Arab countries in the development of performance

Foreign direct investment Development policies to the Arab countries

Hussein Alasrag

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Abstract: In spite of many reforms have been taken to attract more FDI in the Arab countries, This countries still compare poorly with other developing countries, like Mexico, Brazil, Hong Kong and Singapore. This countries attracted US $ 10.78, 10.1, 13.56 and 11.41 billion respectively in year 2003.Meanwhile the Arab countries as a whole attracted US $ 8.6 billion or 5.01% of the total FDI in the developing countries and 1.54% of the total world FDI in 2003. Furthermore the total FDI flows in the Arab countries during 1992-2003 were smaller than the FDI flows in China (US $ 53.5 billion) in year 2003 only. On the other hand the investments between the Arab countries in the same period were very small since it reached US $ 20.7 billion or 44% of the total FDI flows in the Arab countries during (1995-2003).So the purpose of this paper is to review and analysis the Mechanisms for FDI Flows Motivation in The Arab Countries. Key words: Foreign Direct Investment, FDI Flows, FDI outflows, the Arab Countries

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TABE OF CONTENTS INTRODUCTION ................................................................................................................................... 4 THE RESEARCH PROBLEM AND ITS IMPORTANCE ........................................................................................... 4 AIM OF THE RESEARCH:........................................................................................................................... 5 RESEARCH DATA SOURCES....................................................................................................................... 5 RESEARCH PLAN: ................................................................................................................................... 6 CHAPTER I ........................................................................................................................................... 7 FOREIGN DIRECT INVESTMENT: A THEORETICAL FRAMEWORK AND KEY CONCEPTS ................ 7 FIRST: THE CONCEPT OF FOREIGN DIRECT INVESTMENT ................................................................................. 7 SECOND: THE MAIN ADVANTAGES AND THE CRITICISMS OF FOREIGN DIRECT INVESTMENT ADDRESSED TO: ............... 9 III: MULTINATIONAL CORPORATIONS AND THEIR RELATIONSHIP TO FOREIGN DIRECT INVESTMENT .........................15 IV: TYPES OF FDI : ...............................................................................................................................17 Natural-resource-seeking FDI ............................................................................................................17 Market-seeking FDI..........................................................................................................................17 Strategic-asset-seeking FDI ...............................................................................................................18 V: INDICATORS OF FDI ANALYSIS ............................................................................................................19 CHAPTER II .........................................................................................................................................21 TRENDS AND THE EVOLUTION OF FOREIGN DIRECT INVESTMENT 1992-2003 ................................21 FIRST: THE FACTORS THAT LED TO INCREASED FLOWS OF FOREIGN DIRECT INVESTMENT ......................................22 II: THE EVOLUTION OF FLOWS OF FDI AND THE MOST IMPORTANT TRENDS DURING THE PERIOD (1992-2003). ...........24 III: THE EVOLUTION OF FDI OUTFLOWS AND THE MOST IMPORTANT TRENDS DURING THE PERIOD (1992-2003). ........29 IV: THE EVOLUTION OF FDI STOCK DURING THE PERIOD (1992-2003) ..............................................................30 CHAPTER III ........................................................................................................................................31 DEVELOPMENT OF THE ARAB STATES OF THE FOREIGN DIRECT INVESTMENT FLOWS ..............31 FIRST: THE EVOLUTION OF FDI FLOWS TO ARAB COUNTRIES DURING THE PERIOD (95-2003) .................................31 SECOND: ARAB COUNTRIES IN THE DEVELOPMENT OF PERFORMANCE INDICATORS AND THE POTENTIAL FOR FLOWS OF FDI ...................................................................................................................................................33 1 - The performance indicator of the country in attracting foreign investment ..............................................33 2 - Index of the country's potential in attracting foreign investment ............................................................34 III: THE EVOLUTION OF THE RELATIVE IMPORTANCE OF FOREIGN DIRECT INVESTMENT IN ARAB STATES (92-2003) ....35 1-Evolution of the ratio of FDI to fixed capital formation:........................................................................35 2-Evolution of the proportion of FDI inflows to gross domestic product:.....................................................36 CHAPTER IV ........................................................................................................................................37 DEVELOPING OF FOREIGN DIRECT INVESTMENT TO THE ARAB COUNTRIES ...............................37 FIRST: IMPROVING THE INVESTMENT CLIMATE IN ARAB COUNTRIES ................................................................38 SECOND: THE PERFORMANCE OF BUSINESS ENVIRONMENT REFORM IN THE ARAB STATES: ....................................41 THIRD: THE DEVELOPMENT AND STRENGTHENING THE FINANCIAL SECTOR IN ARAB COUNTRIES: ...........................43 FOURTH: EXPANSION OF THE PRIVATIZATION PROGRAM IN ARAB STATES: ........................................................56 FIFTH: ENCOURAGE ARAB FINANCIAL INTEGRATION AND TO ATTRACT ARAB FUNDS MIGRATORY: ........................58 VI: HUMAN RESOURCE DEVELOPMENT IN THE ARAB COUNTRIES....................................................................62 VII: FURTHER POLITICAL REFORM AND DEMOCRACY IN THE ARAB COUNTRIES...................................................62 FOOTNOTES ........................................................................................................................................63 REFERENCES: .....................................................................................................................................73 STATISTICAL APPENDIX ....................................................................................................................78

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Introduction External financing is very important for the Arab States . in these countries, about 1.2 billion people Live on less than one dollar a day These - below the poverty line - and by young people suffering from the unemployment rate doubled in the prevailing rates of 1 (estimated size of the open unemployment about 15% of the workforce in the Arab countries, which is at least 12 million unemployed young people the most, and the continuation of these trends it is expected that the number of unemployed to about 25 million people by 2010) 2, where it is expected to increase the world's population of about two billion people in the next thirty years 3, therefore, increase investment and create more jobs is a major challenge for these countries. It also needs a huge injection of capital from all over the world in addition to domestic savings. There is no doubt that foreign direct investment - which has become the most important elements of financial globalization - is the most important elements of the overall flow of financial resources for 5, it tends to be more Since it represents a stable long-term strategy for investment, including the return of the host country of the benefits of the transfer of technology and to stimulate trade and economic growth.

The research problem and its importance Arab countries need to further inflows of foreign direct investment to stimulate economic growth and create more employment opportunities, poverty reduction, in addition to the urgent need for modern technological methods. In spite of the introduction of several amendments to the laws and regulations in most Arab countries in order to encourage and attract foreign investment, especially direct ones, the Arab countries did not succeed in becoming important sites attract foreign direct investment compared to other developing countries. The data confirm a very small share of the Arab region FDI inflows, reaching these flows to about 8.61 billion U.S. dollars in 2003, representing 5.01% of the share of developing countries, about 4

1.54% of total global direct investment flows, while these flows amounted to about 10.1, 10.78, 13.56, 11.41 billion U.S. dollars in Brazil, Mexico, Hong Kong, Singapore, respectively. This means that the Arab countries as a whole did not live up to the level of a country like Singapore or Hong Kong in attracting foreign direct investment. The data also confirm that the total flows of FDI to Arab countries in the period (95-2003) amounted to about $ 46.7 billion, representing 2.8% of the total inflows of foreign investment to developing countries, and about 0.73% of total inward investment in the world. In view of the data World Investment Report by UNCTAD in 2004, we find that the total achieved by the Arab States direct investment inflows during the period (95-2003) does not rise to the level of inflow to China in 2003 amounting to 53.51 billion dollars. On the other hand, the total inter-Arab investment flows during the period (95-2003) characterized humbled to hit 20.71 billion U.S. dollars, representing a 44% loss of total FDI flows to Arab countries contained in the same period. What is the most important policies that can help on the development of foreign direct investment flows to Arab countries?

Aim of the research: The research aims to develop the foreign direct investment to the Arab countries, through: -- Studying the global trends of foreign direct investment during the period (95-2003). - Identify the features of foreign direct investment in the Arab countries and the evolution of the relative importance during the period (92-2003). - Recommendation of the most important policies that may help in attracting and development of foreign direct investment to the Arab countries.

Research data sources 5

Researcher followed the descriptive and analytical way, was to use some statistical tools as measures of central tendency and growth rates in addition to the forms and graphics Graphs. Has been to rely on the UNCTAD data for flows of foreign direct investment, and enterprise data-Arab Investment Guarantee for the balance of accumulated foreign investment in Arab countries, in addition to a number of reports issued by the World Bank, UNDP and the Arab Monetary Fund. It also draws also some studies and research on the subject of research.

Research plan:

Since the research focuses on the development of foreign direct investment to the Arab countries, it was taken up the subject through the following chapters: -Chapter I: Foreign direct investment: a theoretical framework and key concepts. Chapter II: Trends and evolution of foreign direct investment 1992-2003. Chapter III: Development of the Arab States of the foreign direct investment flows. Chapter IV: Development of FDI to the Arab countries.

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Chapter I Foreign direct investment: a theoretical framework and key concepts In this chapter, is exposure to some basic concepts related to foreign direct investment, through the following points: -First: the concept of foreign direct investment Second: The main advantages of foreign direct investment and the criticisms addressed to III: multinational corporations and their relationship to foreign direct investment IV: Forms of FDI V: Indicators of FDI analysis

First: the concept of Foreign Direct Investment Since the 1980s country barriers to foreign investment have given way to countries actively seeking FDI instead of discouraging it. Governments now compete with each other to win more investment from foreign companies. In this context, it is important to understand what factors attract FDI, a topic much studied in international business, and to understand the increasingly important role of communications and technology infrastructure in this global competition for FDI. In order to successfully restructure their economies to lure foreign investors and ultimately to get and sustain competitive advantages, policy makers need to better understand what makes a market attractive to foreign companies. This paper is in line with previous studies investigating how country factor conditions affect the amount of FDI.

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FDI has been seen as an effective channel to transfer technology and foster growth in developing countries. Within the framework of the neo-classical models, the impact of the FDI on the growth rate of output was constrained by the existence of diminishing returns in the physical capital. Therefore, FDI could only exert a level effect on the output per capita, but not a rate effect. In other words, it was unable to alter the growth rate of output in the long run. Therefore, a group of economists did consider FDI as a drive engine of growth by mainstream economics. In the context of the New Theory of Economic Growth, however, FDI may affect not only the level of output per capita but also its rate of growth. This literature has developed various arguments that explain why FDI may potentially enhance the growth rate of per capita income in the host country. It is argued that FDI facilitates the use and exploitation of local raw materials, introduces modern techniques of management, eases the access to new technologies, foreign inflows allow financing current account deficits, finance flows in form of FDI do not generate repayment of principal and interests (as opposed to external debt), increases the stock of human capital via on the job training, and stimulates the investment in R&D. 6. Different perception of the FDI inflows in the modern theory of economic growth, which is seen as it can affect not only the output level of the individual, but in the rate of GDP growth, after it was new classic not rely too much on the possibility that the impact of FDI on the rate of GDP growth in the long term as this is subject to declining yields in productive capital and that can affect the output level without affecting the average. And can stimulate foreign direct investment per capita income growth in the host country, as it works to expand the use of local raw materials, the use of modern management techniques, allowing the entry of new technologies as well as external flows that allow the financing of current account deficit. It is no secret that flows foreign direct investment would not result in debt and there is no obligations to pay fixed amounts in the specified times in external debt as well as it could help in the

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development and training of human resources and stimulating investment in research and development . It is intended to FDI is the transfer of foreign capital to invest abroad directly to work in the form of industrial units, or financing or construction, agricultural or service and the profit motive is the main driver of the foreign direct investment 7. the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (DECD) define the foreign direct investment as investment in projects within a State, and controlled by residents in another country. The IMF pointed out in the field of definition of the direct investment that should increase the share of foreign investors 50% of the capital, or concentrated 25% or more of the shares in the hands of one person or one group of investors including the consequent to have effective control over the policies and decisions of the project 8. As defined by UNCTAD, FDI is investment that leads to long-term relationship and reflects the benefit and permanent control of the foreign investor or parent company based overseas branch in a host State, other than those which belong to citizenship. 9 For the purposes of this definition is the threshold for the definition of FDI is the ownership of a stake in the company's capital of Qatar for the future is equal to or more than 10% of the ordinary shares or voting power is called the local company where the investment of the unit or section. thus provides direct foreign investment ownership stake in the capital through the purchase of shares of subsidiaries and re-invest in baboons non-distributed and also loans and credit between the parent company and its subsidiary, subcontracting, management contracts and franchising and licensing for the production of goods and services 10.

Second: The main advantages and the criticisms of foreign direct investment addressed to: Aimed at developing the country's efforts encouraging the flow of FDI to make use of companies owned by foreign technology and know-how and management, as some 9

developing countries may be available funds for the construction of projects, but that the lack of modern technology to prevent the implementation of these projects. Can be summarized the most important advantages of investing foreign direct criticism against him as follows: - 11 1 - Training of local employment opportunities which are available to work branches of foreign companies and give them the skills using the latest modern technological methods of work and training. The staff of these branches move and use their skills and knowledge of scientific, technical and administrative to national companies when they join the work. It is understood, that, in some cases do not lead to direct foreign investment played a significant role in the field give national employment of modern technological skills because of the paucity of jobs produced by these investments to use technological methods capital-intensive. 2 - Establishment of scientific relationships between foreign affiliates and local centers for scientific research and development, leading to the acquisition of these centers to the latest companies from the technology and research methods. But note that the branches of international companies do not support research and development activities in developing countries, but the concentration of such activities in the main centers of these companies located in developed countries under the pretext of difficulties of coordination between research and development activities have been carried out, if not central, as well as lack of skilled and specialized skills in developing countries , and the branches of these activities will lead to fragmentation of the labs, research labs and thus the high cost of these activities. 3 - The branches of multinational companies to provide the needs of national companies of machinery and equipment and technical assistance on concessional terms in the domestic market, which provides an opportunity for national companies 10

that produce goods to meet global and thus the ability to export their products to foreign markets. It is understood by the fact that such machinery, equipment and production methods is characterized by capital intensive, which may not suit the circumstances of most developing countries with relative abundance in skilled employment, and failure to adapt such technology to suit the economic and social conditions in developing countries, but in a few cases. 4 - the competition between the branches of multinational companies and national companies, forcing the latter to try to obtain the latest technical and administrative systems, adaptation and development, and increase the capacity of national companies to acquire new systems with the development of technical and technological capacity and human resources. But it may work the other companies foreign acquisition of national companies which have a competitor in the domestic market and a situation of monopoly of multinational corporations. 5 - the contribution of foreign affiliates products are sold in the domestic market in the transfer of technical information to consumers of those products, particularly when it is necessary to provide information and to use those products to buyers from producers or consumers. May, however, is the contribution of products of foreign companies to transfer modern technology to the domestic market is limited because of the direction of these products to satisfy the needs of elite spiraled higher income in developing countries. 6 - Add foreign investment into fixed capital formation of the economics of developing countries and to compensate the shortage of domestic savings as a result the renewed inflow of investment or reinvestment of revenues. There is a possibility that they will make investments in the treatment of the structural defect of the economics of developing countries if they flowed towards the industrial sector and infrastructure projects necessary for the economies date. 11

But may not trans-nationality of the companies investments to the economic sectors are contributing to the structural imbalance in the treatment of the economics of developing countries using the modern technology, which lead to the establishment of a dual economy in those countries where the economies of developing countries become consists of two separate relatively advanced in terms of technology represented by the branches foreign companies and for other backward technology and contains the national companies. Add to this that the investments of these companies may be directed towards the extractive industries in order to exploit natural resources for the developing countries without manufacturing of those resources in the country and thus contribute to the limited development of the manufacturing sector, and may not abide by some of these companies take care of environmental safety. 7 - balance of payments support the host country, may be primary or direct effects of FDI on the balance of payments of the host country, are positive due to the increase in the country's foreign exchange account (capital transactions), this in addition to the multinational corporations by virtue of their international contacts and experience network, as well as international markets thanks to the reputation of those companies in international markets and the associated name and brand, those companies will allow for greater potential host countries for the invasion of export markets and increase export earnings, but those effects on the balance of payments in the medium term are often negative and because a number of reasons The most important are the following: -- That the positive effects on the balance of payments and the accompanying flow of foreign investment that will quickly reverse itself after a period where the negative effects that the activity of multinational companies will lead to an increase in imports of the host country of intermediate goods and services, and those companies will begin to shift their profits abroad, This is in addition to payment of interest on financing provided to such companies from banks abroad and pay for patents and technical aid, this in addition to convert part of the salaries of foreign workers in 12

these projects abroad, and there are indirect costs that should be taken into account, in case adequacy of the revenues of the current foreign exchange for the host country in order to serve foreign investment. - Despite the possibility of increasing exports of the host country through the activity of the multinationals and the wide network of contacts in international markets, there are practices of these companies limit the importance of this possibility, and such practices by the company itself to limit exports of host countries where its branches that the branch often prohibited contested the parent company in the world market, or perhaps not allowed to export only those sections for specific markets, according to the so-called (restrictive conditions Restrictive Clauses), has formed a remarkable trend of such practices by multinational corporations, some of the considerations such as the desire to protect the parent company markets or markets of some other branches, and also the parent company may seek to regulate the return on technology and technical aid, which is owned as to reduce the possibility of some branches to reach certain markets provide an opportunity for the appropriate branches to buy know-how covers the production of those markets. - There is more pressure may fall on the balance of payments of the host State, as a result of pricing policy for exports and imports, followed by the multinational companies, especially in the case of vertical integration with a number of its subsidiaries, as the parent company had overstated prices for goods and services provided by some branches of Over - Invoicing, and that the parent company may resort to the pricing of exports of goods and services from some branches less than its true value, and may be the motive behind the policy is followed in the pricing of imports and exports is a multinational company's attempt to shift the burden of taxes from a state with higher tax rates to other lower rates, or they may resort to covert a means for the transfer of profits from the state to impose severe restrictions on the transfer of profits and capital to another country with less stringent restrictions in this area.

