The GCC region will see more vibrant growth in 2025 driven by improved financing conditions and increased mergers and acquisitions (M&A) though risks and investor uncertainty remain high globally.
In 2024, global FDI rose 11 per cent to an estimated $1.4 trillion but dipped by 8.0 per cent when excluding flows through European conduit economies – which often serve as transfer points for investments before they reach their final destination.
Multinational transactions in conduit economies fuelled a 43 per cent surge in developed economies. Without them, flows dropped 15 per cent.
The UAE, a leading investor destination, unveiled the "National Investment Strategy 2031", which targets doubling cumulative FDI between 2025 and 2031, increasing FDI's share of the national economy from the current 15 per cent to 30 per cent. The strategy aims to boost FDI stock to Dh1.3 trillion and triple the cumulative FDI balance to Dh2.2 trillion by 2031. In 2023, FDI flow into the country reached $30.69 billion. The UAE's continued focus on its digital economy and innovation ecosystem has led to increased FDI, particularly in fintech and e-commerce.
The UAE, a leading destination for FDI in the Middle East, introduced several measures aimed at facilitating foreign investment, including the expansion of free zones and the introduction of long-term residency visas for skilled professionals. These initiatives have bolstered investor confidence, positioning the UAE as a hub for innovation and entrepreneurship.
Economists are of the view that the FDI outlook for 2025 remains uncertain, with geopolitical tensions, inflationary pressures, and shifting trade dynamics posing potential risks to investment growth. While some regions are poised for recovery, others may experience stagnation as they grapple with the consequences of a rapidly changing economic environment.
Despite global uncertainties, the Middle East has emerged as a beacon of resilience in attracting FDI. According to Unctad, the region experienced a significant inflow of $70 billion in FDI in 2024, marking an impressive 13 per cent increase compared to 2023. This growth can be attributed to several factors, including economic diversification efforts, strategic investments in infrastructure, and a focus on sustainability.
The GCC countries, in particular, have played a pivotal role in this upward trend. With initiatives aimed at reducing oil dependence and fostering economic diversification, GCC nations have become increasingly attractive to foreign investors. Major projects in sectors such as renewable energy, technology, and tourism have paved the way for substantial investments, positioning the region as a key player in the global investment landscape.
The GCC's commitment to economic diversification is critical in enhancing its attractiveness for foreign investment. Countries like the UAE and Saudi Arabia have implemented ambitious reform agendas aimed at transforming their economies. Saudi Arabia's Vision 2030 and the UAE's Economic Vision 2071 continue to guide investment strategies that prioritize sectors beyond oil.
In 2024, Saudi Arabia saw a remarkable increase in FDI inflows, reaching $30 billion, driven by substantial investments in green energy and technology. The NEOM project, a $500 billion initiative focused on sustainability and innovation, has attracted significant attention from international investors.
Despite the positive trends, the Unctad report identifies several challenges that could hinder FDI growth in the Middle East and GCC. Geopolitical tensions, particularly those related to regional conflicts and relations with major global powers, pose risks to investment stability. Additionally, the ongoing effects of inflation and rising interest rates may deter investors from committing to long-term projects.
The region must also address regulatory and operational challenges to maintain its appeal to foreign investors. Streamlining bureaucratic processes and enhancing transparency will be crucial in fostering a conducive investment climate. Furthermore, the transition to a knowledge-based economy necessitates significant investments in education and workforce development to equip local talent with the skills needed for emerging industries.
Looking ahead to 2025, the Unctad report suggests that the FDI landscape in the Middle East and GCC will continue to evolve. While the region is well-positioned to attract investments, it must navigate potential challenges and capitalize on emerging opportunities. The ongoing diversification efforts, coupled with a commitment to sustainability, are likely to bolster investor confidence and drive continued growth