab world is one of the most resource-rich areas of the world in terms of its human capital, natural resources and tourism potential. This should make it an oasis for significant investment opportunities. Yet, the performance of the region has not been commensurate [with] its enormous potential."
Al-Maktoum noted that the 22 countries of the Arab world have a combined Gross Domestic Product (GDP) of only 700 billion dollars, which is less than that of Germany. "And, these Arab states have attracted less than one per cent of the 735 billion dollars of global Foreign Direct Investment as of 2001."
Nothing, he said, could better underscore the need for urgent collective action in order to capitalise on the full potential of the region. "There are attractive investment opportunities in our region, but these must be nurtured. Therefore, governments must create systems whereby opportunities are identified and categorised. We need to ensure that opportunities are correctly matched with the input they require in terms of capital and/or skills and expertise."
However, he added, this is not enough. "It has to be the prime responsibility of both governments and the private sectors to work together to use all means at our disposal to showcase the opportunities that our region offers. These
The crown prince's appeal met an earnest and practical response. Saudi Arabia, Bahrain and the UAE launched a joint initiative to create an association to coordinate Arab efforts to attract global investment. This body would give much needed impetus to such efforts by helping individual governments reach their goals more effectively. The initiative was immediately seconded by Jordanian Minister of Industry and Trade Salah Al-Din Al-Bashir, who said that the association would be a "step in the right direction towards attracting foreign direct investment and promoting all possible forms of regional cooperation".
Echoing the Jordanian opinion was Mohamed El- Ghamrawi Daoud, chairman of the board of directors of the Egyptian General Organisation for Investment and Free Zones. In a joint statement with the other Arab delegates to the international investment summit, he said that he was fully aware of the urgent need for collective Arab action "to create a mechanism to realise the desired level of coordination between national investment policies, to serve as a platform for new initiatives to promote economic integration and investment, and to bolster efforts towards the transfer of technology and skills among the members of the proposed association". The statement further expressed these members' belief that "the desired mechanism must contribute to helping Arab countries alleviate the severity of the problems facing the Arab market through its focus on coordinating investment efforts within a regional framework."
His Highness Prince Abdallah Bin Faisal Bin Turki, chairman and governor of the Saudi Arabian General Investment Authority, was one of the signatories to the resolution to establish the proposed association. He told the Weekly that inter-Arab cooperation in coordinating and regulating efforts to attract FDI has been very limited. "The creation of the proposed Arab association to promote investment will both strengthen the efforts of individual Arab governments and of relevant Arab organisations, such as the Arab Organisation for Investment Guarantees and the Arab Monetary Fund. As such, it will contribute to creating a new and dynamic investment environment in the region and to developing the economic capacities of the region at the national and regional level."
In an interview with the Weekly, Essam Al-Janahi, chief executive officer of the Gulf-Bahraini Finance House, observed that Arab investments abroad suffered a loss of approximately $400 billion in 2000 and 2001. He put this figure in perspective: "The total wealth of the Gulf that has flowed out of the region is estimated at $700 billion from Saudi Arabia, $266 billion from the UAE, $163 billion from Kuwait and $65 billion from the rest of the Gulf countries." Other figures he cited were even more enlightening: "Privately- owned assets in the world total some $23.5 trillion. Arab private assets exceed $1.3 trillion. According to public sources, the wealthiest Arab investors invest no more than 15 per cent of their assets locally. The remaining 85 per cent they invest abroad."
Ziad Makkawi, executive managing director of SHUAA Capital, furnished a bleak portrait of the patterns of investment in the Gulf. In a paper delivered to the summit, he said, "The total volume of returns from the Regional Funds Administration of Mutual Funds in the region stands at about $145 million. These funds represent no more than 10 per cent of the savings in the Gulf, which are estimated at $38.8 billion." In addition, the volume of investment in local financial market funds stands at $41 billion, or only 15 per cent of the total deposits in the banks in the region, estimated at $275 billion. The returns from these funds do not exceed $102 million. He said that of the $134 billion in the Gulf retirement fund, only half is invested locally. Of this, only 20 per cent is administered by the private sector.
The Gulf financial expert continued: "The total investments from mutual funds in the Gulf account for only 0.02 per cent of the total such investments in the world, which stand at approximately $10 trillion ... In addition, the volume of mutual funds currently being administered in the Gulf stands at $10.5 billion while the volume of investment in the Gulf stock market has barely topped $10 billion, or five per cent less than the volume of regional savings."
In the face of these statements regarding Arab investment patterns, it is difficult to imagine how the Arabs intend to market themselves to others when they cannot keep their money at home, let alone attract a portion of Arab assets from abroad. So far, officials have failed to address this issue, and until they do it is difficult to determine what incentives Arab markets will offer foreign investment apart from political ambitions.
