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Low Oil Price and Its Impact on FDI in MENA

There has been plenty of discussion about the impact of the persistent low oil price on economic performance, employment, and political stability. Less discussed has been its impact on foreign direct investment (FDI), particularly in the Middle East and North Africa (MENA). The collapse in the price of oil has taken a serious toll on investor confidence throughout the region. Once such confidence has been stripped away, it takes a long time to return – much longer than it will take for the price of oil to rebound. This may be the biggest battle oil producing countries face in the longer term.

In A.T. Kearney’s Foreign Direct Confidence Index for 2015 , not a single country from MENA was in the top 25 most desirable places to invest. When survey participants were asked whether their view of a given region had changed from the previous year, only 24% indicated they felt more optimistic about the Middle East; the remaining 76% felt either the same or more pessimistic than in 2014. Herein lies a key problem: if the region’s countries cannot attract foreign investment, their chances of pulling themselves out of this oil-induced tail spin can only decline.

According to the OECD, real GDP growth rates in MENA and the Gulf Cooperation Council countries (GCC) declined dramatically following the Great Recession, reached a plateau, and never recovered. Real GDP growth in the GCC reached a high of approximately 9% between 2006 and 2008; since 2009, it has remained just over 4%. The situation in the MENA region differs significantly from that of other developing regions, where FDI inflows resumed beginning in 2010. In Latin America and the Caribbean, for example, inflows increased by 54% between 2010 and 2013, while in Sub-Saharan Africa they rose by 40% over the same time period. In contrast, the MENA region experienced a 30% decrease in FDI inflows in those same years.

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