Bahrain’s Foreign Direct Investment Hits $3.89bn

MANAMA, 18 October 2007 — Bahrain’s direct investments to West Asia’s top five economies jumped to record highs in 2006. It has attracted over $3.89 billion foreign direct investment (FDI) (both inflow and outflow) in 2006, an increase $1.62 billion over 2005 compared with the UAE’s $8 billion FDI, which dropped 23 percent over 2005, the United Nations Conference on Trade and Development (UNCTAD) in a report said on Tuesday.

Bahrain’s inflow of FDIs reached $2.9 billion in 2006 compared with $1 billion in 2005 or an increase of $1.9 billion. The outflow of FDIs from Bahrain slipped to $980 million in 2006 from $1.12 billion a year earlier, a healthy sign for the national economy to absorb more FDIs instead of outflow of foreign investments.

Last year, global FDI inflows rose for the third consecutive year, reaching $1.3 trillion on the back of strong economic growth, high corporate profits and commodity prices. Investments increased in virtually all parts of the world.

The United States was the top recipient in 2006, followed by the United Kingdom. China again ranked first among developing countries, and Russia attracted the most investments of all the transition economies. While most FDI originated in the developed world, outflows from developing and transition economies rose to a record high, underscoring the growing clout of TNCs from emerging economies.

In fact, for the first time the World Investment Report includes as many as seven companies from developing countries among the world’s top 100 TNCs. This trend is important, as a large part of these outflows go to other developing countries, resulting in closer South-South economic ties.

Among developing regions, Asia was the top recipient. With record inflows of almost $260 billion, it received more than two thirds of all FDI to developing countries. West Asia production of these companies is almost exclusively domestic, a number of other State-owned oil and gas companies from the South have made significant investments overseas.

The combined foreign production of the top seven oil TNCs from developing and transition economies today exceeds 500 million barrels of oil equivalent, up from only 20 million a decade ago. This is still much lower than the overseas production by the largest oil and gas TNCs from developed countries, but on a par with the volume produced by Chevron or ConocoPhillips.

The role of foreign affiliates in oil and gas production varies considerably from one country to another. And while the average share of foreign affiliates is generally higher in developed countries than in the developing world, there is huge variation within the latter category. In West Asia, which hosts the largest oil reserves in the world, foreign affiliates account for only 3 percent of total production, as compared to an average 57 percent in sub-Saharan Africa.

Low-income countries often have to rely more on foreign investment due to a lack of domestic capabilities. Similar diversity applies to the role of foreign affiliates in metal mining. In contrast to the oil and gas sector, few countries have chosen to keep their activities under state control, and developed-country TNCs dominate the scene. In some low-income countries, such as Gambia, Ghana, Guinea, Mali, Mongolia and Papua New Guinea, they account for virtually all mining activities.

The report “demonstrates how the well-known costs and benefits of FDI extend equally to the extractive industries. The impact of resource extraction is not just economic, but encompasses the environmental, social and political dimensions as well.

The net outcome for development depends on the quality of governance, specific policies and institutions in the countries concerned, the nature of the minerals extracted, the domestic capabilities of the host country, and the behavior of the TNCs.”

From an economic perspective, TNCs can contribute capital, technology, management expertise and access to markets. Such inputs are particularly important in countries with weak domestic capabilities and for technologically complex projects.

“The challenge is to develop frameworks that create proper incentives for local and foreign firms to produce efficiently, while at the same time respecting environmental and social requirements that reflect the interests of local communities and society at large. The current commodity price boom represents a window of opportunity for developing economies to use their mineral resources to promote sustainable development. And particularly for the least developed countries endowed with natural resources, the boom should help them meet the millennium development goals,” it added.