UAE splashes out more foreign investment than it receives

Reuters

• Rising oil revenues helped fill reserves and investments overseas
• UAE ahead on sustainable and socio-economically friendly investments

The UAE ranked first in the Gulf for foreign direct investment (FDI) inflows in 2021, but the amount the emirates invested overseas overtook this figure during the same period.

The rising oil price is likely to see this trend continue, experts said.

The newly released United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2022 found the UAE attracted $21 billion in FDI in 2021, up from $20 billion in 2020.

While it remained the number one FDI recipient in the Gulf and ranked 19^th globally it was beaten by regional rival Israel, with $30 billion.

However, rising oil revenues helped fill the country’s reserves and outflow – or investments overseas – rose from $19 billion in 2020 to $23 billion in 2021, giving a deficit of $2 billion between outflows and FDI.

In the list for outflows the UAE ranked 17^th behind Saudi Arabia at 15^th, with the kingdom seeing its investments overseas grow nearly five-fold from $5 billion in 2020 to $24 billion in 2021.

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On a global level, the US dominated, with $367 billion in FDI last year (up from $151 billion in 2020) and $403 billion in outflows over the same period (up from $235 billion in 2020).

“The GCC countries, excluding Oman and Bahrain, all typically export more long-term capital than they import, ” Rachel Ziemba, founder of New York-based geo-economic advisory firm Ziemba Insights, told AGBI.

“This reflects their current account surpluses and revenue structure.

“In recent years import and export of capital from the UAE have been relatively balanced. But outward investment is again rising.

“With oil revenues going up, we should again see further increases in FDI and portfolio outward investment both in the Middle East and North Africa region – especially Turkey and Egypt – and around the world.

“Also, we should see additional investments from the region’s sovereign portfolio and strategic funds”.

The UNCTAD report did not give a breakdown of figures, such as comparisons for the non-oil and oil sectors or whether investments were from government or private sources.

Emirati investor Sabah Al-Binali, executive chairman of OurCrowd Arabia, a subsidiary of the world’s largest global venture investing platform, said: “The better comparison is [oil versus] non-oil FDI. My view is inward dwarfs outward.”

Huda Al-Lawati, the founder and CEO of Abu Dhabi-based investment firm Aliph Capital, said it was no surprise that there was an overall increase in inflows and outflows, as global FDI has grown by 77 percent.

“This is a function of overall increased activity after 2020 lows. Overall investment flows are also driven by low interest rates, as capital has sought returns, equities have been attractive, as have tech returns globally,” she said.

“Of note, KSA also had a $19 billion FDI inflow in 2021. For both countries, 2020 and 2021 inward FDI numbers show improvements on prior years, which has been driven by healthy M&A. This region is very well placed in 2022 as the unique situation of oil markets makes the region a relatively attractive investment target,” she added.

Sustainable overseas investments

The launch this week of New York University Abu Dhabi’s inaugural Transition Investment Lab Annual Report also found that the UAE was doing better than most of its international rivals when it came to how sustainable and socio-economically friendly its overseas investments were in 2021.

From a total of 3,505 transactions by global sovereign wealth funds (SWFs), worth more than $1 trillion and executed since 2000, 564 deals valued at $73.5 billion were flagged by the TIL Report as “sustainable investments”.

Singaporean funds Temasek and GIC topped the list for the most sustainable investment deals, with a total of 139 investments, followed by Abu Dhabi-based Mubadala with 50 deals. 

With regards to FDI, the UAE was also performing well in other recent global rankings.

Last month, the Dubai Investment Development Agency (Dubai FDI), an agency of the Department of Economy and Tourism (DET), published the annual ‘DUBAI FDI Results & Rankings Highlights Report 2021’.

Based on data from the Financial Times in London, the report concluded that Dubai was the number one city in the world for attracting FDI to greenfield sites in 2021, a total of 418 such projects.

The emirate ranked third last year. The report also concluded that the FDI projects created an estimated 24,868 jobs in 2021, compared to 18,325 jobs in 2020.

Helal Al Marri, director general of the Department of Economy and Tourism in Dubai, pointed out that in 2021 the UAE introduced around 50 separate laws to help streamline the investment process, the biggest change being the scrapping of a law requiring 51 percent of a foreign company to be owned by an Emirati partner.

And Dubai-based Mohammad Tbaishat, Mena head of corporate and mergers and acquisitions at law firm Pinsent Masons, said in an online opinion piece in March: “The UAE government is taking foreign investment seriously and encouraging diversification in the economy.

“The amendments to the CCL [Commercial Companies Law] is evidence of this and is a positive step towards increasing diversification across various sectors and promoting the UAE’s ambition to become a global leader in attracting foreign investment.”