The Arab world’s second-largest economy attracted $23 billion of foreign investment in 1,277 projects

The UAE secured its position as the third-largest foreign direct investment (FDI) market worldwide in terms of project activity in 2023, advancing from fourth place in the previous year, as the nation continues to enhance business with its investor-friendly policies.

Being the Arab world's second-largest economy, the UAE attracted $23 billion of foreign direct investment (FDI) last year in 1,277 projects across sectors such as business and professional services, software and IT services, and financial services, according to the latest report by data and analytics company GlobalData.

The US and Germany stood as the two largest FDI markets globally last year.

"The UAE is indeed a haven for investors, and investors continue to flock," noted Glenn Barklie, principal economist and head of FDI services at GlobalData, during the AIM Congress in Abu Dhabi. "In FDI, there's a significant domino effect, with successful companies attracting others to partake in the opportunities." He highlighted increased project activity in Abu Dhabi and emphasized Dubai's position as the leading destination city globally since 2021.

Global companies are amplifying their investments in the UAE and establishing offices amid new governmental initiatives, including allowing 100 per cent foreign ownership of companies, easing visa restrictions, and offering incentives for small and medium enterprises.

The country achieved record FDI of about $23 billion in 2022. Official figures for last year are yet to be released. The goal is to attract Dh550 billion ($149.7 billion) in FDI by 2030, aiming for Dh1 trillion by 2051.

The UAE also climbed up Kearney’s 2024 Foreign Direct Investment Confidence Index, advancing from 18th to eighth place as it focuses on diversifying the economy away from oil.

"The UAE's strategy, centered on innovation, has been attracting the right companies and building clusters," said Eleanor Slinger, regional director of Middle East and Africa at GlobaData Marketing Solutions.

The UAE's efforts in signing comprehensive economic partnership agreements (Cepas), memorandums of understanding (MoUs), and free trade agreements have been yielding positive outcomes. The country aims to boost non-oil foreign trade to more than Dh4 trillion by 2031, having signed Cepas with India, Indonesia, Turkey, Israel, and others.

In the Middle East, the Emirates maintained a leading position in FDI projects and ranked second in capital investment flows after Israel, which received $25 billion worth of investment from Intel for a chip plant in the country last year.

Excluding Intel's investment, Israel received about $789 million in inbound investment, ranking it as the fifth-largest regional destination.

The total FDI in the Middle East increased in 2023, as per the latest GlobalData report. Project numbers rose by 11.9 per cent annually to 1,848, while inbound capital investment surged by 70.8 per cent to $88.3 billion.

Saudi Arabia stood as the region's second-largest destination country based on project activity, attracting inward investment of $17.3 billion from 305 FDI projects.

Globally, however, both capital investment and the number of projects decreased due to ongoing geopolitical tensions and high interest rates.

"We’ve observed a downward trend in FDI in 2023," Mr Barklie remarked. "Geopolitical events, a shaky macroeconomic environment – although they occurred in 2022, their real impact was felt in 2023 on a global scale."

"The Middle East was among the few regions to buck that downward trend," he continued, noting that investors seek safer locations whenever risks are elevated. "They desire a business-friendly environment and look for countries or domestic markets that are growing, and the UAE and Saudi Arabia are the two key growth countries driving the overall trend in the Middle East."

Saudi Arabia, the largest producer within OPEC, is undergoing significant economic transformation to reduce its reliance on hydrocarbon revenues. It has announced new projects in tourism and other sectors to attract more foreign investment.

The kingdom is also striving for regional leadership in advanced technology, aiming to establish data centers, AI companies, and semiconductor manufacturing facilities.

It is actively seeking to strengthen partnerships with the US and would divest from China if requested by America in technology sectors, according to Amit Midha, CEO of investment firm Alat, which is backed by $100 billion from the Public Investment Fund.

"So far, the requests have focused on maintaining completely separate manufacturing and supply chains from China, but if partnerships with China pose an issue for the US, we will divest," Mr Midha stated.

The US is heavily investing in the Middle East and stood as the leading source market for FDI in the region in terms of both capital investment and the number of projects, as per GlobalData.

US companies announced 362 projects in the region worth $36 billion in 2023. Ireland followed with investments of $9.9 billion, and Denmark with $7.6 billion.

Various sectors, including business and professional services, software and IT services, financial services, tourism, logistics, construction, and real estate, attracted foreign investment in the Middle East.