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It is worth mentioning that there are some studies indicate that multinationals have played an important role in the development of industrial exports as in the case of the Asian tigers, and those companies in that role either directly through its export products in developing countries, branches abroad or indirectly its technology through the spread between the national companies in developing countries or through the contribution of these companies in raising efficiency in the productivity of national companies making the products of these latter companies more competitive in international markets. Finally, you may be able to contribute to multinational companies in this field through special agreements marketing and distribution. There is a range of important results and observations referred to in the following: -- The results of some studies indicate that foreign direct investment in host countries with a high degree of protection against imports less export-oriented investments in those countries with levels of protection at least. - The impact of foreign direct investments on the balance of payments, based on the exchange rate regime in force in the host country, as it is under the flexible exchange rates for any imbalance between supply and demand for foreign currencies are corrected by adjusting the exchange rate in case of increase to meet demand , it is a weaker exchange rate, but if the State applied the fixed exchange rates, the net increase in demand for foreign currencies, resulting from foreign direct investment would lead to reduce the surplus or increasing the deficit in balance of payments. In general, the conflict of interest is contained completely between the mother country and the host country and is in part as follows: - 12 1 - in the interest of the mother country to lead direct investment abroad to enhance their trade and export, while most of the countries want to lead the host of foreign investment to the balance of payments support through import substitution, at least.

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2 - In the interest of the host State to regulate foreign trade to achieve the best possible return on it, while that in the interests of transnational companies to achieve the best possible integration of its global operations by pressing for liberalization of foreign trade of the host countries in terms of customs and administrative. 3 - Direct investment in foreign countries to promote the end monopolistic nature of the market the state's national mother. 4 - As for the conflict of interest on the role of direct investment abroad in the distribution of markets among themselves, although there are a total interest of the monopolistic sector companies in the liberation of international trade, each individual company may coexist with different types of protectionist policies of the host country if it guarantees them access to a greater share in the domestic market for these countries, or through closed, at least in part to discrimination against exports from other foreign rivals that do not have a projects in this market.

III: multinational corporations and their relationship to foreign direct investment Is a multi-national companies as the locomotive that is taking place behind FDI into various regions of the world 1. They were numerous definitions of multinational corporations, given the multiplicity of terminology foreign to them, Some so-called foreign companies Foreign Firms, or international companies, International Enterprises

,Multinational

Corporations

MNCs

,Transnational

Corporations

TNCs 2 will also launch by the United Nations to clarify that it is not capital companies have more than one State, but are companies that have branches in many countries and is working to follow the strategy specified by the parent company 3. Has adopted all of the world Dunning, the Economic and Social Council of the United Nations definition of room for these companies, known as a multinational company as those in which the facility, which has the means of production and control, and initiate activities, whether in production or sales or services in two or 15

more4. The Behrman world has added a strategic global production standard of this definition, where the former finds that multinational companies are the ones that control the production units in more than one country and managed as part of a unified strategy. The world Vernon, introduced a more comprehensive definition of these companies is that the multinational corporations who control the a certain number of production units in six foreign countries or more, to increase its turnover or annual sales of 100 million U.S. dollars outside the mother country, and all this within the framework of a unified strategy 5. The Organization of UNCTAD defines these companies as those institutions with limited liability or unlimited, which is composed of the parent company and its subsidiaries of foreign parent company is the owner of the assets used in production abroad. Section foreign Foreign Branch (owned in whole or in part) is the institution of limited liability limited or non-based host Host Country, which owns the company motherland Home Country share allow them the right to participate in the administration 6. These companies are characterized by many of the characteristics that distinguish them from other companies, such as large size, technological superiority, of belonging to countries industrially advanced market economies, to increase the degree of diversity and integration, control, oligopolistic markets 7. And multinational companies are working to invest in areas with high rates of profit with the diversity and change of activity and production centers in line and to achieve that goal. And these companies exploit the many advantages enjoyed by, the most important technological advance and the administrative and management techniques developed, as well as the ability to access global markets, including owned means of advertising 8. It should be noted the huge growth in the number of multinational companies, where there is at present no less than 61 A parent company has about 900 thousand foreign affiliates represent a balance of direct foreign investment amounted to some $ 7 16

trillion, compared to 9 A 39 a parent company, has nearly 279 thousand branches in all parts of the world, with investment of 2.7 trillion dollars in 1995. 10

IV: Types of FDI : Foreign direct investment takes several forms, which can apply, depending on the purpose of this investment below an overview of these purposes: - 23 Natural-resource-seeking FDI is the oldest form of TNC involvement in developing countries. It is undoubtedly trade creating on the production (or output) side: FDI is often a precondition for the production of primary commodities for foreign markets, especially in developing countries, and generates a stream of exports of natural resources that would not have otherwise occurred. From the side of inputs used and consumption generated, there are also positive trade effects, since naturalresource-oriented FDI is usually accompanied by a flow of imports of capital goods, specialized intermediate inputs, and consumer goods.3 Additional gains can be derived by host countries through the processing of natural resources; trade policies prevailing in importing countries, however, particularly those leading to tariff escalation, tend to discourage local processing in developing countries. Market-seeking FDI became the predominant motive for investing in the manufacturing sector of developing countries in the 1960s and 1970s during the heyday of import-substitution industrialization. This motivation also was paramount in the wave of United States investments in Europe in the early postwar period and in Japanese investment in the United States since the early 1980s. Generally, market-seeking investment in manufacturing is a gross substitute for exporting from the home country, and its existence is often due to import barriers in host countries. It has trade-reducing effects on the production side, but trade-creating effects in so far as inputs used in production are concerned, since import substitution leads to a change in the composition of imports towards intermediate inputs and capital equipment. Any market seeking investment will also normally have multiplier effects on domestic demand and 17

production, which could lead to significant indirect increases in imports. Thus, investment-related trade measures (IRTMs) are of interest in discussions about a possible multilateral framework on investment. There are causes other than trade barriers for market-seeking investment. In some cases, significant transport costs may make investment in a host country an efficient alternative to exporting to it. Differences in consumer tastes and the need to adapt a product to local conditions and inputs may also recommend catering to the domestic market through investment rather than exporting. . Efficiency-seeking FDI occurs when TNCs locate part of their value-added chain abroad in order to improve the profitability of their overall operations. The oldest such investments have been labor-seeking investments. As wages rose in home countries, TNCs sought to obtain access to low-cost labor in developing countries by locating in them the labor-intensive segments of their production processes. This has been a characteristic of some Japanese investment in Asia; United States investment in Mexico, Central America and Asia; and European investment in Central and Eastern Europe. More recently, as real wages have risen over time in some of the Asian countries that were first to industrialize with an outward oriented strategy, labor-seeking investment has moved on to other, lower-wage Asian countries. Strategic-asset-seeking FDI: usually takes place at an advanced stage of the globalization of a firm’s activities when firms, including a few from developing countries, invest abroad in order to acquire research-and-development capabilities. As already noted, integrated international production involves the location of any component in the value-added chain where it contributes most to a TNC’s profitability. Thus it may be efficient for a firm to relocate design, research and development from its home base to a foreign affiliate. Some developing countries are, or can make themselves, able to attract this kind of FDI through investment in human resources and infrastructure; for example, the availability of skilled personnel and the requisite telecommunications infrastructure have contributed to the location of 18

research-and-development centers and headquarters' services by TNCs in Singapore, software development in India, and service centers for airline reservations in the Caribbean. These investments are trade-creating in production and consumption. For the developing countries involved, this kind of FDI is tantamount to exporting highskill labor services. And it usually gives rise to exports of services and equipment from home countries.

V: Indicators of FDI analysis Usually assisted by the foreign investor some of the indicators and the results offered by the competent bodies and before the foot to invest in the country The following is a summary of the most important of these indicators, without giving details. 1 - Performance Index and an indicator of the potential inward FDI Performance Index and FDI Potential Index Secretariat launched the United Nations Conference on Trade and Development UNCTAD for the first time in the World Investment Report 2001 index of foreign investment for uncovering how successful the country's efforts in attracting foreign direct investment from the perspective of trying to compare the economic power of the state and the extent compatible with the degree of the contribution of FDI in its domestic and overseas and the creation of Jobs in the labor market. UNCTAD has developed this indicator in their reports the following, where The report of the United Nations to measure the performance of States in the field of attracting direct foreign investments of two parameters: First, is an indicator of performance and indicates how the success of its economy to attract foreign direct investment, and measure the performance indicator of a country's share of the country of foreign investment globally to the country's share of the GDP of the world and is taking average of the last three years to reduce the impact of seasonal factors, while the second indicator is the indicator of the potential of attracting investment and 19

measure the potential of its economy to attract foreign investment, based on this indicator to 13 component to measure the capabilities of the country and include growth rate of gross domestic product, per capita income, the ratio of exports to output, the spread of fixed line penetration of mobile phone, the average energy consumption per capita, the proportion of spending on research and development to GDP, the ratio of postgraduate to the total population, the country's sovereign rating , the proportion of exports of natural resources of the world, the proportion of the import of spare parts for electric appliances and cars to the world, the proportion of the country's exports of services to the world, the proportion of the country's cumulative balance of inward FDI to the world. divides UNCTAD States as the intersection of performance indicators and potential as follows: - Group the first countries, ie countries with high performance and high potential. - Group of States without the resources, ie, those with low performance and potential is high. - Group of the highest potentials, ie those with high performance and potential is low. - Group of countries with low performance, namely those countries which are characterized by low performance and potential low 11. 2 - Country Risk Index: Became a foundation of Political Risk Services of the most famous of these entities which will issue reports on various countries and arranges these countries with regard to the degree of risk they receive. The system is based on risk assessment to give numerical values (called the points of risk) for a number of components of risk are identified in advance, where given higher numbers of low-risk. has collected the various components of country risk under three groups: political risk, economic risks, the risks of funding. The risk sub-score of the group overall risk index for the group 12. 20

3 - Triple composite index to measure the wealth of nations to the economies of Emerging Wealth OF Nations Index for Emerging Economies This indicator is issued by the Center for Financial Affairs, established by a rackworld events of America since 1996 at a rate twice a year for the purpose of measuring the ability of emerging economies to achieve balanced development, as well as their capability to provide a stable investment environment and attracting. Composite index is based on three sub-indices include 63 components are: 1. Indicator of the economic environment (21 element covering key economic indicators, indicators of integration into the global economy, environment, business performance indicators). 2. Index information infrastructure (21 component indicators covering quality of education indicators, information infrastructure). 3. Indicator of the social environment (21 indicators covering a development and social stability, health indicators, global indicators, the protection of the natural environment).

Chapter II Trends and the evolution of foreign direct investment 19922003 Is the flow of foreign direct investment to become a global phenomenon across the advanced countries and developing ones alike compete for the largest share of this flow. Has resulted in economic globalization and the opening up of export markets has increased the need to raise the competitiveness of nations to increase their share of export and direct investment plays an important role Alohnby narrow the technological gap between developing and developed countries through technology transfer, as well as it is characterized by relative stability compared to investments in securities. 21

In this chapter is the analysis of trends and the evolution of foreign direct investment during the period (1992-2003), as follows: -First: the factors that led to increased flows of foreign direct investment. II: the evolution of flows of FDI and the most important trends during the period (1992-2003) III: the evolution of flows of FDI and the most important trends during the period (1992-2003) IV: the evolution of FDI stock during the period (1992-2003)

First: the factors that led to increased flows of foreign direct investment Witnessed FDI inflows grew rapidly during the last two decades and has increased by three times over the period 1982-1990 to reach $ 203 billion in 1990, compared to about $ 59 billion in 1982. And then increased by about seven times during the period 1990-2000 to about 1490 billion dollars 2000. 13, but started to fall in the following years to reach $ 560 billion in 2003. This can be ascribed the increases in foreign direct investment flows to many factors, including the following points: 14 1 - a significant increase in the need for States to external financing at a time when declining savings rate in the world and it also decreased other sources of financing for many developing countries, where the global savings rate has fallen from about 23.2% during 1974-1985 to about 21.2% during the the period from 1986-1997 and then continued to decline up to 19% in 2002. 15 2 - Easing the movement of international lending by the outbreak of the international debt crisis in 1982 and stopped many from developing countries to pay their debt burden, in addition to increased conditionality for loans provided by international 22

organizations, which may conflict with the decisions of policy makers in borrowing countries. 3 - the disintegration of the former Soviet Union, the economic transformation adopted by the States of Eastern Europe after the disintegration and consequent increased demand for foreign investment, including FDI, in addition to the huge expansion of transnational corporations which play a key role in increasing the flow of investment foreign direct investment. 4 - the direction of many of those in debt are many, such as Argentina, Brazil, Mexico and the Philippines to the process of selling debt to investors discounted, the ratio ranged contained in this program between 20% -80% of the total FDI inflows to these countries 16. 5 - Number of bilateral agreements that encourage investments between States and the use of FDI as a means to avoid customs restrictions, which were found as a result of several economic blocs. 6 - most developing countries adopted economic reform programs include liberalization of trade and capital, and helped the enormous technological progress, especially in the field of communications on the speed of transmission of information and statistics and hence the speed of decision-making on investment in different countries, as well as technological advances that facilitated the transfer of funds from one country to another and reduced the cost of transport, something which contributed to the smooth flow of these funds. Following is a presentation of the trends and the evolution of FDI inflows during the period (1992-2003).

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II: the evolution of flows of FDI and the most important trends during the period (1992-2003). Shown in table No. (2) Statistical Annex and private flows of FDI and regional distribution during a period (1992-2003), to increase flows of FDI increased substantially during the period, which increased flows of about $ 311 billion annual average for the period ( 1992-1997) to about 1086.8, 1388 billion dollars during 1999, 2000 and an increase rate of 249.5%, 346.3%, respectively. Note, however, these low flows in the following years to around 678.8, 560 billion dollars in 2002 and 2003, respectively , ie dropped by about half what it was in 2000. As is clear from the following diagram, the developed countries control the largest share of inflows of FDI, with inflows rose to about 366.6 billion U.S. dollars in 2003, accounting for 65.5% of the total annual flow of the world, compared to 180.8 billion dollars, accounting for 58.2 % of total global direct investment flows as an average year during the period (1992-1997) There has been a significant rise in direct investment flows to developed countries during the period 1992-2000 to reach its highest level in 2000 to $ 1108 billion, representing 79.8% of total global investment flows. But it's clear from the figure that these flows took a downward trend in the years following to about 366.6 billion U.S. dollars in 2003 declined sharply by 66.8% from what it was in 2000. It should be noted that the countries of Western Europe - especially the European Union - has the largest amount of these flows, amounting to about 312.2 billion U.S. dollars, accounting for 84.6% of the total flows to developed countries in 2003, compared to 100.8 billion dollars, representing 55.8% of the total direct investment flows to developed countries average year during the period 1992-1997. Despite the rise, but it is still down about 38%, 99.6% of the flows, in 1999, 2000 and $ 500, 697.4 billion, respectively.

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It is clear also from the sharp decline in FDI inflows to the United States during the period 1992-2003 reaching 29.8 billion dollars in 2003 compared to 283.4, 314 billion dollars in 1999, 2000 and declined sharply by 89.5%, 90.5%, respectively. It also decreased about 51% over the annual average for the period 1992-1997 and of $ 60.3 billion dollars. There is no doubt that economic and technological advantages to play a prominent role in the high rate of flow to developed countries, BRIC economies of these countries are economies attractive to foreign direct investment, thanks to the openness and availability of information and data on economic projects, and reduced red tape, desktop and economic diversity that provides investment opportunities in various activities , including the activities of the service sector, which has now become the most attractive foreign direct investment. It also provides the economies of developed countries, the institutional foundations necessary to maintain the individual property and the property, which provides legal and legislative guarantees for the activities of foreign investors, as well as most of these countries are depending on bilateral agreements multilateral to prevent double taxation and thus encourage the flow and movement of capital, in addition to the availability of modern infrastructure that facilitates economic activity, as it provides a legal framework for the differences in the disposition of a commercial nature and financial support through specialized courts, ie, the legislative and legal frameworks provide the benefits of essential to support the activities of the private sector, including the foreign, as well as developing countries to provide diversified investment opportunities, so we find that the most economic sectors are open 17. For developing countries, notes that despite the increased flows of foreign direct investment peaked in 2000 at $ 252.5 billion compared to $ 118.6 billion annual average for the States period (1992-1997), but that the share of the total FDI inflows has declined to about 18.2% in 2000 compared with 38.1% annual average for the period (1992-1997).

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It also notes the decline in these flows in the following years to reach 157.6 billion dollars, accounting for 23.2% of the total global direct investment flows in 2002, but rose by 9% in 2003 to nearly 172 billion dollars, accounting for 28% of the total global direct investment flows . Despite the fact that developing countries become more attractive to foreign direct investment flows, but it - and as evidenced in the following figure - there is unequal and obvious differences in the flow of these investments to different regions in developing countries, attracting some of the emerging markets, the lion's share of these investments without other markets , did not distribute these flows horizontally dramatically, as shown in the following brief presentation of the most important major

trends

Lhz

flows:

--

First: Asia and the Pacific: no exaggeration to say that the Asia and Pacific accounts for the lion's share of direct investment flows to developing countries, it notes the previous format recovery in the massive flows of up to about 146.2 billion U.S. dollars, representing about 58% of the total inflows to developing countries in 2000 compared to $ 74.5 billion annual average for the period (92-97), equivalent to 62.5% of the total inflows to developing countries during the period. It is noted that capital flows have declined in the following years to nearly $ 94.5 billion, equivalent to 60% of the total inflows to developing countries in 2002, then rose to reach $ 107 billion, accounting for 62.2 of the total flows to developing countries during 2003 and a growth rate of 14% compared to 2002. It could be argued that the growth rates and high economic performance and improve the investment environment and regional integration within the region and the relocation of production activities and the expansion of regional networks by multinational companies was the cause of improvement and increase direct investment flows to these countries. It is noted that the balance of foreign direct investment in services has risen from 43% of the total stock of inward investment to 26

the region in 1995 to 50% in 2002, while the balance of the manufacturing has been reduced to 44% 18. II: Africa region: notes from the previous format of a significant improvement in the flows of FDI to Africa during the period (1992-2003), rising to 15 billion dollars in 2003, representing 8.7% of the total flows to developing countries, compared to about $ 5.9 billion annual average for the period (1992-1997) and representing about 5% during that period. Despite this increase, it is still less than the peak reached in 2001, amounting to 19.6 billion dollars, representing 8.9% of the total direct investment flows to developing countries . It could be argued that the relative delay in the application of economic reform programs, compared with Asian and Latin America as well that Africa has the largest concentration of the least developed countries in the world - which have not been able to attract only a very limited direct foreign investment - and the continent is also a lack of trained human resources and pubic hair the continent of wars and ethnic conflicts during the nineties was the reason to make it unsafe for the flow of foreign direct investment 19. In general, the country is rich in natural resources (Angola, Chad, South Africa, Equatorial Guinea, Nigeria) have constituted the main destinations for foreign direct investment flows to Africa 20. III: Latin America and the Caribbean: increased international investment flows reaching the area to around 107 billion dollars in 1999 compared to $ 38.2 billion and accounting for 32.2% of the total direct investment flows-year average for the period (92-97). It is noted that these flows had took a downward trend during the period (992003), which dropped from a peak reached by 1999, representing some 46.3% of the total direct incoming flows to developing countries to about 49.7 billion dollars, representing 28.9% of the total flows to developing countries in 2003.

