Arab States May Suffer 24% Drop in Foreign Direct Investment After Unrest

Arab states have suffered a slump in foreign direct investment of as much as 24 percent this year as political unrest sweeps the region, according to the group that insures such funding against non-commercial risks.

Foreign financing will shrink to between $50 billion and $55 billion in 2011 from $66.2 billion the previous year, the Arab Investment & Export Credit Guarantee Corp., known as Dhaman, said in an e-mailed response to questions.

The total value of insurance operations concluded by Dhaman in the first eight months was about $780 million, “a significant increase” versus last year, indicating heightened concern, Fahad al-Ibrahim, its director-general, said in the e-mail.

Egypt is worst affected, with foreign direct investment dropping an estimated 92 percent to $500 million, according to a report issued by Dhaman in October. Tunisia, where the so-called Arab Spring began, is estimated to have drawn $1.2 billion in funding this year, a decline of 20 percent, the report said.

Kuwait-based Dhaman’s figures, which have not been verified by individual governments, suggest Libya received about $500 million, down 87 percent, and Syria $484 million, where unrest continues, a decline of 65 percent. Bahrain, which witnessed anti-government protests by the majority Shiite population, may have suffered a 36 percent drop to $100 million.

Higher oil prices, an increase in public spending and international pledges of as much $50 billion in aid could help mitigate the decline in investment, al-Ibrahim said.

“The main challenge facing regional governments is adopting balanced and well-thought of policies to attract profitable foreign investments,” he said. “A big number of international companies are still considering investing in the region, especially in oil-rich, politically stable countries.”

Dhaman, which counts all Arab states as members except the Comoros Islands, provides insurance coverage for Arab and foreign investments in member countries against risks such as expropriation, war and civil disturbance, its website says.

To contact the reporter on this story: Dahlia Kholaif in Kuwait at dkholaif@bloomberg.net.

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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