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Foreign direct investments, collateral victims of the Arab Spring

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A driver of economic growth, foreign direct investments (FDI) in the Middle East and North Africa (MENA) peaked in 2006. Weakened by the global financial crisis, Western economies have put a stop to their investments in MENA countries. The democratic transition has, in the process, accelerated the fall of FDI in a context of degraded business climate, legal uncertainty and political instability. FEMISE analyzes the impact on the evolution of foreign direct investment of the political and commercial liberalization process. (FEMISE report FEM41-07).

Le lancement du nouveau port de Tanger Med en 2007 illustre l’exemple d’un PPP réussi et le rôle capital des IDE. (Photo F. Dubessy)

The launch of the new port of Tangier Med in 2007 illustrates the example of successful PPP and the key role of FDI. (Photo F. Dubessy)

As a creator of wealth and jobs, foreign direct investment (FDI) enjoyed a boom between 2005 and 2008, particularly in Morocco and Tunisia, with growth rates of 50% and 252% respectively. The foundations of major structuring projects for these two countries were laid, the sovereign state becoming aware of the strategic issue of public-private partnerships (PPP). The launch of the new port of Tangier Med in 2007 illustrates the example of successful PPP and the key role of FDI.

Not surprisingly, these countries, but also the entire region, have since 2009 and until 2012 recorded a drastic drop in FDI. FEMISE, in its FEM41-07 report, points out several decisive criteria in the decision to invest in a foreign country: geographical proximity, cultural links, language and religion. Other factors such as the quality of institutions and the economic situation also play a determining role.
Thus, during the events of the Arab Spring, the Maghreb countries engaged in a democratic transition, but in the process witnessed increasing political and judicial instability, as well as fears of expropriation or insecurity regarding intellectual property. Investors also increasingly need to be reassured about the absence of corruption and violence (terrorist attacks, civil violence, war).

 

Disparate situations between producing and non-producing countries

Les investissements directs étrangers victimes collatérales du Printemps Arabe

According to OECD figures, inflows fell on average by 27% between 2008 and 2009 and by 13% between 2009 and 2010, reaching $ 11 billion in 2010. In 2009, they contracted by 15% in Jordan , 22% in Morocco and 39% in Tunisia. “All countries in the Middle East and North Africa are below their potential in the 2009-2012 period, with the exception of Iraq, Oman, Egypt and Jordan”, notes Femise, in a report coordinated by Juliette Milgram, economist at the University of Granada. The document analyzes both source and destination countries. It highlights significantly different situations for oil-producing countries. “Obviously, the MENA region should not be considered a homogenous block. Oil exporters can attract investments in natural resources (…), “notes the Femise report.

For its part, the OECD notes that “In order for countries to maintain the growth rates achieved prior to the global financial crisis and upheaval in 2011 and to boost economic competitiveness, the gap in FDI that must be filled in the MENA region is valued at about 75-100 billion USD per year. In the aftermath of the G8 summit in Deauville, the organization set up a support program for investment security in the Mediterranean region (ISMED) in the Arab countries in transition.Access the FEMISE report by clicking here.

Article by in partnership with Econostrum 

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