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We can say that there are a number of factors have combined with each other and this led to a gradual decrease in direct investment flows to the region beginning in 1999, a severe economic crisis in Argentina, the economic and political uncertainty in some countries, weak economic recovery in the EU (which is the main source of outward foreign direct investment to the region, regardless of the United States), and stagnation or slow growth in several countries in the region, has led to a contraction of foreign direct investment, and the services sector was hardest hit by this decline, demonstrating direct investment in manufacturing investment that is quite flexible, and rarely undergone any change, despite the slowdown in major export destination in the region, the United States, and increasing the transfer of activities that require labor-intensive to Asia 21. IV: Central Europe and Eastern Europe: This region has seen a remarkable recovery in total in direct investment flows within it, which rose from about $ 11.5 billion annual average for the period (1992-1997), equivalent to 9.7% of the total flows to developing countries to about 27.5 billion dollars, including represents 10.9% of the total flows to developing countries in 2000, and then to about $ 31.2 billion in 2002 and representing 19.8% of the total investment flows to developing countries, but fell to about $ 21 billion, representing 12.2% of the total flows to developing countries in 2003. It is worth noting the divergent flows of foreign direct investment among industries in this region, while the progress is investment in the auto industry been quite successful, is facing investment in the electronics industry problems, has emerged as a trend in companies (including foreign affiliates) located in several countries of Central and Eastern Europe, particularly those which joined the European Union, to halt the activities carried out by unskilled labor and to expand activities with high added value and benefit from the educational level of the local workforce 1. Several countries of the EU's new members, as part of its efforts to support the attractiveness to investors (foreign and local) to cut corporate taxes to a level equaled 28

those in places such as Ireland. This combination of relatively low wages, low tax rates on corporations, and access to subsidies from the European Union - which has increased the presence of a favorable investment environment and a skilled workforce with a high degree and the possibility of free access to the rest of the EU market - is making the acceding countries attractive places for foreign investment, both direct from EU countries or from other States 2 .

III: the evolution of FDI outflows and the most important trends during the period (1992-2003). Data show in Table (3) high FDI outflows increased substantially during the period 1992-2003, having increased cash outflows of U.S. $ 328.2 billion annual average for the period (92-97) to about 1.1868 trillion U.S. dollars in 2000, and then take that flow in substantial downside to that reached 596.5 billion dollars in 2002, which is equivalent to half of the flows in 2000. This is mainly due to a wave of economic recession, which suffered the world economy. and a notable rise in the flows slightly in 2003 to reach 612.2 billion dollars. It should be noted that the annual growth rate of these flows has grown significantly as shown in Table (1) - at this rate is about 35.1% during the period (96-2000), compared to 16.6% during the period (91-95). has increased the rate to 2.6% in 2003 compared to an average decline of 17.3% in 2002. It is clear in the following figure that the main source of FDI inflows is the developed countries, where its share is about 93% of cash outflows for investments in the world as a whole in 2003, while the share of developing countries about 5.8% of those flows. It is noted that the EU's share of the total global direct investment flows amounted to 44% annual average for the period (92-97), and then rose to 72.4%, 55% in 2000 and 2003, respectively. It is also clear that the biggest exporters of foreign direct

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investment in developed countries are the EU countries and America, where they hold them to about 80% of those flows in 2003. As for the flows of developing countries, it notes the declining share of about 15.7% of the total direct investment flows as the average for the period (92-1997) to about 8.3% in 2000, then to about 5.8% in 2003. It is clear in the following figure that the States of South and East Asia still accounts for the overwhelming proportion of investment flows from developing countries increased from $ 39 billion annual average for the period (92-97), representing 75.9% of the total flows of investment from developing countries to 80 billion dollars, representing about 81% of the total cash outflows from developing countries in 2000. It is noted that these flows took a downward trend in the following years to reach 23.5 billion dollars, representing 66% of the total flows from developing countries for the year 2003 3.

IV: the evolution of FDI stock during the period (1992-2003) Saw the balance of foreign direct investment, whether incoming or outgoing remarkable development during the period 1992-2003. As is clear from the data in Table (1) has increased the balance of inward FDI to about 8245 billion U.S. dollars in 2003, equivalent to about 113% of the total composition fixed capital, and approximately 22.8% of the total global GDP at current prices, compared to about 1950 billion dollars, representing 40.5% of the total fixed capital formation, and about 8.6% of the total global GDP at current prices in 1990, and about 796 billion dollars in 1982, representing 34.8% of the total fixed capital formation, and about 6.8% of the total global GDP at current prices. Also stepped up the balance of outward FDI during the same period from about 590 billion dollars in 1982, representing 25.8% of the total fixed capital formation, and about 5% of the total global GDP at current prices to around 1758 billion dollars, representing 36.5% of the total fixed capital formation, and about 7.8% of the total 30

global GDP at current prices in 1990, and then to about 8197 billion U.S. dollars in 2003, equivalent to about 112.4% of the total fixed capital formation, and about 22.7% of GDP the world at current prices. On the other hand, he notes increasing the rate of growth of the balance of inward FDI to about 16.9% during the period (1996-2000) compared to 9.3% during the period (1991-1995), also rose to 12.7% in 2002 compared to 7.4% in 2001, but it declined to 11.8% in 2003. And also increased the growth rate of FDI stock issued for up to about 17.1% during the period (1996-2000) compared to 10.7% during the period (1991-1995), and also rose to 13.8% in 2002 compared to 5.9% in 2001, but it decreased slightly in 2003 to 13.7%.

Chapter III Development of the Arab States of the foreign direct investment flows In most Arab countries the introduction of several amendments to the laws relating to investment, their overall aim, to encourage and attract foreign investment in accordance with the principles and specific controls and to cover the financing needs of local communities and the transfer of experience to this sophisticated market. It has also devoted a growing interest to create an environment more conducive and attractive for foreign investment direct. Nevertheless, these efforts have not only attract a small amount of FDI inflows and not up to the desired level. The following are the most important features of FDI in the Arab countries during the period (19952003)

First: the evolution of FDI flows to Arab countries during the period (95-2003) 31

Data from World Investment Report, published by UNCTAD in 2004 - and as shown in the following Table No. (4) Statistical Annex - that direct investment flows to Arab countries (21 nations included in the report) has seen an increase of 60% in 2003 compared to the previous year, where they amounted to about 8.61 billion U.S. dollars in 2003, representing 5.01% of the share of developing countries and about 1.54% of total global investment compared to a 0.8% of the total FDI inflows in the world, 3.4% of the total FDI inflows to developing countries in in 2002 1. The data also show in Table (5) Statistical Annex to the total flows of FDI to Arab countries during the period (95-2003) had reached 46.7 billion dollars at a rate of about 2.77% of total inward FDI to developing countries, the ratio of 0.73% of total these flows to the world and an annual average rate of flow of $ 5.2 billion during the same period. It is noted that Morocco has received a cumulative flows during the period amounted to 8.95 billion dollars at a rate of 19.2% of the total cumulative flows, followed by Egypt at $ 6.9 billion by 14.8%, followed by Algeria about $ 5.9 billion at a rate of 10.5%, Tunisia increased by 4.8 billion U.S. dollars, or 10.3%, then the United Arab Emirates at 4.6 billion dollars, 10% of the total flows Rollup 2. It should be noted that the share of the Arab States of the total FDI received were declined during the period (95-2003) compared to the period (89-94), which amounted to about 2.77% of total FDI to developing countries, about 0.73% of total foreign direct investment the world during the period (95-2003) compared to 4.8% of total FDI to developing countries, about 1.4% of the total inward FDI in the world during the period (89-94) 3. It is noted from Table (4) is also low numbers of these flows to Arab countries except Morocco in 2001 where he sold 35% stake in Maroc Telecom $ 2.7 billion to$ 4 a foreign investor, and in 2003 was able to get 1.7 billion euros a result of privatization Morocco's National Tobacco Company 5. As for the total flows of FDI from the Arab countries during the period (952003), has issued the Arab countries combined direct investments outside diameter 32

with a value of $ 4.1 billion during the period (95-2003), formed the accumulation marginally by 0.5% of investment outward FDI from developing countries during this period, and by 0.1% of FDI worldwide and the average annual flow of $ 513 billion per year 6. It is noted that these flows have shifted from a positive $ 962 million in 2002 to minus 2.83 million dollars in 2003, due to a massive shift in the share of the State of Kuwait from a negative $ 155 million to a negative 4.99 billion dollars during the same period 7. According to the database which is monitored by the UNCTAD geographical distribution of the multinational companies has reached the number of such parent companies in the Arab countries 251 companies in 2002 out of the 65 thousand companies in the world by 4965 to a sister company and subsidiary of 850 A sister company and subsidiary of the world , concentrated in Tunisia (142 parent company, 2503 is a sister company and subsidiary), Saudi Arabia (461 is a sister company and subsidiary), Oman (92 parent company, 351 is a sister company and subsidiary), Morocco (194 is a sister company and subsidiary), UAE (185 is a sister company and subsidiary .) as the share of the Arab States of the total mergers and acquisitions worldwide during the period (95-2002) as a seller and buyer about 0.33%, which is a small 8.

Second: Arab countries in the development of performance indicators and the potential for flows of FDI 1 - The performance indicator of the country in attracting foreign investment

Table No. (6) Statistical Annex evolution of the order of the Arab countries (16 Arab countries out of 140 countries) in the index of the period (95-97) to the period (20012003) and review the notes to Table 8 Arab countries improved its position in the index during this period included Sudan, Morocco, Tunisia, Lebanon, Algeria, UAE, Libya and Yemen, while the decline arrangement (7) states of Bahrain, Qatar, Jordan, Syria, Egypt, Kuwait and Saudi Arabia, Sultanate of Oman has maintained on the

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same site came Sudan, Morocco, Bahrain, Tunisia and Qatar at the forefront of Arab countries in terms of performance in attracting investment inward FDI. 2 - Index of the country's potential in attracting foreign investment

Review of Table (7) noted that the Annex (11) Arab country to improve its capabilities in the index during the period (2000-2002), the most recent period available, the data are compared with performance during the period (95-97), including Qatar, Kuwait, Bahrain, Libya, Egypt, Tunisia, Algeria and Yemen Morocco and Sudan, while the retreat site (5) countries during those two periods, including the UAE, Saudi Arabia, Jordan, Oman and Syria. has made the Gulf Arab states (Qatar and the UAE, Kuwait and Saudi Arabia) at the forefront of Arab States, Qatar and the UAE has achieved an advanced position by joining the group the top 25 countries in the world in the index of the potential out of 140 countries entered the index. UNCTAD has been ranked Sixteen Arab countries according to the intersection of performance indicators and the potential in attracting foreign direct investment for the period (2000-2002) as follows: - 9 •

Group of the first countries (high performance and high potential): This includes a single Arab country is Jordan.

•

Group of States below its potential (low-performing and high potential): This includes 9 Arab countries are the UAE, Bahrain, Egypt, Kuwait, Lebanon, Libya, Qatar, Oman, Saudi Arabia

•

Group of the top of its potential (the potential of high performance and low): This includes the 3 Arab countries, namely Tunisia, Morocco, Sudan

•

Group of countries with low performance (low performance and potential low): This includes the 3 Arab countries, namely Algeria, Syria and Yemen.

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III: the evolution of the relative importance of foreign direct investment in Arab States (92-2003) Consider the relative importance of direct foreign investment in various economies through indicators; I: the ratio of FDI to fixed capital formation, the second: the proportion of the accumulated balance or FDI inflows to gross domestic product. The following are introduced to the evolution of these indicators in the Arab countries during the period (1992-2003) 1-Evolution of the ratio of FDI to fixed capital formation:

In the following figure shows that the ratio of FDI to fixed capital formation in the world has taken an upward trend, rising from 5.2% on average for the period (92-97) to the highest value in 2000, amounting to 19.8%, and declined thereafter to 7.5% in 2003. It is also clear that this trend has prevailed for the developed countries, where the percentage rose from 4.2% to 21.3% and then declined to 6.7% during the same period. And also for the developing countries, where the total rose from 7.9% on average for the period 92-97 to 14.9% in 2000 , but decreased to 10% in 2003. but note that the Arab countries have differed from the other regions where the ratio fell from 7.98% on average for the period 92-97 to 6.41% in 1999 and then began to rise gradually in the following years to reach the highest level in 2003, when it reached about 18.65%. In general we can say that this percentage was less than the rates achieved for both developing countries or for the world except the last two years and who have seen a marked improvement in that ratio, and also to the average for the period 92-97. It should be noted - Table No. (8) - the increase of such ratio in the Sudan, Mauritania and so in close association with the exploitation of oil wealth, which reinforce the conclusion that one of the determinants flow of foreign investment is the wealth of exploitable natural trade.

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2-Evolution of the proportion of FDI inflows to gross domestic product:

As for the evolution of the proportion of flows of FDI to Arab countries and as described in the following notes the gradual rise of this percentage during the years 1980-2003, where the percentage rose to nearly 8.7% in 1985 compared to about 5.4% in 1980 and then continued to rise during the years 1990, 1995 to approximately 10.5%, 12.6%, respectively. has the highest percentage during 2003 to approximately 21.6%. It is noted that these percentages, although more than the global level achieved in the past 85, 90, 95, but less than these percentages during the years 2000-2003, also notes that the ratios in the Arab countries well below the level achieved in developing countries, which rose from 12.4% in 1980 to 16.3% in 1995 and reached 31.4% in 2003. see Table No. (10) Statistical Annex. It is noteworthy that also noted a decline in net flows of FDI to GDP in the Arab countries during 2002 compared to 1990, which reached 0.6% compared to 0.9%. It is noted that this figure is far below the growth recorded in the developing countries in 2002 and of 2.5% and the country's least developed countries and Sub-Saharan Africa amounted to 2.9%, 2.4%, respectively 10. The decrease in this percentage means that GDP growth in the Arab countries, which is already quite low, it was faster than the flow of FDI in these countries 11. In sum, the Arab countries did not succeed in becoming sites attract significant foreign direct investment compared to other developing countries such as Brazil, Mexico, China or even Hong Kong and Singapore, which was by this flow in 2003, about 10.1, 10.78, 53.51, 13.56, 11.41 ‫ ر‬the order of $ 12. Can be ascribed to this low flow of Arab States to several economic and political factors, the most important economic factors in the slow implementation of economic reform programs in a large number of these countries, and limited privatization, especially in the services sector, which is one of the most important 36

factors in attracting foreign direct investment on the level of the world, In addition, the laws that protect and promote individual economic activity, including the foreign, such as intellectual property laws and laws to encourage competition while still at the stage of political debate, legislative or at the beginning of the implementation phase, which means that it needs more time to have a active role in increasing FDI flows to Arab countries, as well as acquisitions and property between domestic and foreign firms is still limited as previously noted, which explains the lower the flow of this type of investment to the region. The political factor, is the instability in the Arab region The failure to reach a lasting and comprehensive solution to the Palestinian issue and the wars in the Arabian Gulf and the U.S. invasion of Iraq and the spread of many terrorist operations in several Arab countries, which adversely affected the confidence of foreign investors in the economies of the Arab region and its ability to grow.

Chapter IV Developing of foreign direct investment to the Arab countries Arab States aim to achieve rates of economic and social development of a high order to solve problems that they confront, such as the problems of unemployment and balance of payments deficit, weak savings and investment rates in many countries in the region. FDI is an important means to promote trade and economic growth, as it provides access to advanced technology and capital and to identify the practices of modern management and communication markets of developed countries. Arab countries have several factors attract foreign direct investment would enable it to achieve its main objectives, namely to exist in the world market with high profits. The Arab region is a big market, where the data indicate Unified Arab Economic Report for 2004 that the area of the Arab world, accounting for 10.2% of the world , home to approximately 300 million people, representing 4.6% of the world's population. The per capita GDP at market prices to 2492 dollars a year. The Arab region has a lot of natural resources and energy sources, as the region produces about 37

29.7% of world oil production and about 13.9% of natural gas. The region has about 59.3% of proven world reserves of oil, and about 30.5% of the world reserves of natural gas 13 .. So the Arab governments, has the burden is essential to promote foreign investment and maximum benefit of that investment to support economic development. The following are the most important policies that can work on the development of foreign direct investment to the Arab States 14.

