Putting it to Work in Developing Countries - Nathan Associates

shot up to almost $16 billion in 2005, a new
peak, but still representing only about 4 percent
of all developing country inflows. Lebanon,
Morocco, and Egypt recorded among them twothirds
of the region’s total inflows between
2001and 2005, and Algeria, Jordan, and Tunisia
another quarter (see text box). General regional
growth has occurred despite instabilities created
by the Iraq War and the Palestinian conflict. In
fact, Morocco and Lebanon experienced an
upsurge in FDI inflows in 2003. Instability no
doubt severely depressed FDI receipts in other
FDI to Middle East and North Africa 2001–2005
FDI Inflows ($mn) FDI % GDP
2005 2001–2005 2001–2005
Region Total 15,840 44,383 1.7
Lebanon 2,573 10,119 10.7
Morocco 2,933 9,841 4.6
Egypt 5,376 8,927 2.0
Algeria 1,081 4,775 1.3
Tunisia 782 3,313 2.7
Jordan 1,532 2,831 5.4
Other (8 countries) 3,877 4,577 0.3
Developing Countries 285,144 1,034,754 2.8
SOURCE: UNCTAD, WIR 2006;World Bank regional groupings.
regional economies: Iraq of course, but also Iran,
Yemen and Syria.
Several factors probably drive FDI to the region.
First, resource-seeking FDI has been particularly
important for oil and gas producers such as
Algeria, Egypt, and Tunisia. Second, soaring oil
prices have provided liquidity to encourage nondeveloping
country direct oil producers in the
Gulf (e.g., Kuwait) to invest in regional
economies, such as Jordan and perhaps
Lebanon, in sectors such as real estate, construction,
and tourism. Third, the proximity of the
EU market and the trade relationships created
by various Euro-Mediterranean Association
Agreements—EU with Morocco, Tunisia, Egypt,
and Jordan—have promoted export-oriented
manufacturing FDI in several countries. Other
free trade agreements, such as the Jordan–US
agreement that stimulated large-scale garment
manufacture, may have encouraged FDI inflows.
Finally, economic liberalization programs,
including privatizations, have attracted FDI in
several economies. Morocco privatized its Régie
des Tabacs in 2003, for example, and Jordan privatized
electric power and telecommunications
utilities with UAE investors in 2005.
With high prices for oil and other commodities,
favorable trends in world and EU economic
conditions and trade, and momentum for economic
reform improving regional business environments,
recent levels of FDI inflow can be
sustained over the medium term. A booming
world petroleum sector could mean increased
FDI for Algeria and Libya, the latter with very
significant potential to attract FDI after years of
economic sanctions. By contrast, persistence of
current tensions and strife in Lebanon would
discourage FDI inflows to that key economy
and perhaps to the region as a whole.
SOUTH ASIA—INDIA’S LEAD
FDI inflows to South Asia have increased over
the past decade, but much more slowly than for
the developing world as a whole. South Asia
attracted nearly $10 billion in 2005, a record,
though still less than 4 percent of all FDI flowing
to developing countries (see text box).
Regional growth has been due almost entirely to
India, whose FDI receipts hit $6.6 billion in
2005, and whose inflows over the five years
account for nearly 77 percent of the regional
total. Pakistan is a distant second destination
with about $2.2 billion in 2005 and 14 percent
of total regional inflows since 2001. Other destinations,
such as Bangladesh and Sri Lanka, have
had fairly limited inflows, though both boast
quite liberal frameworks for FDI. Political tension,
corruption and poor infrastructure in the
former, and prolonged civil strife in the latter,
have constrained FDI.
India’s major FDI inflows have gone to IT,
telecommunications, manufacturing, and industry.
But much of its IT-enabled services and
computer software enterprises have grown less
through FDI than through nonequity contract­
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