The negative short-term economic impact of political unrest in the Middle East won’t be as bad as some had predicted. At least that’s what a significant majority of global investors believe, according to a recent survey conducted by the World Bank.
The report, “World Investment and Political Risk,” issued on Thursday, stated that international investors were even more optimistic for the medium term.
“Investors are cautiously optimistic about their investment plans for the next 12 months,” the report reads. “They are even more confident for the next three years; nearly 75 per cent of corporate respondents have plans to expand in developing countries over this period.”
FDI flows into the Middle East and North Africa fell by 7 per cent in 2010 and by another 16 per cent in the first four months of 2011, according to the report. FDI inflows turned negative in both Egypt and Tunisia, the report noted, while Greenfield investments in Egypt declined by 80 per cent in the first four months of this year, compared to the same period the previous year.
However, the report stressed, this must be understood in light of the fact that the region – like many others – had already been affected by the 2008 financial crisis, which led to FDI declines worldwide.
The World Bank, for its part, predicted that FDI would rebound in 2013, “since the region will generally remain attractive to foreign investors in the medium term.” In general, the report’s authors believe that much of the region’s poor recent private-sector performance can be attributed to “the discretionary implementation of regulatory policies and a lack of government credibility.”
The report goes on to point to several indications that certain countries of the region could end up suffering from unexpected instability. “Political stability...is seldom a good predictor of prevailing structural political risk,” the report noted.
The authors of the report concluded by pointing to previous editions of the Arab Human Development Report, prepared by the UN’s Development Program, which found that, since 2002, the region’s demographic structure, labour markets, civic life, private enterprise, and income distribution had combined to make the region less politically stable than had been widely supposed.