First: Improving the investment climate in Arab countries Affected the flow of foreign direct investment mainly to the overall economic and social conditions and political prevail in the country for future investment, as these conditions represent the so-called investment environment, and as defined by the Arab Institution for Investment Guarantee expression goes out to the overall investment climate conditions and circumstances constituting the perimeter, which is the investment process, and the impact of those conditions and circumstances positively and negatively on the chances of success of investment projects, and consequently on the movement and investment trends, the conditions and circumstances, including political, economic, social and security, and include the legal and administrative arrangements. The institution notes that these elements are often intertwined and interrelated, some of them static or quasi-static . But the majority of a changing nature, and then they affect and are affected each other, which creates interaction and deteriorate once again, new situations with data translated into different sum to attractions or desires of the expulsion of capital. On the other hand, can be linked to the concept of the field of investment climate policy economic aggregate, through the definition of a stable economic environment and incentive for attracting investment in the economy aggregate, as those of a small deficit in the general budget, and the potential deficit in the balance of payments to be financed by the regular flow of foreign aid or borrowing a normal global financial markets. which is characterized by also low rates of inflation, stable exchange rate, political and institutional environment stable and transparent and predictable for the purposes of financial planning, trade and investment by individuals, institutions and bodies15. 38

The following figure shows improvement in the composite index for the component of economic policies (the balance of internal and external balance and inflation rate) for the investment climate in Arab countries, which was an attempt to measure the degree of improvement or decline in the performance of Arab economies and characterization of the investment climate 16. Indicator has improved during 2003, amounting to 1.01 compared with 0.9 in 2002, 0.7 in 2001, while still below the highest level in about 1.2 in 2000. Less than 1

From 1-2

Of 2-3

Lack

of Improvement in A

improvement

in the

the

investment improvement

investment climate

climate

significant in

investment climate

And government policies and behaviors can strongly influence the investment climate through its impact on: costs, risks and barriers to competition. Therefore, the World Development Report for 2005 underlines the important role played by the government to find a secure and stable environment, including the protection of property rights. The report noted that policy uncertainty and instability in the macroeconomic and regulatory random constitute 51% of the risks associated with the concerns of policy-related companies the investment climate. The report also found that it would improve the clarity and the information of policy alone may lead to an increase of new investments by 30% 17. And highlights the World Bank report referred to four deeper challenges should be addressed to the Governments concerned to improve the investment climate in their countries: •

Reduce corruption and other forms of opportunistic behavior. The majority of firms in developing countries reported on having to pay bribes when dealing with officials, and many of them to consider corruption as the greatest 39

obstacles to the work need to be addressed. The influence exercised by companies that have the political clout of these distorting policies and methods of application. •

Establish the credibility of government policies. The new laws have been enacted which had little impact where companies do not see that those laws will be enforced or strengthened.

•

Promote popular participation. , Failure to build public support for the creation of a more productive pace of the reforms and endangering the continuity of the risk.

•

Policy flexibility and suitability for local conditions. Lead curriculum transmitted other countries without any study on the results of weak or counterproductive.

It must be emphasized that as a result of developments and trends of the modern world must be re-considered and a correction in some Muslim women in the economic theories on which they depend, not only the investment environment model simply giving tax breaks to facilitate the registration and licensing procedures, but extends to include the package of the essential elements which must availability of combined, including: -1. The stability of macroeconomic policies: it is the presence of macroeconomic policy generally stable and sustainable condition is necessary to take advantage of the possibilities offered by financial globalization. 2. Integration of industrial policy and monetary, financial, commercial and operational with the principle of encouraging investment and promoting the investment environment. 3. A system of laws and regulations effective economic and efficient, which requires the revision of laws and updated to conform with the general thrust to stimulate investment movement to enact new laws compatible with developments on the domestic and international arenas.

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4. Simplify administrative procedures in all institutions associated with the investment activity and not only focus on the licensing and registration, but also includes a diagnosis of constraints and problems faced by the investor at all levels and find solutions to them. 5. To intensify the supervision to boost confidence in the investment environment and to ensure the tranquility of investor rights in the projects in which it invests, in addition to the need to combat corruption and mismanagement. 6. Codification and rationalization of fiscal incentives and exemptions granted to be a tool to guide and stimulate investment in projects that add to the national economy requires the existence of an investment map and a clear and integrated with the development plan.

Second: the performance of business environment reform in the Arab States: Regimes affect investment and regulations on investment decisions directly, as the simplification of procedures and mechanisms to improve enforcement of contracts and the preservation of the rights of investors, is one of the most important factors affecting the investment decision is positive. If we had an assessment of the performance of the business environment in the Arab countries in 2004, we find -Despite the continuous improvement compared with those for 2002, 2003 - they still need to further reform and facilitation. As is clear from Table No. (14) Statistical Annex seen include: -- The average number of procedures required in the Arab countries to start any business is a 10.7, ranging from a minimum of (5) procedures to the highest in Morocco (14) hold in Algeria. With the exception of Morocco and Lebanon could be argued that the number of such procedures needs to be reduced in comparison to some countries in particular that can compete with the Arab countries in attracting foreign direct investment, as the number of these procedures up to (5) in Israel, (8) in Turkey.

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- Lowering the average time to complete the licensing procedures in the Arab countries is 42.7 days, ranging between the lowest level in Morocco (11) days, and the highest level in Mauritania (82) days, with the exception of Morocco, the time is long, compared with (8) days in Singapore , (9) days in Turkey, (11) days in Hong Kong. Although this time up to (34) days in Israel, but less than the time required in most Arab countries. - The average index of investor protection index, represented disclosure or (say) is a low with a 2.1 points, while the range of 7-5 points in the rest of the comparison with the exception of Jamaica and Turkey, where the rate of 2%. And Tunisia gained the highest rating among Arab countries in This indicator registered 6 points, followed by Morocco with 4 points, followed by Jordan 3 points and the rest of the countries ranged between 1-2 points. - Also indicates a decline in average indexes of credit information, the legal rights of lenders and borrowers in the Arab world and to 1.8 points, 3.8 points respectively compared to about 4-6 points in the comparison countries with the exception of Jamaica for the first indicator, second indicator ranged between 10 -- 6 points, with the exception of Chile and Taiwan, which won 4 points each, and Turkey, which gained one point. has made Lebanon and Kuwait, the highest point in the index of credit information is verified 4 points from 6 points. As for the legal rights index ranged between zero in Egypt, 7 points in Mauritania. - A higher average number of days required for the implementation of contracts in most Arab states and of 416 days, with the exception of Tunisia, which reached the number of days to 27 days, ranging between 240 the rest of the day in Morocco, 672 days in Syria. - The large number of actions required for the enforcement of contracts and that an average of 40, ranging from 37-54 to hold in most Arab countries except Tunisia, Morocco, Mauritania, has hit these measures 14, 17, 28 procedures, respectively.

42

The indicators show the former Arab countries need to further reform and effort in this regard is reinforced by the Arab states also need to be further developed in the systems being applied in relation to exit the market (ie disinfection measures bankruptcy), which shows that the average time required for the company to get out of the market and declare bankruptcy in Arab States within 4 years, ranging from 3-8 years with the exception of Morocco (1.8 years), Lebanon (1.3 years). and this period of nearly a year in both Hong Kong and Jamaica, and about 8 months in both Taiwan and Singapore, while up to two years , 2.9 years in South Africa, Turkey, respectively. The indicators show the previous level of effort required to reform and strengthen the business environment in the Arab countries, where well-organized and simplified procedures and declared eliminate the spread of informal activities, and encourages foreign investment as confirmed by many international reports on this field, and reported that the complexity of procedures and regulations and the random spread of corruption weak implementation of the contracts is one of the most important factors affecting the investment decision in the developing countries, including Arab countries.

Third: the development and strengthening the financial sector in Arab countries: Is still the financial sector component of the banking sector and insurance sector and securities markets in most Arab countries small compared with the role expected of it, is deemed as the most important pillars of economic support and incentive for investment. Each of the banking sector and securities market intermediation between savers and investors, while providing insurance protection against various types of risk including risks related to investment in the projects. Needs of the financial sector in a large number of Arab countries to develop a fundamental of its components and its activities in the coming period, including legislative and regulatory frameworks, strengthening the financial capacity of Arab 43

banks and the development of functions and methods, and also the development of securities markets, insurance companies, including help to increase the use of financial resources available at the level of Arab countries and attract more foreign investments. The following are some economic policies that help growth and development of Arab financial sector: -1 - Banking sector: including the banking sector in the Arab countries towards the 365 banking institutions, including the base of this sector, commercial banks that provide financing for a relatively short. It is noted that some of these banks are taking in the past few years to work on the development of their financial and institutional so that the securities were issued to provide financing medium and long term. The banks are the Arab countries to strengthen their capital base and reserves, and detention rates of the profits realized in order to strengthen the rights of shareholders, given its importance in the expansion of its activities and its work. Arab banks have been able during the last period of significant strides in restructuring the institutional and legal frameworks and reflected in the following: -•

Total assets amounted to commercial banks Arabic to 608 billion dollars in 2002 against 541 billion dollars in 2000, up 12.4%

•

Deposits also rose by 28.5% to reach about 397 Mllardolar 2002, representing 62.5% of GDP, against 309 billion dollars in 2000, representing 46% of GDP.

•

Total loans and credit facilities provided by Arab banks in dollar terms by 11.7% to approximately 392.5 billion dollars in 2002, the form of credit to the private sector about 62.1% compared to 351 billion dollars in 2000, the form of credit to the private sector about 63.2%.

•

Percentage of credit to the private sector to the GDP from 34.4% in 2000 to 38.4% in 2002 (and this percentage is the standard depth of the banking sector banks).

In spite of this development witnessed by the Arab banks in terms of increased assets and capital, but it still suffers from its small size compared with other banks in 44

international markets 1. Therefore, there is a need to make greater efforts in a number of areas, including 2: -1 - To improve transparency, oversight and development of accounting systems at the national level, and study the possibility of convergence and consolidation of legislation, regulations and banking in the Arab region to ensure compatibility of these rules to the accepted international standards, and working to find common accounting standards, and regulations for the exchange of information on banks, which has operations across the borders, to develop a consistent look for the evaluation of credit. 2 - progress more rapidly in the area of privatization financial and banking institutions and to reduce government intervention - especially in countries where the state still retains much of the property - in order to strengthen competition and improve the efficiency of capital allocation and increased capacity to mobilize domestic savings. 3 - To encourage mergers among financial institutions in the Arab region, especially with increased integration of international banks, both within a single state - Japan, America - or the integration of banks across the continents, which adds a greater challenge in front of Arab Banks. And works to strengthen the integration system as a whole, makes it easier for banks to open the regional area, where they still crossborder activities are limited and many banks do not have the size or the ability to work in the international sphere. 4 - need to adapt to financial institutions in the Arab region with the great development witnessed in banking industry, especially in developed countries, which are reflected in the increasing growth in the use of Internet services and online banking, electronic commerce, and to improve their services to be ready to meet the challenges of globalization and to respond to the demands, The compliance with international treaties such as the World Trade Organization rules, and the partnership

45

agreement with the European Union will lead to increased pressure to improve economic performance and the face of powerful foreign competitors. 2 - Arab stock markets: it could attract stock market activity greater foreign direct investment through 3 ways: first, directly through further investments based on the placement of shares and, second, indirectly through new investments stimulated by expectations good for economic performance based on the rise in stock prices. Governments have worked in many Arab countries since the beginning of the nineties the development of stock markets with the implementation of wide ranging reforms covering all aspects of these markets. She also worked to bring the latest methods and standards are internationally accepted to work in in order to improve performance and enable them to mobilize domestic savings and attract foreign investment. can be summarized the most important developments in the Arab financial markets are as follows: - 4 1. Strengthening the supervisory role: Turn a growing number of Arab states towards the separation of legislative and supervisory role played by an independent agency of the Government from the executive role, which often carried out by the private sector. The restructuring of financial markets through the issuance of laws and legislation that have been separated under the oversight body in the meaning issuance of rules and provisions governing the issuance and trading of securities on the administration of the Stock Exchange through which the circulation of these papers, and the device that registers and the transfer of contracts for the purchase and sale of securities in circulation and preservation of records and documents of title 5. 2. Enhance transparency and disclosure: given the Arab stock markets close attention to increasing the degree of disclosure and modified in line with the requirements of international standards in order to strengthen the supervisory role of the market side, and to provide equal opportunities for traders in the market on the other. In addition to be doing most of these markets by issuing Entries for daily, weekly, monthly and annual reports containing general 46

information about the market and the decisions of the Board of Directors and information on trading volumes and price indices, went to the dissemination of data through the Internet to further explore business opportunities available there. Under the new regulations, as in some Arab countries, joint stock companies to submit reports in a quarter and half annually. 3. Develop

the

role

of

lead

investor

and

increase

investment

instruments: Turn of most Arab stock markets to develop this role in order to stabilize markets and protect them from sharp fluctuations. For this authorities worked to encourage savings long-term savings accounts of the events listed on the stock markets and have lower taxes on profits, It also allowed for the insurance entities and pension funds and insurance companies dealing in these markets. On the other hand, seeks Arab stock exchanges to encourage more tools and investment alternatives available to investors in convertible bonds into shares and investment funds 6. 4. Modified tax systems: directed several Arab states towards the introduction of large-scale amendments to the tax systems in place in order to create incentives for trading in securities on the one hand, and attract foreign investment on the other. And worked them to reduce or eliminate taxes on dividends and the current capital gains tax resulting from dealing in securities 7. 5. Development of systems of each of the trading, clearing and settlement: Most Arab states have tended towards the use of new technologies and modernization of trading systems have to raise the efficiency and speed of trading in securities and increase the transparency and safety to customers, has also been the introduction of remote trading service in some Arab financial markets in order to enable brokerage firms to complete transactions from its offices without the need for the presence of its delegates in the market. As for the systems Settlement and Central Depository has established several centers of Arab States custody and preservation of central and efficient working in the others were independent of the stock market, and they carry out the registration and transfer of ownership between financial intermediaries 8. 47

This has contributed to a significant activity occurs in the performance of Arab stock exchanges combined - and monitor developments that the Arab Monetary Fund During the period 1994-2003 and of following 9: -1 - The composite index of the Arab Monetary Fund by a remarkable 40.9% to reach 141.9 points in 2003. This is one of the highest level reached since the index fund an indirect starting in 1994. 2 - Increased the combined capitalization of Arab stock exchanges from around $ 72.5 billion in 1994 to about 361.8 billion dollars in 2003 at an average annual growth rate of about 20% during the period (1994-2003). 3 - The upward trend of the total trading volume rose from about $ 10.5 billion in 1994 to about 59.74 billion U.S. dollars in 2003 at an average annual growth rate of about 21.3% during the same period. 4 - The upward trend of the total number of shares traded for Arab stock markets, rising from about 3.2 billion shares in 1994 to about 63.4 billion shares in 2003, an average growth rate of 39.3% during the same period. In spite of the differing circumstances of the emergence of Arab stock exchanges and the many developments witnessed in the development of economic and social environment and their respective legal and extent of openness to each other and to external markets, the stock of these common characteristics and may be summarized as follows: -First: the small relative size of the Burning securities Arabic: ranging number of companies listed on the market rule the Arab Monetary Fund - with the exception of Egypt - between 3-161 in the company in 2003, and between the 6-163 companies during the period 1994-2003, indicates a decline in value market to GDP in most market participants with the exception of Kuwait and Bahrain, which have two high proportion of stock market capitalization to GDP, reaching 99.4% in Kuwait, 91.7% in Bahrain in 2002. The average capitalization of Arab stock to gross domestic 48

product of about 26% in in 2001 compared to an average 33% for developing countries. The reduction in the relative size of the market, and the small size of the capital market to increase the chances of unexplained fluctuations in prices, especially with weak supervision and lack of financial disclosure. Secondly: the decline of the ability of Burning Arab stock liquidity to achieve: It can monitor the character of Arab stock exchanges, weak liquidity through the study of the evolution of turnover ratio, which registered a significant decline at the end of 2003, compared with the previous year, which fell to 16.5% compared to 31 .3%. has the highest percentage of the turnover rate during the period 1994-2003 to 43.9% in 1997. Third: the low absorptive capacity to give an Arab Securities: means the ability of the Arab stock markets to attract savings and turn it into a financial investment, measured by comparing the volume in relation to gross domestic product, and indicates a decline in this ratio in most of the participating markets, except Kuwait, where he reached the about 62.9% in 2002. has reached this percentage, about 16.5% in the Saudi market, and about 7.1% in the Egyptian market in 2002. IV: Weak opportunities for diversification: these qualities lead Pega earlier to reduce the opportunity for investors to diversify their portfolio securities; This feature is common place restrictions on investment strategies; both for the individual investor or institutional investor, and in most Arab stock markets was the banking sector and the construction sector in control of the size of the circulation, then acquired shares of mobile communications and a high percentage of trading volume. Although there are some promising sectors with high profitability. Fifth: The strong fluctuations in the price: it also produces the basic characteristics distinguish the former is a key Arab stock exchanges, a high volatility in price movements, which raises the fears of foreign investors entering the market or exit therefrom.

