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FDI in Middle East expected to fall in 2011

Foreign direct investment (FDI) into the Middle East is expected to drop by at least 10 per cent to between US$50 billion and US$55 billion in 2011 according to a new report.

A report by the Inter-Arab Investment Guarantee Corporation (IAIGC), a key Arab League institution, predicted that real growth in the collective Arab GDP could widen by around 4.2 per cent this year compared with 3.8 per cent in 2010 while inflation will swell to nearly six per cent from 4.8 per cent in the same period,

The report put the total nominal Arab GDP at around US$2.34 trillion in 2011 and expected the fiscal and current account balance to be in surplus because of a projected rise in oil prices and production by key Arab producers.

"Although it is difficult to predict the precise impact of the current unrest in the MENA region on capital flow into the Arab world, preliminary estimates show that direct investment in the Arab countries is expected to decline by between 10 and 15 per cent this year," the IAIGC said.

The report showed FDI flow into 18 Arab nations that provided investment data plunged by nearly 23 per cent to $64.3 billion in 2010 from around US$83.9 billion in 2009.

The report said Saudi Arabia, by far the largest Arab FDI recipient and the world's top oil exporter, was the main victim as investment into the Kingdom dived by nearly 41 per cent to US$21.6 billion in 2010 from US$35 billion in 2009.

It attributed the decline to the shelving of some giant hydrocarbon projects in Saudi Arabia, mainly those which had been planned as joint ventures with foreign partners.

As for the economy, IAIGC's forecasts showed the combined Arab GDP would pick up by 4.2 per cent and the highest growth would be recorded in the GCC.

Inflation will rise to 6.03 per cent and public debt to nearly $618 billion. The report also expected foreign debt to reach around 740.2 billion while the current account surplus will stand at $301.6 billion, nearly 12.9 per cent of real GDP.

It projected the total Arab foreign currency reserves at $1,013 billion, exports at nearly $1.32 trillion and imports at $969.2 billion. The report expected Arabs to produce 21.6 million bpd of oil and export nearly 16.2 million bpd in 2011.

The report estimated public spending at $855.1 billion, including nearly $256.5 billion in capital expenditure.