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Qatar crisis aggravates investment slump in Gulf

Qatar crisis aggravates investment slump in Gulf

October 12
13:12 2017

The diplomatic crisis in the Gulf with gas-rich Qatar at its centre has weighed on the investment appeal of a region already facing major challenges in low oil prices and budget shortfalls.

Foreign investors announced 232 new greenfield projects in the six countries of the Gulf Cooperation Council between January and August this year, the lowest level for the period since 2007, according to data from fDiMarkets, an FT data service.

In value terms, greenfield foreign direct investment amounted to $13.5bn in the period, far below a 10-year average for January to August of over $23.3bn, fDiMarkets figures show.

A bloc led by Saudi Arabia, with support from Bahrain, Egypt and the United Arab Emirates, sent shockwaves through the region in June, when it imposed an embargo on Qatar for its alleged support of forces undermining regional stability.

The world’s largest exporter of liquefied natural gas strongly denied any wrongdoing and has not ceded to any of the bloc’s initial demands, which included curbing diplomatic ties with Iran and shutting down state broadcaster Al Jazeera.

Despite the efforts of Kuwait, Turkey and others to broker a deal, the two sides remain wide apart, after a war of words that quickly morphed into diplomatic stalemate.

Foreign investors have been caught in the crossfire as the blockading nations urged companies active across the region to cut ties with Doha.

The diplomatic tensions have aggravated an already turbulent investment environment, caused by depressed oil prices and the resulting strain on fiscal budgets.

As regional governments grapple with fiscal reform, investors also face the prospect of changes to taxation and regulation.

If that was not enough to worry about, analysts at Exotix, a frontier market investment house, noted on Thursday that disagreement between the US and other governments over Iran’s nuclear programme will “further reduce risk appetite for GCC and Levant assets”.

Investors from western Europe and North America appear particularly sensitive. Their contribution to the region’s greenfield FDI mix fell to a decade low of 30 per cent between January and August, against a 10-year average for the period of 46.7 per cent, according to fDiMarkets.

Investors from the Asia-Pacific region appeared less impressed and increased their share to a record high of 55 per cent.

Slowing foreign investment threatens to undermine efforts by GCC countries to reform their economies and diversify away from the oil sector.

“Any loss of high quality FDI that would otherwise create jobs, promote technological transfer and foster the private sector would be a setback for GCC states’ ambitions,” credit rating agency Moody’s said in a report last month.

Overall FDI — including mergers, acquisitions and other financial transactions excluded from fDiMarkets’ data — averaged about 3 per cent of GDP in the region over the past 10 years, according to the UN Conference on Trade and Development. Much of it supported technological transfer to sectors other than oil.

Greenfield FDI into manufacturing alone made up 43.7 per cent of total greenfield FDI in the GCC since 2003, according to fDi Markets.

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