49

VI: inadequate regulatory and legislative frameworks: Despite the noticeable improvement in this aspect, and the measures taken by Arab countries to modernize laws and legislation related to their markets, but it still faces many vulnerabilities, the most important of the absence of supporting institutions have a direct impact on the stock market and complementary role such as market maker firms, which operate to reduce the unit price fluctuations and reduce the risks of investing in these markets. and many Arab countries still lack the institutions of the settlement, clearing and depository and Central Depository and the laws governing them, where would these institutions to work to reduce risks and increase the speed of exchange. VII: lack of demand for investment instruments and the weakness of the primary market activity: markets are the Arab States of the decline in demand for stock and perhaps mainly due to declining income and cash individual savings in many Arab countries, in addition to low investment awareness among many people, especially in the tools new financial publicly traded, and the small sizes of the IPO shares and bonds of modern companies. Can develop a number of proposals for the development of Arab stock markets to attract more investment flows, regional and foreign as follows 12: -First: to address the shortcomings experienced by Arab stock markets and limit the potential for developing and linking these markets both in the lack of information and elements of transparency and financial disclosure, methods and financial management systems operating in the Arab capital markets while continuing to develop and complete the organization of legal and institutional frameworks for financial markets and create and support institutions and instruments dealing in modern Arab markets, as well as cooperation in the exchange of experiences developed especially in the area of financial instruments and stimulate new investment and examine the possibility of providing certain benefits and tax exemptions for investment instruments for certain periods of the date of activity, as

50

well as to require brokerage firms to ensure that transactions through which, even if its agents had failed. Second: the work of a media plan to publicize the opportunities and benefits of financial investment in the Arab countries, through the following means: -1. The promotion of Arab joint stock companies through the design of a website for the dissemination of adequate data and easy extrapolation in several languages in addition to what is reported when advocating for new shares in new stock and to include the prospectus for all the investor interest and help him take the appropriate decision. 2 - Provide periodic data on the activities of Arab companies and in particular the annual budget and accounting profits and losses and distributions, and reports of boards of directors. 3 - Establishment of seminars and meetings in various places inside, including the Arab populations outside the definition of the importance of investment companies to contribute to the Arab world through Arab stock markets, investment funds Arabic, and the feasibility of investment on the part of savers for both to return them directly to their community or Maiaud . 4 - Encourage the establishment of Arab investment clubs that contribute to increased awareness of investment in securities, and building a generation of Arab intellectuals investors can rely on. 5 - Increasing the awareness of saving and Recruitment to the small savers Arabs through print media and audio-visual. III: Revitalization of the stock market so that the stock market of the development of savings and the availability of packaging must be active securities and attractive to different investors in the market, so that the investor bought the paper that achieve maximum benefit from the investment (a combination of return and risk) and where 51

investors differ in the degree of fear of risk, the securities which attract a particular investor, you may not attract investors another. And therefore to increase the number of investors of the securities market, you need a securities attractive to different investors and savers, because the increase in the number of investors lead the market to increase market efficiency through: -1 - Expansion of the indispensability of the issuance of bearer shares where they are either registered ordinary shares (nominal), or bearer shares, while holders allowed to attend a meeting of the General Assembly, except that they do not have the right to vote. And will expand the issuance of such shares to stimulate market by attracting new investors willing to enter into the field of investment in shares without the announcement of their names. 2 - the need for preferred shares, as the holder of preferred stock have the right to annual distributions are determined by a fixed percentage of the nominal value of shares, also has priority over ordinary shareholders funds in the liquidation, in light of low interest rates, the issuance of such shares may include established to give the right to call of shares issued in return for an amount larger than the nominal value of shares, stocks and replace them with another excellent low profit rate, leading to reduce the cost of financing the facility. 3 - Encourage the establishment of Arab investment funds, in most Arab countries have the financial resources available to the ordinary investor to the extent that can not form a portfolio of securities has been reduced Almkhasr, in addition to a lack of investment experience has, therefore, the construction of a portfolio of securities available where all the requirements of diversity to suit small and large investor in any country of the stake or more in extent permitted by its financial resources can also companies and governments also participate in such funds. IV: Activate the bond market: the bond market seems in Arab stock markets is limited, as the total of the bonds were issued at the end of the Arab governments in 2003 was about $ 150 billion, and corporate bond markets is still limited and 52

concentrated in a number of Arab countries including Kuwait, Egypt, Jordan, 13, and used by companies to use bonds to finance its activities as a strong source of funding more stable and less expensive, allowing them to expand their activities and diversify their portfolios and participate in new projects, and to play a distinct role of this bond must be characterized by its diversity and convenience especially for younger investors. and can be activated by the market through the following 14: 1 - Linking finance deficit in the budget to develop the securities market and therefore limit their future funding to the issuance of bonds and bills with different deadlines and appropriate market interest rates and offered for public subscription, in order to attract the savings of individuals on the one hand, and the financing of the deficit by the non-inflationary sources and the rationalization of public spending. that is a large part of the offering by companies dealing and trading in bonds Bond Dealer, taking into account market mechanisms and interest rates in determining the yield and also appeal to the investor. 2 - long-term bonds to finance infrastructure projects instead of relying on funding in the general budget of the State. 3 - To encourage companies to contribute to the issuance of bonds that conform to the funding requirements. 4 - interest bonds convertible into shares, a financial instrument under-utilized in many of the Arab stock exchanges, this type of bond holds the possibility of changing the title to the shares, if so desired, bondholder, and they have tools that encourage the investor to deal in the stock market indirectly through access to the market through bonds and follow-up during the performance of the investee company, if reassured investors on its performance and wanted to exercise the rights of property such as attending the general assembly and vote on the administration's choice, he can convert this document to share.

53

5 - Studying the possibility of issuing bonds whose returns are linked to inflation rates, which come from central banks and to cover the decline in the purchasing power of money invested in bonds. 6 - Studying the possibility of issuing bonds is determined by revenues from the profit made by the ordinary shareholder in the same plant 7 - to encourage certain types of secured bonds, fixed assets or mortgage. 8 - Paying attention to issue bonds in foreign currencies to attract more foreign capital. Fifth: the introduction of derivatives in the Arab stock exchanges: Advances in the investment industry in securities to the introduction of many financial instruments and derivatives, which are highlighted in 15 Financial Derivatives have emerged these tools to risk management and the evolution of use and are now the most important tools of investment. There is no doubt that the introduction of derivatives Arab markets is the inevitable result of the evolution of these markets and their relation to the circumstances and global markets, when the raise the awareness of Arab investment to the investor and spread accurate information and useful and mature market mechanisms and available qualified personnel, it must enter a derivatives securities and requires that introduced three major things: -1. The use of practitioners of this work in foreign markets and transfer their expertise to Arab markets and the training of staff. 2. The Federation of Arab stock exchanges, development of standards and rules and laws governing the work of these tools and put forward for discussion to avoid or reduce the risks that may result from its use. 3. Public awareness of Arab investors in such instruments and their importance and methods of use. 3 - Insurance Sector : The insurance sector 16is one of the smallest financial sectors in the Arab countries and occupy the Arab insurance industry is negligible share in 54

the global insurance industry, not more than 0.25%, while the share of the United States of America 34.4%, Japan's share about 22 % and 8% share of Britain, France and the share of 5.7%. Different insurance markets in the Arab countries differed greatly from each other as there are some countries that do not allow the opening of branches of foreign companies to operate in the market next to the national companies. There are countries that allow private insurance companies to work alongside the public sector companies, and countries in which a public company to ensure the exercise of all insurance operations. It is worth mentioning that the share of the insurance sector in GDP of the Arab countries is very limited and within 1.2%. There are some problems facing the insurance sector in the Arab world, including, limited insurance markets, lack of information and data, weak areas of investment, and the weakness of Arab capital markets in general, which adversely affect the investment policies of insurance companies and reinsurance. And can develop the insurance sector in Arab countries through: -•

The integration of insurance companies, especially small ones to improve their competitive position.

•

Development-level scientific and technical workers in the field of insurance, as many practitioners insurance without the required level. This will lead to improve the level of services offered to customers and thereby increase the competitiveness of the Arab insurance companies.

•

Development of technical devices and methods of adjustment to improve their competitive position against foreign insurance companies which will enter Arab markets, together with its technical and highly efficient methods of settlement, under the GATS. There is no doubt that this will affect negatively the Arab insurance companies do not develop itself.

•

Working to spread insurance awareness among individuals and study the causes of weakness and potential deployed by using various means available. 55

•

The development of control systems and supervision of insurance in order to achieve the interests of all parties involved in the insurance market and strengthen the sector with technical staff trained.

Fourth: expansion of the privatization program in Arab States: The importance of privatization in the 17, which constitute an important hub to attract more foreign investment flows, have shown the experiences of countries in this regard to the existence of a close relationship between privatization and foreign direct investment flows, which indicates the relatively good performance of the countries that implemented privatization programs in attracting flows huge investments 18. In addition to supplying the flows of foreign investment through privatization of the financial resources of the State, what is the foreign investors of the efforts to develop institutions privatized and to expand its activities and increase their competitiveness is generally of the administrative and technical benefits associated with these investments. Despite the efforts by the Arab efforts to ease restrictions on foreign investment and to enact legislation attractive to him and activate its role in privatization activities, but that the volume of FDI inflows to Arab countries, which came from the activities of the privatization of companies and public institutions, which is low - as in Table No. (16 ) - compared with other developing countries both in terms of absolute value or as posed by the proportion of the total privatization income received. The estimated total privatization proceeds in developing countries during the period (1990-2000) some 342 billion dollars. While in the proceeds of the Arab countries hit 17.5 billion U.S. dollars during the period (1990-2001). It is noted that the toll is mounting up year after year, They rose from about $ 2 million in 1990 to as high as $ 2.5 billion in 1997, but then backed off gradually in the light of the slowdown in 56

global economic growth to around $ 1.8 billion in 2000, then rose to about 3 billion dollars in 2001. As shown in table No. (15) Statistical Annex to approximately 75% of investment flows in developing countries, which come from privatization activities in the form of foreign direct investment during the period (90-99). It could be argued that the specific restrictions of foreign direct investment, whether legislative or procedural and weak promotional activity by the Arab countries for investment opportunities in projects to be privatized was the most important reasons for the low inflows of direct investments in the framework of privatization activity. So it's to attract more direct investment flows to Arab countries through privatization, it should be noted that a number of common problems between the Arab countries to varying degrees - some in relation to the institutions in themselves and others the general situation of economic, political and social. 19, including: -•

The dominance of bureaucratic procedures and government decisions, which works to slow the enactment of laws and legislation necessary for the privatization processes, the implementation of privatization requires the creation of legislative frameworks and regulations of the Government, which authorizes the transfer of ownership of public enterprises to the private sector, and also calls for the need to enact laws necessary business relating to the nature and scope of the private sector.

•

Valuation problem or determine the value of the institution at prevailing rates, as high the value of the institution lead to sharp criticism from investors as well as being reluctant to buy assets is overstated in value, while establishing a value less than the real value of the institution meant the loss of money on the enterprise and government .

•

Lack of funding for the restructuring of financial and technical assistance to a number of companies for the development of revenue and make it more attractive to investors when it becomes available.

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•

Opposition to the administration of some public institutions, the privatization process because of fear that lead to layoffs and loss of their jobs.

•

Lack of efficiency of those responsible for implementing privatization, leading to problems of marketing companies to be privatized, and the failure to provide adequate information for investors, in addition to the limited use of different methods of privatization 20.

In spite of that, it is enough to officials from the conviction that privatization is no longer an option for the Arab countries, but have become a necessity in order to improve the investment environment and attract more foreign investment flows, and higher rates of economic growth and greater integration into the global economy.

Fifth: Encourage Arab financial integration and to attract Arab funds Migratory: May be explained by some that the direction of Arab funds to invest abroad as evidence of lack of conviction of this investment climate prevailing in the region, therefore, try to attract these investments within the Arab region can be a positive factor to increase the flow of foreign investment, especially direct ones from outside the region, where the return of Arab funds become an incentive for the migratory flow. The Table (9) Statistical Annex is clear that the total inter-Arab investment flows and private licensed according to the host country during the period (95-2003) amounted to 20.71 billion dollars. It is noted that these investments rose from $ 1.43 billion in 1995 to about $ 3.7 billion in 2003 at an average annual rate of 11.1%. It is noted that these flows may have fluctuated during this period so that they dropped to about $ 1.6 billion in 1997 compared to $ 2.1 billion in 1996, then rose to about $ 2.3 billion in 1998 and dropped to about $ 1.8 billion in 2000 and then took an upward trend in the following years to reach about 3.7 billion dollars in 2003.

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The data also show the table referred to also focus these flows in a limited number of countries where the group topped the Lebanon Arab host countries for investments with a total investment of 3.7 billion U.S. dollars, or 17.8% of the total, followed by Sudan at about $ 2.9 billion, 14% Egypt 2.79 billion dollars 13.5% of the total, followed by Saudi Arabia about $ 2.4 billion U.S. dollars, or 11.6%, UAE 1.8 billion U.S. dollars, or 8.7%, Syria, about 1.5 billion U.S. dollars, or 7.2%. This has been a six-nation about 73% of the total Arab investments during the period (95-2003). The low level of capital flows inter-Arab to many of the structural impediments, economic, regulatory and administrative, as well as laws and regulations restricting and inhibiting such investments have 21. It can be concluded that the poor rate and magnitude of inter-Arab investment flows mean that the general direction of these investments are still around global markets, Those markets offer better opportunities to maximize profitability and risk diversification. There are many signs that suggest that most Arab capitals have been transferred to banks and financial institutions with foreign investment, including the significant gold silver 22. The political factor plays a pivotal role in the reduced flow of inter-Arab investments, as the high or low volume of this flow depends on the level of political relations between the countries of the region, including the implementation of bilateral agreements, which is reflected negatively on the size of-way flow of investment and the lack of figures and maps show investment opportunities also lead to double the rate of investment-way 23. Despite the growing issue of the return of Arab funds migrating it did not address until now - the financial or research Arab to monitor and follow-up estimates of these funds on scientific grounds. This is different estimates of these funds is remarkable; sometimes include public sector investment (especially oil revenues) as well as investment the private sector, which are difficult to inventory and are subject to several considerations, including the quality of investment (deposits, shares, bonds, 59

mutual funds, financial assets or real estate), and geographical distribution and exchange investment and the extent of their impact fluctuating exchange rates of these currencies on the value of assets, as well as the impact of the volatility of oil prices and revenues which affect the levels of income and public spending in the Arab Petroleum Exporting 24. Notes from the following table estimates how different immigrant and Arab funds, which were estimated at between $ 800 billion to about $ 3 trillion 25. Estimated $ billion M The 1 Of the United Nations Economic 800 and Social Commission for Western Asia (ESCWA) 2 Union of Arab Banks 800-1000 3 Varest Journal of Chinese Economic 1000-1500 Review 4 Arab Labor Organization 1200 5 Zayed Center for Coordination and 2220 (government and private) Follow-up 6 World Islamic Forum 1500 (private wealth of the Gulf only) 7 Other global estimates 3000 (government and private) 8 Arab Monetary Fund 2400 9 Gulf Center for Strategic Studies 2800 10 Council of Saudi Chambers of 800-1000 Saudi money abroad, of Commerce and Industry which 70% in the United States 11 Bahrain Economic Society 800-1200 Gulf investments abroad 12 Council of Arab Economic Unity 1400 13 The Arab Institution for Investment 1400 Guarantee Source: The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin 4 / 2004, p. 8

According to the reports of international banks, Arab immigrants, the money is concentrated geographically in the United States increased by 70%, and the remaining percentage is divided on all European markets (especially London, Geneva), and Asian markets. These reports estimated that about 40% of these funds 60

invest in portfolios In a variety of real estate, and 30% of investments with financial liquidity (deposits and permissions), and 15% in the bond markets, particularly U.S. government bonds 1. There are a number of reasons, which have stimulated the return of Arab funds invested abroad, say from 2: -•

Continuous improvement in the economic environment Arabia, where indications of economic and financial as well as the composite index to measure the economic components of the investment climate on continuous improvement in the investment climate in Arab countries.

•

Arab investment map launched by the Arab Economic Unity Council on its internet, including 4 thousand chance in 15 Arab countries.

•

The debt swap Arabic: seriously consider exchanging the public debt of the Arab countries is estimated at $ 144 billion in 2002 to Arab investments - an Arab, and part of that debt owed by Iraq to the Arab countries.

•

Threat of international terrorism and fears of the freezing and confiscation of Arab funds and assets abroad.

•

Depreciation of U.S. dollar and falling oil prices, with an estimated revenue losses of oil and derivatives of these countries some $ 60 billion in 2002, but that these returns despite rising oil prices due to improved Ami 2003.2004 and higher oil exports to meet growing demand, however, due to low price dollar lost 25% of its value during the two years, including an estimated $ 68 billion.

•

Starting the Greater Arab Free Trade in 2005, and a single currency within the GCC monetary union by 2007, starting Unified Arab Stock Exchange in Cairo.

On the other hand, it must work to promote bilateral and multilateral agreements, both among Arab States and each other, or between Arab countries and the outside world 3, where it would lead to greater flows of foreign direct investment. For example, resulted in the signing of the QIZ (Qualifying Industrial Zones 61

QIZ) 4between Jordan and the United States to make Jordan a magnet for multinational companies from all over the world to hit 51 companies.

VI: Human Resource Development in the Arab countries There is no doubt that attracting more foreign investment requires the development of the human race and to educate and raise the level of skill and particularly the development and capacity building and staff (human capital) capable of generating the most appropriate technology to local conditions, and stresses the paper published by IMF there a direct correlation between FDI and growth in developing countries depending on what is called the "determinants of human capital", simplified and words, the meaning implicit in the term that the workforce in the state whether they were of a good education, foreign direct investment in the country working to advance economic growth 5. It is noted in this regard, the inability of the Arab Group to compete because of its low skill and limited capacity to deal with modern technology. Can be summarized the most important element of human development policies in the following points: •

More of the financial allocations for the development of human resources.

•

Re-planning and restructuring of the educational system and the development of research capacity and creativity of students and the availability of other means to gain skills not curriculum.

•

Encourage the private sector to invest in education, certification and financing of scientific research and which are consistent with their fields.

•

The provision of specialized and qualified cadres to deal with the activities of foreign investment.

VII: further political reform and democracy in the Arab countries The success of development policies in general, and policies to attract foreign investment, in particular, is subject to the completion of political reforms that allow 62

the participation of actors and competencies of living in the formulation of economic and political decisions crucial. In view of the current direction of today's world of hectic towards globalization, integration and increase the coherence and interdependence between the economies of countries must create a climate of democratic citizenship and establish equal opportunities and freedom of expression as fundamental to promote popular participation and the role of civil society and ensure full equality between all citizens and guarantee them exercise of their civil and political rights and allow them to criticism and positive in dealing with the negatives and detect corrupt practices, on the grounds that the citizen is the key to facilitating the conduct of all matters relating to development and attracting foreign investment is able to overcome the obstacles facing investors of all types and remove bureaucratic obstacles that stand in their way. In conclusion, it must be emphasized that the policy of opening the door to FDI is not an end in itself but a means to achieve economic goals can not local resources, both financial, technical or management to accomplish. It is therefore necessary to be cost-effective flow of foreign direct investment greater than the costs that might accrue to Arab countries due to the advantages offered by such as tax and customs exemptions and support for this flow. In general, you must be of Arab States to elaborate a strategy for the development of FDI in terms of type, size and priority sectors open to FDI flows, taking into account policies that characterized the Arab countries in attracting foreign direct investment flexibility according to the conditions of economic and technical resources. Footnotes 1.

The World Bank, World Development Report 2005: A Better Investment Climate for Everyone, Washington DC, USA, 2004, p1 2. Mustafa Mahmoud Abdel-Salam, the Human Development Report 2004: Cultural Liberty in Today's Diverse World, Al Mustaqbal Al Arabi Journal 311, Volume 21, January 2005, p. 177 3. According to According to the latest projections, world population will rise from 6.1 billion euros in 2001 to 7.1 billion 2015.8 billion in 2030, and this increase is almost all in developing countries, their share of the global population of 84.5% to to increase 87.4%; 2030th see: James D.. Wolfensohn, François Boraeinon, development and poverty 63

reduction watch: what has happened and see what is to come, the World Bank, Washington, United States, October 2004, p. 26. 4. Globalization can be a greater degree of interdependence between human societies through the flow of goods and services, finance, technology, personnel and information can be defined by you: - Amr Mohiuddin, "Globalization and the fundamental changes in the structure of the global economy: the Integration of structure and integration of world trade and the disintegration of the structure of industrial production, "a series of messages Industrial Bank of Kuwait, the number (71), December 2002, p. 5 Although financial globalization can be defined as the integration of national financial systems with the global financial markets, and through this integration requires, in essence, that governments liberalize the financial sector, as well as domestic capital account liberalization. And the increasing integration when they lead that the increase in capital flows across borders and the participation Almkarzien Almguetrdien in the local and global markets, please visit: -- Sergiol.Schmukler and Pablo Zoido-Sobaton, "Financial Globalization: Opportunities and Challenges for Developing Countries", World Bank, Washington DC, 2001, p1 5.

