Abu Dhabi, UAEMonday 24 June 2019

UAE’s high FDI ranking reflects its expansion drive

The Emirates is clearly ramping up at a time when investment flows elsewhere are slowing down

The UAE has the highest FDI per capita in the world. with $5,700 per capita amounting to a whopping $54bn. Getty Images
The UAE has the highest FDI per capita in the world. with $5,700 per capita amounting to a whopping $54bn. Getty Images

Poland and Hungary were ranked among the top 10 global destinations for foreign direct investment in a new study from Site Selection magazine, with 163 and 80 new FDI projects respectively, and Hungary the Eastern European champion at $4.4 billion by value.

What really makes the emerging markets of Europe stand out is the high per capita FDI they are now attracting: $440 per person in Hungary, though Poland at $75 was actually the lowest per capita performer in Eastern Europe last year.

Western Europe also has some high FDI performers: booming Ireland secured $650 per capita and tiny Luxembourg a stunning $1,000. But more predictably, Brexit-hit Britain was a laggard at $140, and highly-priced Switzerland bottom at just $25.

That said the highest FDI per capita in the world was closer to home in the UAE, with $5,700 per capita amounting to a whopping $54bn. Regional runners up - Saudi Arabia at $5bn and Oman close to $3bn - were a very long way behind.

‘Business in Dubai is booming, with FDI up an astounding 43 per cent over 2017, earning them top spots in our ranking’, commented the report. ‘Dubai FDI also scored yet again as a top investment promotion agency in this issue’s annual rankings.’

A survey by the giant Swiss bank found that UAE investors are the most optimistic in the world about future prospects.

According to its new quarterly Investor Sentiment study, 83 per cent of UAE investors were optimistic about the local economy, while 78 per cent held positive views towards the global economy.

This analysis of 3,600 wealthy investors and entrepreneurs was carried out in 17 countries this March. It can hardly be judged anything other than objective and unbiased.

Perhaps investors are just being very logical. That is often the way with something that seems out-of-phase with reality but later turns out to be correct.

A drop in the Dubai Financial Market last year did leave local companies priced very cheaply, though the bourse has rallied since then. Additionally you could argue that the lowest local house prices in five years represent a massive buying opportunity, even if the upcoming supply dampens house price increases in the short term.

Diversification away from what is most highly valued to what is available for a more reasonable price almost always makes good sense. Then again, if this is so obvious, why aren’t local investors putting their money where their sentiment is?

For the moment, wise heads seem to be prevailing over hotter sentiments. It may well be that the fear of a coming global financial crisis - that would sink all boats in a storm - has local investors putting their decisions on hold.

Yet as an investor you do have to pay serious attention to where money is flowing because that is where the next growth in profits is likely to be. You don’t get profits without investment, and the UAE is clearly gearing up its expansion at a time when investment flows elsewhere in the world are mainly slowing down.

This investment flow is partly related to the World Expo 2020 in Dubai next year. Those wondering whether this event will be a success at attracting global investors may have missed the point that it already has been successful at attracting global investment.

But this has long been the ‘build and they will come’ philosophy of the UAE’s leaders. By investing when times are not so good then you have the infrastructure available when the good times return, and so you double-up on profits.

Eastern Europe by contrast is a long way behind, and still attracting too little investment to deliver the same level of return as the UAE.

All the same, next month I will visit Budapest’s newest and most lavish hotel, the Grand Hyatt Parisi Udvar, which is owned by an investor from the UAE. In a city chronically short of upmarket accommodation I am sure they will do very well.

But whether Eastern European FDI will beat the UAE for investment returns is less certain.

Peter Cooper has been writing about Gulf finance for two decades

Updated: June 2, 2019 11:00 AM

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