Movements of Capital
With little progress on the trade front and the declining relative importance of inter-Arab migration, the only dimension of regional integration remaining is capital movements. These did intensify progressively as non-oil Arab countries adopted orthodox fiscal and monetary policies, and the major oil exporters were flush with liquidity thanks to rapidly growing oil prices. Inter- Arab investment grew significantly until 2008 (with an exceptional peak in 2005, Figure 11.1), then collapsed in conjunction with the global financial crisis. Investment picked up again beginning in 2010, but then the effects of regional political turmoil began to be felt.
figure 11.1 Inter-Arab foreign direct investments ( fdi ) inflows ( usd
source: ARAB INVESTMENT AND EXPORT CREDIT guarantee corporation, 2011.
Data on the accumulated stock of inter-Arab investment to the end of 2011 (Table 11.4) point to a prevalence of cross investment within GCC member states, with Saudi Arabia being the main recipient country, due to its larger internal market. Outside the GCC, Sudan, Egypt, Lebanon and Algeria have been major recipients, while Jordan, Syria, Yemen, Tunisia and Morocco have remained at the margins.
Much of this distribution can be explained on the basis of the size of the respective economies, the attractiveness of investment conditions, political/ security considerations, or proximity. In this respect the figure for Algeria is a little surprising, because the country has neither a friendly investment environment nor proximity to the Gulf.
With respect to sectors, it is found that inter-Arab investment concentrates heavily in services (tourism, banking, telecommunications...), which absorb close to 70 per cent of the total, while industry absorbs about a quarter.
The ‘push factor’ of high oil prices generating large surpluses and abundant liquidity is confirmed by data for 2012 (Table 11.5), showing the large investment from Qatar in Algeria, Egypt and Tunisia. The contrast between Qatar and the United Arab Emirates (uae) is interesting; the latter being evidently more reserved about investing in the region.
It is clear from these figures that inter-Arab investment remains highly concentrated on a few large-scale projects, frequently initiated by state-owned entities. As such, it remains an unstable and occasional source of funding, albeit not an unimportant one. The role of private investors and industrial
table 11.4 Inward inter-Arab fdi stocks as of end 2on—individual country shares
SOURCE: ARAB INVESTMENT AND EXPORT
credit guarantee corporation, 2011.
enterprises is minor, and the employment effects on the receiving countries, effects about which very little is known, are likely to be minor.
In short, so far inter-Arab investment has failed to be the engine of regional growth that many expected and hoped that it might become. In particular, the idea of ‘triangulation’ (allying finance from the Gulf and other major oil exporters with industrial know-how from Europe, the US or elsewhere and an abundant labour supply in oil-poor Arab countries) has not made any progress at all in practice.