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Oil rich Gulf countries ‘receive relatively high FDI’

DUBAI, March 2, 2015

The oil rich countries in the Gulf - Saudi Arabia and Kuwait - are receiving relatively high foreign direct investment in the Middle East, according to a report.

The report developed by Deloitte in conjunction with the Social Progress Imperative (SPI) also found that conflict and instability create barriers to FDI, regardless of social progress, as witnessed in Iraq and Egypt, while tax havens can attract FDI without experiencing social progress, as witnessed in Lebanon.

With increased economic growth and globalisation, this year is set to be a banner year for FDI in many countries around the world, it said.

This increase in capital showcases the need for countries to look beyond financial figures and understand what impacts FDI.

The ‘Foreign Direct Investment and Inclusive Growth: The impacts on social progress,’ compared data from the Social Progress Index, a measurement of growth and performance beyond gross domestic product (GDP) and FDI metrics for 132 countries.

It found that the right policies can spur a virtuous circle where rising social progress in a country attracts FDI which in turn can be used to drive further progress.

Rashid Bashir, head of Strategy Consulting at Deloitte Middle East, said: “While the economic benefits of FDI inflows are well understood, the contribution of FDI to social progress is less clear cut.

“This report demonstrates how the Social Progress Index can act as a guide for business and other organizations to make smarter strategic investments and shows governments that policies focused on driving social progress can attract FDI, which in turn advances both economic and social development.”

The FDI can encourage a country’s future social progress through specific support – such as investments in healthcare and education – and indirectly through employment and higher incomes, found the report.

In addition, social progress factors such as infrastructure, education, and personal and political security can help attract overseas investment, it said.

Equally important for FDI are quality of life factors, such as tolerance and inclusion, as they help attract the international workforce and investment required for highly skilled industries such as finance, it added.
 
In terms of social progress, however, not all FDI is equal and the virtuous cycle is not guaranteed, like in the case of Egypt and Iraq where regardless of social progress, political unrest has halted FDI, said the report.

Governments must put in place complementary polices to really drive social progress through FDI, it said.

The countries such as Brazil, Russia, India and China (BRICs) or Kazakhstan attract significant levels of FDI without realising higher social progress. This can occur in many instances including when rapid economic growth exceeds the pace of social progress, when FDI is disproportionately directed to certain industries such as natural resources, when the political environment deters investment or when countries are caught in poverty traps.

Social progress, FDI and the ladder of economic growth

According to the report, social progress can explain some of the trends in FDI and FDI can explain some of the improvements in social progress.

The report revealed how different elements of social progress evolve across stages of economic development, and how social progress contributes to countries’ climbing this ladder of development.

With the majority of FDI now flowing into emerging economies, understanding what factors can drive development will help these countries to better leverage this nuanced relationship.

Michael Green, executive director of the SPI, said: “This report demonstrates that the relationship between business and society can be symbiotic, not conflictual.

“It shows that, in the right circumstances, FDI delivers real benefits to the lives of ordinary people above and beyond its economic impact. Yet, crucially, it also shows how business thrives best in healthy societies.” - TradeArabia News Service




Tags: Oil | Gulf | FDI | progress | rich | Deloitte | social |

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