Global capital flows are divided into two types: formal and informal

- Official flows are those that a decision by the monetary authority in the state lender (usually the Central Bank of Egypt) and produces these currents over the management of the Authority for the financial resources of the state to achieve certain goals and the balance of payments were For example, take these official flows, usually in the form of scholarships, grants or loans to the official governments of the recipient (the city). - The non-official flows, which are dispersed outside of government lending decisions of private actors, so-called private capital flows in three types of foreign indirect investment (investment in securities) Indirect foreign investment or portfolio investments and total capital that determines the will by the State (Oomwssat sure there) if you are issuing securities (shares, bonds, etc.) in the global capital markets, or acquire the foreign investors (individuals or institutions) for securities in the domestic market of the recipient countries. The second type is bank loans, and the third type is the focus of research is the foreign direct investment. For more information about this method and the main differences between them, see: -- Shereen Mustafa Subhi, foreign investment in securities: The most important determinants and impact on the recipient countries, Master Thesis, Faculty of Economics and Political Science, 2003, p. 10-12 - Ali Abdel-Wahab Ibrahim, foreign investment and its impact on economic development in Egypt, while between 1974-1990, Master Thesis, University of Alexandria, 1995, p. 12-13 Kabir Hassan, FDI, Information Technology and Economic Growth in the MENA region, 10 ERF paper.pp1-2 in www.erf.org.eg 7. Amina Zaki Shabana, the role of foreign direct investment in financing economic development in Egypt in light of market mechanisms, the Annual Scientific Conference of the eighteenth Egyptian economists: Financing of rehydration under the market economy, Cairo, 7-9 April 1994, p. 2 8. Ali Abdel-Wahab Ibrahim, foreign direct investment and its impact on economic development in Egypt, while between 1974-1990, op cit, p. 16 9. See: --

6.

64

- The Arab Institution for Investment Guarantee, the foreign direct investment and development, intensive series of abstracts, 2nd in the second year, edition 1 / 99, Kuwait, S. - UNCTAD, Foreign Direct Investment and Development, UNCTAD/ITE/IIT/10 (Vol.1), New York, 1999, P7 10. Mustafa Babiker, the development of direct pleural program that prepared by the Arab Planning Institute in Kuwait with the Center for Information and Decision Support of Ministers in Egypt from .24 to 28 January 2004, p. 2-3. 11. For details, see: -- Omar Albely, Khadija Southpaw, the role of private foreign direct investment in promoting the ability of technology to the Arab countries, Journal of Arab Affairs, No. 79, September 1994, pp 126-130 - Ali Abdel-Wahab Ibrahim, foreign investment and its impact on economic development in Egypt, while between 1974-1990, op cit, p. 18-22 - Bank of Egypt, the issues of foreign direct investment in developing countries: an analysis of gains and synovial T, Bank of Egypt research, no 2, 1997, p. 12-22 12. Mona Kassem, multinational companies and their importance in the global economy, Economic Bulletin, Bank of Egypt, No. 1, Volume 41.1998, p. 57 13. For more information on the origin and development of these companies can be found at: -- Ali Abdel-Wahab Ibrahim, foreign investment and its impact on economic development in Egypt, while between 1974-1990, op cit, p. 24-26 - Bank of Egypt, multinational corporations and their role in the Egyptian economy, Economic Bulletin, No. 2, Year 42, Cairo, 1999, p. 47-49 14. Ibid, p. 44 15. Omar Albely, Khadija Southpaw, the role of private foreign direct investment in promoting the ability of technology to the Arab Countries, op cit, p. 123 16. Ali Abdel-Wahab Ibrahim, foreign investment and its impact on economic development in Egypt, while between 1974-1990, op cit, p. 26. 17. Bank of Egypt, multinational corporations and their role in the Egyptian economy, op cit, p. 45 18. See: - - The Arab Institution for Investment Guarantee, the foreign direct investment and development, intensive series of abstracts, in the second year, edition 1 / 99, Kuwait, p. 1 - UNCTAD, Foreign Direct Investment and Development, Opict, P7 19. See: -- Ali Abdel-Wahab Ibrahim, foreign direct investment and its impact on economic development in Egypt, while between 1974-1990, op cit, p. 26. - Mona Kassem, multinational corporations and their importance in the global economy, op cit, p. 58-66

65

20. It should be noted that multinational companies play a central role in the increasing globalization of the world economy in 1999, the share of German factory of around 2400 multinational U.S. companies about 26% of U.S. GDP and about 63% of total U.S. exports, 37 % of total U.S. imports, and about 68% of the research and development expenditures in the United States, and that nearly half of U.S. industrial workers in these enterprises in 2004. See - Nocke, Volker and Stephen Yeaple, an assignment Theory of Foreign Direct Investment, National Bureau of Economic Research (NBER), Working Paper 11,003, Cambridge, December 2004, p1 21. - UNCTAD, World Investment Report 2004: The shift towards the service sector, the United Nations, New York, 2004, p. xvii 22. Amr Mohiuddin, globalization and the fundamental changes in the structure of the global economy: The structure of the merger and the integration of world trade and the disintegration of the structure of industrial production, op 7. 23. See: -- The Arab Institution for Investment Guarantee, the foreign direct investment and development, op cit, p. 4-5. - UNCTAD, Foreign Direct Investment and Development, Opict, PP19-25 24. 25. 26. 27.

Mustafa Babiker, the development of foreign direct investment, op cit, p. 18-19 Ibid, p. 25 Ibid, p. 27 Different shapes and names of areas in the country, while in others there are free zones, export-oriented export processing zones (EPZs) and areas of economic nature, particularly Special Economic Zones, as free zones and other modern technology are given. Despite the various forms that incorporate these areas, but they all share, it does not contain any kind of fees or taxes, customs duties on imports from the outside world, as they do not get their products to these areas in the country, as if the products of abroad will be imported. socalled Free Zone, as part of the state land within its boundaries are subject to political and administrative authority and deal with particular aspects of customs and import, monetary, fiscal and other stores on the movement of goods in and out, not for these transactions are that the usual procedures in force within the state to more transactions and trade-offs that would allow to attract investment. It should be noted that there is a growing global interest in the establishment of free trade zones and one of the formulas that effectively to attract global capital, for example, reached the number of zones for export to the world in 2002, nearly 3 million of the 500 districts in the post in 1995 and 176 in the region in 1986 and an increase in the number of countries that export free zones include the 47-state in 1986 to 73 countries in 1995 to 116 countries in 2002 reached. For further information: --

- Ibid, p. 28-30 - National Bank of Egypt, to assess the performance of free zones in Egypt, Economic Bulletin, Volume 56, No. 3, Cairo, S. 5-19 28. See Hussein Abd al-Muttalib Alasrag by Egypt in the Global Investments: A look at the most important thing, according to the World Investment Report 2004, Egyptian Journal of Development and Planning, after publication, the Institute of National Planning, Cairo 29. To see for more details, Mustafa Babiker, the development of foreign direct investment, op, p. 45-52 66

30. For details, see ibid, p. 52-54 31. Economic and Social Commission for Western Asia to win the foreign investment policy and interface in the ESCWA region: improving the investment climate, climate, foreign direct investment and mobilizing domestic savings by examining the cases of Jordan, Bahrain and Yemen, Almm Nations , New York, 2003, p. 5 32. For further information: -- Amina Zaki Shabana, the role of foreign direct investment in financing economic development in Egypt in light of market mechanisms, op, pp 5-8 - Attention Economic and Social Commission for Western Asia, the foreign investment policy and interface in the ESCWA region: improving the climate for foreign direct investment, op cit, p. 5 33. World Bank, World Development Indicators, various issues 34. Ali Abdel-Wahab Ibrahim, foreign direct investment and its impact on economic development in Egypt, while between 1974-1990, op cit, p. 17, p. 302 35. Economic and Social Commission for Western Asia to win the foreign investment policy and interface in the ESCWA region: improving the investment climate, climate, foreign direct op, S. 7-8 36. United Nations Conference on Trade and Development, World Investment Report 2004: The shift towards services, Annual Review, United Nations, New York, 2003, p. 12 37. Economic and Social Commission for Western Asia, the direct foreign investment policy and interface in the ESCWA region: improving the climate for foreign direct investment, op cit, p. 9 38. United Nations Conference on Trade and Development, World Investment Report 2004: The shift towards the service sector, cited above, p. 8 39. See: -- United Nations Conference on Trade and Development, World Investment Report 2003: FDI policies for the development of national and international perspectives, Annual Review, United Nations, New York, 2003, p. 10 40. - United Nations Conference on Trade and Development, World Investment Report 2004: The shift towards services, Year in Review, op cit, p. 13 United Nations Conference on Trade and Development, World Investment Report 2003: FDI policies for the development of national and international perspectives, Annual Review, op, p. 1011 41. Despite this improvement, reduced flows of foreign direct investment into the country joined the EU of $ 23 billion in 2002 to 11 billion U.S. dollars in 2003, see: - United Nations Conference on Trade and Development, World Investment Report 2004: Making progress towards Services, Year in Review, op, p. 16 42. For further information: UNCTAD, World Investment Report 2004: The shift towards services, Opcit, S. 12-29 43. See: Hussein Abd al-Muttalib Alasrag to put the Arab countries in the world of investments, Al Mustaqbal Al Arabi, No. 313, Center for Arab Unity, Beirut, Lebanon, March 2005, p. 227 44. The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin, No. 3, Kuwait, 2004, p. 10 67

45. Ali Abdel Gadir Ali, the determinants of foreign direct investment, a number of Bridge Development of the Arab Institute for Planning, No. 31, Year 3, Kuwait, July 2004, p. 1314 46. By the United Nations Arab Human Development Report for the year 2003: towards a knowledge society, New York, United States, 2003, p. 102 47. UNCTAD, World Investment Report 2004: The shift towards services, Opcit, p41 48. The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin, No. 4, Year 22, Kuwait, 2004, p. 10 49. Hussein Abd al-Muttalib Alasrag by Egypt in the foreign investment, the report in the press, Journal of Planning and Development, Institute of National Planning, Cairo, Egypt 50. The Arab Institution for Investment Guarantee, the report of the investment climate in 2003, Kuwait, 2003, p. 37-38 51. The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin, No. 3, Kuwait, 2004, p. 10-11 52. UNCTAD, World Investment Report 2004: The shift towards services, Opcit, p. 17 53. United Nations Development Program, Human Development Report 2004: Cultural Liberty in Today's Diverse World, New York, United States, 2004, p. 201 54. Unlike the common illusion of wealth of the Arabs, the volume of economic output (712.3 billion U.S. dollars in 2002) in the Arab region (Arab members of the whole of 22) little more than the issue of a European country like Spain (653.1 billion U.S. dollars in 2002), not to move a product, such as Italy (1.1843 trillion U.S. dollars in 2002). See ibid, p. 184.187 55. UNCTAD, World Investment Report 2004: The shift towards services, Opcit, p369, P370 56. See: Hussein Abd al-Muttalib Alasrag, the Unified Arab Economic Report for the year 2004, Al Mustaqbal Al Arabi, Issue No. 314, Center for Arab Unity, Beirut, Lebanon, April 2005, pp 193-196 57. Hussein Abd al-Muttalib Alasrag, development strategies, foreign direct investment in the Arab States, discussed under the Copyright, Al Mustaqbal Al Arabi, Center for Arab Unity, Beirut, Lebanon. 58. Ali Abdel Gadir Ali, the determinants of foreign direct investment, op, p. 4-5 59. In one experiment, the performance of Arab economies and characterization of the investment climate in Arab countries of the Arab Institution for Investment Guarantee actions since 1996, a composite index, the degree of improvement or decline in the investment climate in Arab countries over create the basis of the methodology adopted to define the business environment is stable, stimulating and attractive to investment, such as by a deficit in the overall standings deficit characterized by unacceptable in the balance of payments and low inflation and the exchange rate is excessive and non-political and institutional environment to compensate is more stable, transparent and predictable for the purposes of financial planning, trade and investment. Composite Index consisted of three groups, namely the financial and monetary policy and foreign transactions, while a number of developments that change the quality of products, such as the degree of political stability and the legislative, institutional and human resource development and what are the steps in Public relations will not affect the index reversed. mathematically as the average mid-cap index known of the three indicators (the average index of fiscal policy, the average policy index) monetary policy indicator of the average foreign transactions. The Arab Institution for Investment Guarantee, "the report of the investment climate in Arab countries in the year 2002 ", Kuwait, p. 28-29 60. For further details see http://econ.worldbank.org/wdr/wdr2005/ 61. For further information: - Arab Monetary Fund, Unified Arab Economic Report for 2002, p. 115-117

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- Arab Monetary Fund, Unified Arab Economic Report for 2003, p. 124-126 62. Mohamed Alphenic, the financial sector in Arab countries and the challenges for the next phase: the main issues, Mohammed Alphenic (Eds.), the financial sector in Arab countries and the challenges of the next stage, the Arab Monetary Fund, the Arab Fund for Economic and Social Development, Abu Dhabi, United Arab Emirates, 2000, p. 22-26 63. Bulbul Ahmed Ali, Mustafa Mohammed Omran, FDI, financial development, economic growth: Evidence from the Arab countries, 1975-1999, leaves the Arab Monetary Fund, the number (6), the Economic Policy Institute, Abu Dhabi, May 2003, S . 30-31 64. See: -- Arab Monetary Fund, Unified Arab Economic Report for 2003, Abu Dhabi, S. 127-130 - Arab Monetary Fund, "The contribution of the Arab Monetary Fund in the development of Arab financial markets, Abu Dhabi, June 2003, p. 13-20. 65. It should be noted that the number of markets, which had dismissed the supervisory role of the executive role was in 2002, seven markets: Jordan, Egypt, Oman, Tunisia, Morocco, UAE, Algeria. The rest of the Arab countries, the securities markets are the two roles together supervisory and executive. 66. Funds are the most appropriate instruments for the mobilization of savings and development in the Arab stock exchanges, as a mechanism to invest funds in securities of various risks and benefits to allow, and the Arab and foreign investors whether to invest their money residing in Oopalforeig without the need for the presence in the region. For more information about the fund and see what kinds of benefits: -- Manal Mohamed Mohamed Metwally, savings in the Egyptian economy, dissertation, Faculty of Economics and Political Science, Cairo University, 1995, p. 138-139. - - Left, George Basta, an analytical study of the stock markets in Egypt ", PhD thesis, Faculty of Economics and Political Science, Cairo University, 1997, p. 217-219. - Hussein Abd al-Muttalib Alasrag, "The role of the stock exchange in the development of savings in Egypt", Master Thesis, Faculty of Commerce, Zagazig University, 2002, p. 59-60. - Lubna Abu Ala, "Investment in Egypt as a savings and investment," Journal of Finance and Trade, numbers (312) (313) (314), April, May, June 1995 - Painted Moawad Abdel-Aziz, "Stock Zsnadik investment," the second part, the book-Ahram economic, No. 76, June 1994. - Ong, LL, and Amadou Sy, the role of mature market Mutual Funds in Emerging Markets: Myth or Mayhem? ", IMF Working Paper, WP/04/133, International Monetary Fund, 2004. -Houthakker, PS & PJwilliamson, "The Economic Effects of Financial Markets", (NY: Oxford University Press, 1996) p. 71-73 - Francis, JC "Investment: Analysis and Management", (NY: Mac Graw Hill Book Company, 1980), PP33-35 67. It should be noted that the absence of taxes on capital gains from trading in securities in all Arab countries, that financial markets have organized with the exception of Morocco by 69

10%. Stimulating addition to changing the rules for taxation related to the goal of companies to contribute to the inclusion of the shares on the market. 68. Turn many of the Arab markets for the application of international standards in this area. For the markets, which has a circulation of electronic systems and centers for the deposit of the conversion, the transfer of ownership of shares from the account of the seller to the buyer's account electronically immediately after completion of the transaction on the same day, and the process the financial balance between the market and the approved intermediaries in the settlement by the bank on the day following the date of the transaction (T +1). As for the rest of the market Veetm transfer of ownership of shares a day after the date of the transaction (T +1). The process of settlement within three working days after the trading day a maximum of (T +3). see: - Arab Monetary Fund, Unified Arab Economic Report for 2003, op cit, p. 129 69. Hussein Abd al-Muttalib Alasrag to analyze the performance of Arab stock markets during the period (1994-2003) with a special study of the Egyptian stock exchange chain letters, Industrial Bank of Kuwait, No. 79, Kuwait, December 2004, p. 30-35 70. Hussein Abd al-Muttalib Alasrag to analyze the performance of Arab stock markets in the period (1994-2003) with a special study of the Egyptian Stock Exchange, supra, p. 35-38 71. Bolbol, A & Mohammed MO, "the Arab Investment and Capital Market", AMF Economic Papers, No. 8.2004, p. 9 72. Hussein Abd al-Muttalib Alasrag, mechanisms for activating the Arab common market, the book-Ahram economic, No. 209, Cairo, Egypt, May 2005, p. 36-43 73. The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin 4 / 2004, p. 10 74. See: - Munir Ibrahim, an Indian, "the securities and capital markets" (Alexandria: the distribution of plant knowledge, 1997), p. 672-686 - Hussein Abd al-Muttalib Alasrag "mechanisms to activate the Egyptian market for the development of savings," Journal of Modern Egypt, No. 477-478, the Egyptian Society of Political Economy, Legislation and Statistics, Cairo, Egypt, April-June 2005 Hussein Abd al-Muttalib Alasrag "mechanisms to activate the Egyptian market for the development of savings," Journal of Modern Egypt, No. 477-478, the Egyptian Society of Political Economy, Legislation and Statistics, Cairo, Egypt, April-June 2005 75. Derivatives are the main instruments, which began in the modern global financial markets in these instruments since the early seventies) with the volatility in financial markets, in terms of returns (interest rates, exchange rates, stock prices, to contrast with the risk of fluctuations in these prices as a hedge. The volume of trading in derivative financial instruments in the eighties and very much in the nineties to this risk with the increasing recourse to financing from international financial markets, derivatives are known to increase as to benefit financially from contracts with the current prices of assets or in-kind contract (eg stocks, bonds and foreign exchange, gold, etc. ..) to save against the risk that the expected change to hedge the price of these assets. There are different types of derivatives that are traded on world markets, but the most popular futures contracts are forward contracts, option, option contracts, future contracts Futurs, contracts and exchange rate swaps and buybacks repurchase agreements (REPO `S), tools, within the maximum or minimum caps, Floor, Collar For more information, please visit: -- The researcher, the thesis entitled: The Role of the Exchange in the development of savings in Egypt, Faculty of Commerce in Banha, Zagazig University, 2002, p. 39-44 70

