As the UAE economy makes a consistent recovery from the impact of the COVID-19 pandemic, the country has emerged as an attractive destination for foreign capital inflows, according to the Institute of International Finance (IIF).
According to the latest estimates and forecasts from the IIF, the UAE attracted $46.4 billion in foreign capital inflows in 2021 with foreign direct investment (FDI) accounting for nearly half of that at $21.8 billion, ahead of Saudi Arabia's at $19.5 billion.
While portfolio investment flows into the country is estimated at $19.3 billion, resident capital outflows in terms of foreign direct investments and other investments accounted for $64.2 billion, largely driven by investments and acquisitions by sovereign wealth funds, government related entities and large companies.
In the GCC, Saudi Arabia and the UAE accounted for significantly larger share of foreign capital inflows with the UAE topping the region in FDI.
FDI is expected to remain elevated in 2022 and 2023 in Saudi Arabia and the UAE.
“We expect higher FDI in the energy sector in the kingdom to raise crude oil and natural gas output capacity. In the UAE, elevated FDI is driven by the friendly business environment, excellent infrastructure, predictable policies, and political stability,” said Iradian.
Strong demand for high-quality assets from the region will remain an important factor in attracting foreign capital to GCC asset classes. Large financial buffers in the form of official reserves and SWFs, solid returns, dollar-pegged currencies make GCC’s sovereign debt an attractive alternative to riskier securities in other emerging markets.
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