- Mohammed Ahmed Salah, "Derivative financial instruments: a new challenge for the investigator," the third annual scientific meeting of the Faculty of Commerce Milk, "which according to financial reforms in Egypt: the vision of the future in light of the challenges of the twenty-first century", Cairo 10-11 November 1998, p. 787 -793 - Jassim Mohammed Al-Shammari Cams tired, "Derivatives: A challenge for the Arab capital markets," said the Annual Scientific Conference of Faculty of Commerce in Banha, "according to financial reforms in Egypt: the vision of the future in light of the challenges of einsundzwanzigster Century ", Cairo, 10-11 November 1998, p. 759-765 - Bank of Egypt, "derivatives as tools in the modern global financial markets," Bank of Egypt research, No. (3), 1998, p. 1-47 - Badr Nabih arsenious, "methods of accounting for financial derivatives", Journal of Finance and Economy, Association of Consulting Egyptians, the second edition, August 2001, pp 129-144 - Keith Redhead, Introduction to Financial Futures and Options, (London: Wood Head Fulkner Limited, 1990), pp62-104 -Houthakker, PS & PJwilliamson, "The Economic Effects of Financial Markets", Opcit, p. 202-45 - Dumas, B., & A. Blaise, "Financial Securities Market Equilibrium and Pricing Methods", (London: Chapman & Hall, 1996), pp157-226 76. Nabil Hashad, the financial relations of the Arab states in the twenty-first century ', in Saad Hafez Mahmoud (Editor), the Arab economy and the challenges of the twenty-first century, the Arab Society for Economic Research, Cairo, 1998, p. 76-78, S . 91 77. International experience shows that the processes of privatization, which has played well in the nineties - and still ongoing - a catalytic role that foreign capital flows into the country, which has the major programs of privatization and flow developed markets securities. This is to provide expanded opportunities for foreign investors are involved, in particular in the light of what has worked in these countries, measures of financial liberalization of the domestic and international, especially in emerging markets. the participation of foreign investors in the privatization process has been through: -1 - direct purchase, that the foreign investor to buy the entire company within a certain percentage when there are laws that foreign ownership of 100% and through the auction. 2 - assets that the debt-equity swaps to convert debt swap by buying the debt of the debtor country in the secondary market, secondary market debt prices attractive discounts to face value of debt, then that debt to the value of the currency, capital of the present value of the debtor country to assess the rate of discount to offer, given the current exchange rate and the use of the result of this change in the purchase of assets for privatization. 3 - the acquisition of a portfolio of securities and the investment portfolio through the establishment of companies (mutual funds), financial services, such as the Qatar Investment Funds Country Funds and American Depository Receipts issued by companies to non-US companies or companies of the Global Depositary Receipts (ADR `s & GDRs), which uses the task of mobilizing financial resources in the form of shares and securities to acquire companies selling in the securities markets. See: Ramzi Zaki, globalization of financial markets: opportunities and constraints for developing countries, and the fourth academic Conference of Economists, Kuwait, Kuwait from .26 to 28 April 1999, p. 23-25 71

Arab Monetary Fund, Unified Arab Economic Report for 2002, p. 179-180 For further details on the various methods of privatization, see: • •

General Federation of Chambers of Commerce, the methods of privatization, Economic Bulletin, Economic Sector, No. (26), Cairo, 1997 Arab Monetary Fund, Unified Arab Economic Report for 2002, p. 165-172

78. Some sources suggest that the funds from expatriates abroad is estimated at 120 billion U.S. dollars, and the Syrian foreign funding, including more than $ 60 billion, and the means of Yemeni expatriates around $ 2.4 billion. See: - The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin 4 / 2004, p. 9 79. Are transmitted on the other hand, the growing importance of the estimates of funds outside the Arab countries expatriates, which means opportunities for investors and create an additional burden for the lost. In this context, the study estimates, the Gulf Cooperation Council for Arab States, the volume of remittances from expatriate workers, estimated at 12.95 million persons, amounted to cumulative over the period (75-2002) on 413 billion dollars, an average of $ 27 billion per year, of which 16 billion euros from Saudi Arabia, United Arab Emirates from 4 billion euros annually. In other estimates, the Saudi private sector turn out annually about 4.8 billion U.S. dollars, and prevents employees arrivals each year in Britain around 13.3 billion U.S. dollars. see previous insistence directly. See: - The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin 4 / 2004, p. 10-11 In most countries of the region in the Arab Free Trade Area (cooperation in this region for the free exchange of Saudi Arabia, Qatar, Bahrain, Egypt, United Arab Emirates, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Sudan, Syria, Tunisia and Yemen. And these countries in trade volume) of approximately 94% of total Arab trade, and Jordan, and Morocco has signed bilateral agreements with the United States, as well as bilateral agreements between the European Union and the individual Tunisia 1995, Morocco 1996, Jordan 1997, and the Palestinian Authority signed in 1997, all from Algeria, Egypt 2001, Lebanon 2002nd

80. Set up question to the U.S. Congress in November 1996 on the initiative of Qualified Industrial Zones "to peace in the Middle East in accordance with Act 6955, a number of areas approved by the U.S. government and is the support from local authorities in the countries that want to expand the Convention designed a closed and limited, and the intervention of the exports of this region in the United States without duties or quotas and duties, and the establishment of these areas contribute to local qualifying industrial zone calls by 35% in relation to the others are distributed between Israel and the United States. For more details about the concept and the creation of these areas, please visit: Kardoosh, Marwan A & Riad al Khouri, Qualifying Industrial Zones and Sustainable Development, September 2004.pp14 -15. available at: www.erf.org.eg/11 conflebanon/trade/kardoosh & khouri.pdf Edward M.. Graham, working together: foreign direct investment and trade, economic reforms today, No. 3, July 2000, p. 30

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References: 1 - Ali Abdel-Wahab Ibrahim (1995), foreign direct investment and its impact on economic development in Egypt during between 1974-1990, Master Thesis, University of Alexandria. 2 - Ali Abdel Gadir Ali (2004), "Determinants of foreign direct investment", a series of bridge development, the Arab Institute for Planning, No. 31, Year 3, Kuwait, July 2004. 3 – Amina Zaki Shabana (1994), the role of FDI in financing economic development in Egypt in light of market mechanisms, the Annual Scientific Conference of the Eighteenth Egyptian economists: Financing rehydration under the market economy, Cairo 7-9 April. 4 - Badr Nabih (2001), "methods of accounting treatment of financial derivatives", Journal of Finance and Economy, Association of Consulting Egypt, the second issue, August. 5-Bulbul Ahmed Ali, Muhammad Mustafa Imran (2003), "foreign direct investment, financial development, economic growth: Evidence from the Arab countries, 1975 -" 1999, leaves the Arab Monetary Fund (No. 6), the Economic Policy Institute, Abu Dhabi, May 6-Bulbul, A & Mohammed MO (2004), "Arab Stock Market and Capital Investment", AMF Economic Papers, NO 8. 7 - Dumas B., & Blaise A (1996), "Financial Securities, Market Equilibrium and Pricing Methods", (London: Chapman & Hall) 8 - Edward M.. Graham (2000), "Working together: foreign direct investment and trade," Economic Reform Today, No. 3, July 73

9 - Hussein Alasrag (2004), "Analysis of the performance of Arab stock exchanges during the period (1994-2003) with a special study of the Egyptian Stock Exchange," chain letters Industrial Bank of Kuwait, No. 79, Kuwait, December. 10 -‫( ــــــــــــــــــــــ‬2005), "mechanisms of activating the Egyptian Stock Exchange for the development of savings", Journal of Modern Egypt, No. 477-478, the Egyptian Society of Political Economy, Legislation and Statistics, Cairo, Egypt, April-June. 11 -‫( ــــــــــــــــــــــــ‬2002), "The role of the stock market in the development of savings in Egypt", Master thesis, Faculty of Commerce in Banha, Zagazig University. 12 -‫ــــــــــــــــــــــــــــ‬, "Egypt in the development of global investment flows", report in press, Journal of Planning and Development, Institute of National Planning, Cairo, Egypt 13 -‫( ــــــــــــــــــــــــ‬2005), "view the Unified Arab Economic Report for 2004",, Al Mustaqbal Al Arabi, Issue No. 314, Center for Arab Unity, Beirut, Lebanon, April. 14 - ‫(ـــــــــــــــــــــــــــــ‬2005), "development of Arab countries in the world investment flows," Al Mustaqbal Al Arabi, No. 313, Center for Arab Unity, Beirut, Lebanon, March 15 -‫( ــــــــــــــــــــــــــــ‬2004), "the Arab economies of the Unified Arab Economic Report," Al Mustaqbal Al Arabi, Issue No. 306, Center for Arab Unity, Beirut, Lebanon, August 16 - ‫(ـــــــــــــــــــــــ‬2005), "mechanisms to activate the unified Arab stock exchange," a book-Ahram economic, No. 209, Cairo, Egypt, May 17 - General Federation of Chambers of Commerce (1997), "Methods of privatization", Economic Bulletin, Economic Affairs Sector, No. (26), Cairo.

74

18-Kardoosh, Marwan A & Riad al Khouri (2004), "Qualifying Industrial Zones and Sustainable Development", September.pp14-15. Available at: www.erf.org.eg/11 conf-lebanon/trade/kardoosh & khouri.pdf 19 - Keith Redhead (1990), "Introduction to Financial Futures and Option", (London: Wood Head-Fulkner Limited. 20 - Mohamed Alphenic (2000), "the financial sector in Arab countries and the challenges of the next phase: the main issues," Mohammad Alphenic (editor), the financial sector in Arab countries and the challenges of the next stage, the Arab Monetary Fund, the Arab Fund for Economic and Social Development, Abu Dhabi, United Arab Emirates Arab Nations. 20 - Munir Ibrahim (1997), "securities and capital markets", (Alexandria: the distribution of plant knowledge). 21 - Mustafa Babiker (2004), "the development of pleural direct investment", the program prepared by the Arab Planning Institute in Kuwait with the Center for Information and Decision Support Council of Ministers in Egypt from .24 to 28 January 22 - Mustafa Mahmoud Abdel-Salam (2005), "Human Development Report 2004: Cultural Liberty in Today's Diverse World", Al Mustaqbal Al Arabi, No. 311, Year 21, Center for Arab Unity, Beirut, Lebanon, January 23 - Mona Kassem (1998), multinational corporations and its importance in the global economy, Economic Bulletin, Bank of Egypt, No. 1, Year 41 24 - Nabil Hashad (1998), financial relations of the Arab countries in the twenty-first century, in: Saad Hafez Mahmoud (editor), the Arab economy and the challenges of the twenty-first century, the Arab Society for Economic Research, Cairo.

75

25 - Omar Albely, Khadija Southpaw (1994), the role of private foreign direct investment in supporting the ability of technology to Arab countries, Journal of Arab Affairs, No. 79, September 26 - Ramzi Zaki (1999), "Globalization of financial markets: opportunities and caveats for the developing countries", the fourth Scientific Conference of Economists Kuwaiti, Kuwait ,26-28 April. 27 - Salim Ahmed Alfaragany (2003), "inter-Arab investments march decade, Journal of Finance and Industry, Industrial Bank of Kuwait, Kuwait, No. 21. 28 - Sami Afifi Hatem (1994), "International experience in privatization", (Cairo: Dar El Ilm print, the book I) 29 - Shereen Mostafa Sobhi (2003), foreign investment in securities: the most important determinants and implications for the recipient countries, Master Thesis, Faculty of Economics and Political Science 30 -The Arab Monetary Fund (2003), "The contribution of the Arab Monetary Fund in the development of Arab financial markets", Abu Dhabi, June 31 -‫ــــــــــــــــــــ‬, Unified Arab Economic Report, Abu Dhabi, the number of different 32 - The Arab Institution for Investment Guarantee, Investment Guarantee Bulletin, Kuwait, various issues 33 - The Arab Institution for Investment Guarantee, the report of the investment climate in Arab countries, Kuwait, various issues 34 - United Nations Development Program (2004), "Human Development Report 2004: Cultural Liberty in Today's Diverse World", New York, United States of America.

76

35 -‫( ــــــــــــــــــ‬2003), "Arab Human Development Report for the year 2003: towards a knowledge society", New York, United States. 36-UNCTAD (2004), "World Investment Report 2004: The Shift Towards Services", United Nations, New York 37-UNCTAD

(1999),

Foreign

Direct

Investment

and

Development,

UNCTAD/ITE/IIT/10 (VOL.1), New York. 38-World Bank (2004), "World Development Report 2005: A Better Investment Climate for Everyone", Washington DC, USA. 39-World Bank (2005), "Doing business in 2005: Removing Obstacles to Growth", Washington,

USA

77

Statistical Appendix

78

79

Table (1) Selected indicators of FDI and international production 1982-2003 M Statement Value of billions of dollars at current prices 1982 1990 2003 1 Flows of FDI 59 209 560 2 Flows of FDI 28 242 612 3 The balance of inward FDI 796 1950 8245 4 The balance of inward FDI 590 1758 8197 5 GDP 11737 22588 36163 6 Gross fixed capital formation 2285 4815 7292 Source: World Investment Report 2004, P9 UNCTAD, Annual Growth Rates% 90-86 95-91 2000-96 2000 22.9 21.5 39.7 27.8 25.6 16.6 35.1 8.8 14.7 9.3 16.9 19.1 18.1 10.7 17.1 18.5 10.1 5.1 1.3 2.7 13.4 4.2 2.4 3.8

2001 -41.1 -39.2 7.4 5.9 -0.9 -3.6

2002 -17 -17.3 12.7 13.8 3.7 -0.6

2003 -17.6 2.6 11.8 13.7 12.1 9.9

97-92 310.9 180.8 100.8 95.8 60.3 118.6 5.9 38.2 74.5 74.1 69.6 11.5

Source:: World Investment Report 2004 UNCTAD,

Statement The world's total First: the developed countries A - Western Europe EU B - United States Secondly: developing countries A - Africa B - Latin America and the Caribbean C - Asia and the Pacific Asia South and East Asia D - Central and Eastern Europe

1998 690.9 472.5 263 249.9 174.4 194.1 9.1 82.5 102.4 102.2 92.1 24.3

Table No. (2) Inflows of FDI and regional distribution of a (1992-2003) 1999 1086.8 828.4 500 479.4 283.4 231.9 11.6 107.4 112.9 112.6 109.1 26.5

80

2000 1388 1108 697.4 671.4 314 252.5 8.7 97.5 146.2 146.1 142.7 27.5

2001 817.6 571.5 368.8 357.4 159.5 219.7 19.6 88.1 112 111.9 102.2 26.4

Billion dollars 2002 678.8 489.9 380.2 374 62.9 157.6 11.8 51.4 94.5 94.4 86.3 31.2 2003 559.6 366.6 310.2 295.2 29.8 172 15 49.7 107.3 107.1 96.9 21

Source:: World Investment Report 2004 UNCTAD,

The world's total First: the developed countries A - Western Europe EU B - United States Secondly: developing countries A - Africa B - Latin America and the Caribbean C - Asia and the Pacific Asia South and East Asia D - Central and Eastern Europe

81

Billion dollars 97-92 1998 1999 2000 2001 2002 328.2 687.2 1092.3 1186.8 721.5 596.5 275.7 631.5 1014.3 1083.9 658.1 547.6 161.7 436.5 763.9 859.4 447 364.5 146.9 415.4 724.3 806.2 429.2 351.2 77.6 131 209.4 142.6 24.9 115.3 51.4 53.4 75.5 98.9 59.9 44 2.2 2 2.6 1.3 -2.5 0.1 9.5 19.9 31.3 13.7 12 6 39.6 31.6 41.6 83.9 50.4 37.9 39.6 31.6 41.7 83.8 50.3 37.9 39 32.5 39.2 80 45.1 34.7 1.2 2.3 2.5 4 3.5 4.9

Table No. (3) Inflows of foreign direct investment and regional distribution of a (1992-2003) 2003 612.2 569.6 350.3 337 151.9 35.6 1.3 10.7 23.6 23.6 23.5 7

1995 331100 203500 113300 14300 255 0.23 0.08

1996 386100 219900 152700 13500 3582 2.35 0.93

1997 481911 269654 193224 19033 7288 3.77 1.51

1998 690905 472545 194055 24305 8740 4.5 1.27

82

Source: The Arab Institution for Investment Guarantee, Investment Guarantee bulletin, No. 3, Kuwait, 2004, p. 12

World Developed countries Developing countries Economies in transition countries Total Arab States The proportion of Arab States to developing countries% The proportion of Arab States to the world%

Table (4) Arab countries quota flows of FDI worldwide (1995-2003) Million 1999 2000 2001 2002 2003 T 1086750 1387953 817574 678751 559576 64 828352 1107987 571483 489907 366573 45 231880 252459 219721 157612 172033 16 26518 27508 26371 31232 20970 20 2495 2629 7711 5378 8617 46 1.08 1.04 3.51 3.41 5.01 2. 0.23 0.19 0.94 0.79 1.54 0.

94 399 13 35 -1877

339 301 16 80 -1129

1996 357 636 270 351 2048 98 418 232 361 150 3044

1997 1188 887 260 365 329 371 347 258 310 200 4289

1998 417 1076 501 668 180

83

100 89 80 82 12 Syria 13 Sultanate of Oman 29 60 65 101 14 Palestine 4 7 218 15 Mauritania 7 4 1 16 Kuwait 7 347 20 59 17 Djibouti 3 3 2 3 18 Somalia 1 1 1 19 Iraq 2 1 1 7 20 Libya -107 -136 -82 -128 21 Yemen -218 -60 -139 -219 Total Arab States 255 3582 7288 8740 Source: The Arab Institution for Investment Guarantee, Investment Guarantee bulletin, No. 3, Kuwait, 2004, p. 11

6 Sudan 7 Country 8 UAE 9 Jordan 10 Lebanon 11 Saudi Arabia

1 2 3 4 5

Table (5) Flows of FDI to Arab countries in million dollars (1995-2003) 1995 Morocco 335 Egypt 598 Algeria 25 Tunisia 378 Bahrain 431 392 252 -515 787 298 1884 263 270 39 16 189 62 1 72 16 4 3 -1 -7 -3 -128 -142 -308 6 2495 2629

371 113 -985 158 250 -780

1999 2000 850 215 1065 1235 507 438 368 779 454 364

1349 3868 400 2890 480 2188 379 2180 358 1877 208 1276 115 150 1259 23 138 554 500 118 214 477 7 76 448 4 11 36 1 3 -6 -2 -7 -101 -96 700 -220 136 102 -89 -789 7711 5378 8617 46695

110 83 20 92 -147 3

574 713 296 631 1184 834 100 56 249 257 20 -615

2001 2002 2003 Total 2825 481 2279 8947 510 647 237 6891 1196 1065 634 4896 486 821 584 4800 81 217 517 4621

84

Table (6) Development of Arab countries in order of performance indicator State 97-95 99-97 2001-99 2002-2000 2003-2001 Sudan 117 72 60 84 29 Morocco 69 76 58 62 32 Bahrain 2 37 54 72 51 Tunisia 72 75 75 60 58 Country 43 71 99 81 67 Jordan 65 53 53 57 84 Lebanon 105 103 96 96 90 Algeria 120 112 102 94 91 UAE 107 137 134 120 101 Libya 137 138 135 137 116 Syria 112 113 105 114 121 Egypt 99 106 110 113 123 Yemen 139 140 137 115 124 Sultanate of Oman 126 120 129 130 126 Kuwait 118 133 133 136 137 Saudi Arabia 135 101 136 138 138 Source: Arab Investment Guarantee Corporation, the Multilateral Investment Guarantee bulletin, No. 3, Kuwait, 2004, p. 10

85

Table (7) Evolution of the order of the Arab countries in the index of BIC State 97-95 99-97 2001-99 2002-2000 Sudan 136 132 124 120 Morocco 96 86 96 93 Bahrain 31 27 31 29 Tunisia 74 73 74 71 Country 19 21 13 8 Jordan 35 37 41 45 Lebanon 64 50 57 60 Algeria 87 88 79 75 UAE 14 20 19 17 Libya 68 46 39 46 Syria 71 85 93 100 Egypt 88 69 71 70 Yemen 92 95 85 87 Sultanate of Oman 48 56 50 53 Kuwait 32 36 32 28 Saudi Arabia 29 30 28 31 Source: The Arab Institution for Investment Guarantee, Investment Guarantee bulletin, No. 3, Kuwait, 2004, p. 10

86

Table (8) FDI inflows as a proportion of fixed capital formation in the Arab States (92-2003) State 1 Morocco 2 Egypt 3 Algeria 4 Tunisia 5 Bahrain 6 Sudan 7 Country 8 UAE 9 Jordan 10 Lebanon 11 Saudi Arabia 12 Syria 13 Sultanate of Oman 14 Palestine 15 Mauritania 16 Kuwait 17 Djibouti 18 Somalia 19 Iraq 20 Libya 21 Yemen Total Arab States World Developed countries Developing countries Source: UNCTAD, World Investment Report 2004, pp387-398 1998 5.3 5.9 4 13.6 20.7 29.3 11 1.9 15.8 4.2 14.2 0.6 3 14.5 0.1 1.2 4.4

-4.3 -11.1 7,068 10.6 9.9 12.3

97-92 8.3 8.9 0.8 10.6 72.9 2.2 6.8 2.4 3.6 1.5 1 0.9 3.7 11.8 4 1.7 6.7

-0.9 4.8 7.98 5.2 4.2 7.9

-3.9 -18 6.41 16 16.2 14.7

1999 10.2 5.7 4.3 7 50.5 30.2 5 -7.8 8.3 7 -2.5 1.9 1.7 11.2 0.5 1.6 8.9

-3.3 0.4 8,658 19.8 21.3 14.9

2000 2.7 6.7 3.7 15.2 33.8 27.8 7.3 -3.9 44.2 10 -5.7 1.9 0.7 4.3 13.5 0.6 4.6

-2.8 8.7 9,158 12 11.5 13.1

2001 37.4 3.2 9.6 9.3 7.7 27.7 7.6 9.1 5.7 8.9 0.1 2.7 3.3 1.3 34.3 -5 5.2

19.9 -5.7 18.65 7.5 6.7 10

79.5 2.2 17.2

48.4 0.2 5.7

-3.6 6.4 10,933 10.1 10 9.9

2003 22.2 2 3.9 9.6 50.4 80.1 11.4 3.7 19.2 12.1 0.6 1.9 5.5

2002 5.8 4.3 7.7 15.5 23 45.4 19.7 6.5 2.3 8.3 -1.9 2.2 0.9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

1995 59.8 455 3.5 54.7 13 38.8

87

Morocco Egypt Algeria Tunisia Bahrain Sudan Country UAE Jordan 35.7 Lebanon 157.8 Saudi Arabia 12.2 Syria 333.5 Sultanate of Oman 4.2 Palestine 250 Mauritania Kuwait Djibouti Somalia Iraq Libya Yemen 11.9 Total Arab States 1430.1 Source: The Arab Institution for Investment Guarantee, the investment climate in Arab countries in 2003, Kuwait, 2003, p. 118

Table (9) Inter-Arab investments and private licensed according to the host country (1995-2003)

135 142.5

10.6 312 27 328 18.7 24.8

70.2 554

13.5 250 20.6 303 24

1998 48.6 390 122 290 16 70.3 54.4 380 12.6 400 198 212 42 56

1999 22.2 277 85.8 506 14 151.7 58 176 24.2 500 82 224 45.8

414.6 61.8 196 26.2 350 76.8 8.7

2000 24.8 113 347.5 49.1

2 3 9 3 6 2 5 6 2 2 2 6 4

80.4 8 86 11 22.2 16.7 68.5 6. 2093.5 1589.6 2314.2 2183.4 1817.4 2

1997 48 532

1996 61.2 711

88

Table (10) FDI inflows as a percentage of GDP in the Arab States (92-2003) 1980 1985 1990 1995 1 Morocco 1 3.4 3.5 9.2 2 Egypt 9.9 16.4 25.6 24.3 3 Algeria 3.1 2.2 2.2 3.5 4 Tunisia 38.2 58.5 62 60.8 5 Bahrain 2 10.9 13 41.1 6 Sudan 0.4 0.6 0.4 2.3 7 Country 1.1 1.5 1 5.5 8 UAE 1.4 1.8 2.2 4.1 9 Jordan 3.9 9.6 15.3 9.3 10 Lebanon 0.5 1.5 1.9 1.2 11 Saudi Arabia 25.2 21.5 17.5 12 Syria 0.2 3 5.5 13 Sultanate of Oman 8.1 12 16.4 16 14 Palestine 15 Mauritania 5.7 5.6 8.6 16 Kuwait 0.1 0.2 0.2 0.3 17 Djibouti 1.2 1.1 1.5 3.4 18 Somalia 5.6 1.1 0.2 19 Iraq 20 Libya 21 Yemen 3.7 4.5 3.7 14.7 Total Arab States 5.35 8.69 10.53 12.64 World 6.6 8.3 9.3 10.2 Developed countries 4.9 6.2 8.2 8.9 Developing countries 12.4 16.3 14.7 16.3 Source: UNCTAD, World Investment Report 2004, pp399-410 2002 25.8 24.3 10.2 66.9 73.7 17.6 16.3 4.3 25.7 9.4 13.5 9.5 12.9 27.5 35.2 1.3 6.8 0.2

13.4 20.76 23 20.5 31.9

2000 18.1 19.8 6.3 59.3 74.1 11.5 10.8 1.5 26.7 6.8 13.8 9 12.5 18.6 14.5 1.6 6.1 0.2

14 17.12 19.3 16.6 29.3

11 21.63 22.9 20.7 31.4

2003 26 26.2 9.6 66 72.4 23.1 16 4.4 28.3 11 12.1 9.5 12.6 21.9 51.1 1.2 8.3 0.3

Source: Investment Report 2004, P8 UNCTAD, World

Least suited for direct foreign investment

89

79 79

The number of organizational changes Most appropriate for the Foreign Direct Investment 1

2

6

16

16

9

9

3

14

12

24

102 110 112 114 151 145 140 150 208 248 244 101 108 106 98 135 136 131 147 194 236 220

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 43 57 49 64 65 76 60 63 69 71 70 82

Item The number of States have amended their investment regimes

Table (11) Number of countries that introduced changes to the investment regimes of 1992-2003

90

Table 12 The 10 largest multinational companies in the world of non-financial ranked by foreign assets in 2002 (in millions of dollars and number of employees) Arrangement Company Home country Industry Foreign TNI% Assets Sales Employment 1 General Electric United States of Electrical and Electronic 229001 45403 150000 40.6 America Equipment 2 Vodafone Group United Kingdom Communications 207622 33631 56667 84.5 United States of Cars 165024 54472 188453 47.7 3 Company America Fordmutur 4 BP United Kingdom Oil exploration / refining / 126109 145982 97400 81.3 distribution United States of Cars 107926 48071 101000 27.9 5 GM America 6 Royal Dac / Shell United States / Oil exploration / refining / 94402 114294 65000 62.4 Group Netherlands distribution 7 Toyota Motors Japan Cars 79433 72820 85057 45.7 8 TotalFinaElf France Oil exploration / refining / 79032 77461 68554 74.9 distribution 9 France Telecom France Communications 73454 18187 102016 49.6 10 Acksonmupail United States of Oil exploration / refining / 60802 141274 56000 65.1 Corpuric America distribution Source: UNCTAD, World Investment Report 2004, TABLE A.1.3 TNI shortcut transnational diffusion index is calculated as the average of three ratios are: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment

Singapore Malaysia

Hong Kong, China Miscellaneous

48014

Communications 15775 Oil exploration / 13200 refining / distribution Mexico Construction 12193 materials Republic of Korea Electrical and 11388 CO., Electronic Equipment

Hutchison Whampoa Limited Singtel Ltd. Petronas-petroliam Nasional Berhad Cemex SA 4366

3247 6600

8088

91

Samsung 28298 Electronics Ltd 6 LG Electronics Republic of Korea Electrical and 5845 11387 Tnc. Electronic Equipment 7 Jardine Matheson Hong Kong, China Miscellaneous 5729 4449 Holdings Ltd Neptune Orient Singapore Transport and storage 4580 4501 8 Lines Ltd 9 Citic Pacific Ltd Hong Kong, China Construction 4170 1567 10 Sappi Ltd South Africa Paper 3733 2941 Source: UNCTAD, World Investment Report 2004, TABLE A.3.1 TNI shortcut transnational diffusion index is calculated as the average of three ratios are: foreign

5

4

2 3

1

46.3 60.7 94.8 58.4 71.7

30029 60000 11187 7388 9807

assets to total assets,

38.5

67.9

61.4 26

71.1

28300

17568

9877 4979

124942

Table 13 Top 10 multinational companies by non-financial developing countries ranked by foreign assets in 2002 (in millions of dollars and number of employees) Arrangement Company Home country Industry Foreign TNI Assets Sales Employment %

Morocco Lebanon Tunisia Sultanate of Oman Jordan Mauritania Syria UAE Saudi Arabia Yemen Egypt Kuwait Algeria Average Countries over

11 46 14 34

36 82 47 54 64 63 43 35 26 42.7

11 11 12 12 12 12 13 13 14 10.7

52 140.8 34.2 26.5 69.7 269.3 63 2.4 27.3 65.0

12.3 131.5 11 4.9

The time Cost as a required to percentage establish a of national facility income per capita (business day)

5 6 9 9

A number of measures required

1147.7 858.1 5053.9 416.9 1549.5 1561.1 815.6 148.5 65.5 988.1

3 1 Zero 2 2 1 3 4 Zero 1.8 2 Zero 5 3 3.8

6 7 5 4

92

8 4 4 3 4 6 7 8 16 11.5

22 49 23 9 4 21 193 75 52 43.0

Index of the drug was The Credit Rights Index A Time minimum Information Alguenonip to number in days capital as a Index (6-0) lenders and of proportion borrowers (10-0) measures of national income per capita 718.6 2 2 3 82 82.3 4 4 25 8 327.3 2 4 57 5 100.1 Zero 3 4 16

Table 14 Summary of the business environment in the Arab countries for 2004 Indicator of business start Statement Index to get a loan

foreign sales to total sales and foreign employment to total employment

1 1 2 2.1

3 1 1 2 2

4 1 6 1

342 410 672 614 360 360 410 390 407 416.0

240 721 27 455

43 28 48 54 44 37 55 52 49 40.1

17 39 14 41

Investor Index enforcement of Protection contracts Index / Time in days A disclosure number or of disclosure measures index (7-0)

26.7 6.1 29.2 4.7 31.7 28.6 18.4 38.7 37 26.8

34.8 19.3 50.1 23.6

4.3 8 4.1 5.1 2.8 3 4.2 4.2 3.5 4.1

1.8 4 1.3 7

Bankruptcy of the project Coverage Time rate in (cents / years dollar)

93

Chile 10 28 10 Zero 6 4 Taiwan 8 48 6.3 224.7 5 4 Hong Kong 5 11 3.4 Zero 4 10 Jamaica 7 31 15.4 Zero Zero 6 Malaysia 9 30 25.1 Zero 6 8 Singapore 7 8 1.2 Zero 4 10 South Africa 9 38 9.1 Zero 5 6 Israel 5 34 5.5 Zero 4 8 Turkey 8 9 26.4 Zero 4 1 Source: 2005, PP98-131 Bank, Doing business in 2005: Removing Obstacles to Growth, World

6 3 3 5 4 3 6 7 8

31 7 56 54 143 9 20 144 9

6 6 6 2 5 5 6 7 2

305 210 211 202 300 69 277 585 330

28 22 16 18 31 23 26 27 22

19.3 89.6 82.3 63.5 35.4 91.3 31.8 38 25.7

5.6 0.8 1 1.1 2.3 0.8 2 4 2.9

•

94

The period from 1994-2001 include the stock markets in Jordan, Bahrain, Tunisia, Saudi Arabia, Oman, Kuwait, Lebanon, Egypt, Morocco,. Has joined the markets of Doha, the United Arab Emirates, Sudan, and Algeria after that.

Source: Arab Monetary Fund, the database of Arab financial markets www.amf.org.ae

The performance of Arab stock markets during the period (1994-2003) * 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Market value (million dollars) 72536.7 84564.8 107766.5 145186.9 122971.5 149400.4 148158.37 152230.1 208858 361824.7 The value of shares traded (million dollars) 10513.2 14988.2 30529.6 63894.75 35536.37 35594.16 36538.9 42687.85 65400.1 59737.57 The number of shares traded (million shares) 3150.1 9590.3 26621.45 35856 15837.26 11865.5 9073.1 23522.5 46086.3 63388.64 Number of listed companies 1089 1081 1091 1184 1446 1634 1678 1687 1826 1723 Turnover ratio (%) 14.5 17.7 28.28 43.9 28.92 23.86 24.66 28.04 31.31 16.5 The Composite Index Fund 100 108.3 119.9 138.45 104.12 114.3 102.2 101.1 100.7 141.9

Table No. (15)

95

Table No. (16) Foreign participation in privatization proceeds in millions of dollars (90-99) Statement 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 East Asia and the Pacific Contribution of foreign investment 1 102 556 4156 4036 226 1990 3775 1082 4982 Privatization revenues 376 834 5161 7155 5508 5410 2680 10385 1091 5500 Europe and Central Asia Contribution of foreign investment 586 1892 3069 2932 1588 4778 1880 8874 5190 6503 Privatization revenues 1262 2551 3626 3988 3957 9742 5446 16537 8002 10335 Latin America and the Caribbean Contribution of foreign investment 6358 7384 4037 3765 5058 2206 6448 12486 21535 19567 Privatization revenues 10915 18723 15560 10488 8499 4616 14142 33892 37685 23614 Middle East and North Africa * Contribution of foreign investment 3 19 138 325 109 16 603 603 1871 Privatization revenues 2 17 70 417 1034 1858 2387 2480 2214 2213 Southern Asia Contribution of foreign investment 11 4 44 16 997 38 528 1043 11 104 Privatization revenues 29 996 1557 974 2666 916 889 1794 174 1859 Africa Contribution of foreign investment 38 5 66 566 453 275 299 1969 694 418 Privatization revenues 74 1121 207 641 605 473 745 2348 1356 694 * Includes Morocco, Egypt, Kuwait, Jordan, Tunisia, Algeria, Lebanon, Oman, United Arab Emirates Source: Arab Monetary Fund, Unified Arab Economic Report 2002, p. 168

96

Table No. (17) Privatization proceeds in the Arab countries in million dollars (1990-2001) Country 1990 1991 1992 1993 1994 Morocco 273 347 Egypt 118 393 Kuwait 252 Jordan Tunisia 2 17 61 Other States * 9 26 42 Total 2 17 70 417 1034 * Includes Algeria, Lebanon, Oman, Qatar, United Arab Emirates Source: Arab Monetary Fund, Unified Arab Economic Report 2002, p. 161 1995 240 262 1097 15 32 212 1858

1996 271 1150 898 11 36 21 2387

1997 716 855 835 33 3 38 2480

1998 92 539 345 102 364 772 2214

1999 2000 2001 Total 1163 2104 5206 857 718 294 5186 537 3964 107 781 1049 58 313 89 975 46 1166 2231 1812 3024 17546