UAE's foreign direct investment inflows hit record $23bn in 2022

The Arab world's second-largest economy accounted for 61 per cent of all FDI in the GCC, Unctad report says

Dubai Creek. Foreign direct investment into the UAE increased by 10 per cent on annual basis in 2022. AFP

Foreign direct investment into the UAE rose to a record $23 billion in 2022 as the Arab world’s second-largest economy rose six places to 16th largest FDI recipient in the world.

With a 10 per cent year-on-year increase in investment inflows, the UAE was the top FDI destination in the six-member economic bloc of the GCC, accounting for 61 per cent of total investments in the region, the UN Conference on Trade and Development (Unctad) said in its World Investment Report 2023 on Wednesday.

The Emirates received 997 greenfield projects, an 84 per cent annual increase, which made it the fourth-largest recipient of projects globally after the US, UK and India, Unctad said.

“We express our appreciation to all regulatory, legislative and service entities who contributed to strengthening the position of the UAE as one of the best international investment hubs,” Dubai Media Office cited Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, as saying on Wednesday.

“Our aim during the coming year is to achieve more historic milestones.”

Two of the largest projects that attracted FDI included the building of a neutron therapy hospital, medical university and convention centre in Abu Dhabi in a $1.8 billion joint venture deal, and the construction of a $1 billion green hydrogen plant at Khalifa Industrial Zone in Abu Dhabi by Korea Electric Power, Unctad said.

Although FDI in developing countries last year increased by 4 per cent to $916 billion, or more than 70 per cent of global flows, the rise was uneven across countries, with much of the growth concentrated in a few large emerging economies.

FDI in Africa fell and remained flat last year in developing Asia. Although FDI flows to the GCC region declined overall, the number of project announcements increased by two thirds, led by the UAE, according to the Unctad report.

Globally, FDI declined by 12 per cent to $1.3 trillion in 2022 after a steep drop in 2020 and a strong rebound in 2021. The slowdown was driven by global crises, including the war in Ukraine, high food and energy prices, and mounting debt pressures.

International project finance and cross-border mergers and acquisitions were especially affected by tighter financing conditions, rising interest rates and uncertainty in capital markets, and Unctad expects pressure on global FDI to continue this year.

However, the UAE, which bounced back strongly from the pandemic-driven slowdown, is keen to boost its FDI inflows, Dr Thani Al Zeyoudi, Minister of State for Foreign Trade, told a media briefing on Wednesday.

The UAE is seeking “new forms of investments in new sectors that can develop – and we have targeted our efforts to fostering high-growth sectors such as FinTech, health care, e-commerce and advanced manufacturing”, he said.

These results in 2022, “confirm the vision, strategy and policy of the leadership to create a dynamic and growth-focused destination where ideas and capital meet”, Dr Al Zeyoudi said.

“The message is clear. The global business community has confidence in our institutions, our policy, our legal framework and our commitment to grow.”

The UAE last year was not only a destination for capital but also a significant source of global investment.

FDI outflows also rose by 10 per cent to $25 billion in 2022, making the country the 15th-largest investor in the world, up from 20th in 2021, according to the Unctad report.

This achievement represents a milestone in the UAE's progress towards long-term economic diversification ambitions.

The UAE is committed to establishing a dynamic, flexible and resilient business ecosystem that welcomes all kinds of capital – financial, technological and human, the media office said.

The clear value proposition of the UAE, based on its global connectivity and strategic location, is creating new pathways for investments that will support emerging industries such as FinTech, AgriTech, health care, e-commerce and advanced manufacturing, it added.

“The UAE's transformation into a global economic powerhouse is a testament to our ability to match ambition with action,” Dr Al Zeyoudi said.

Abu Dhabi's sovereign investment arm, Mubadala Investment Company, was also among the top funds globally in terms of investment in the renewable energy sector last year.

As part of efforts to tackle climate change, public pension and sovereign wealth funds are increasingly focusing on sustainability strategies, directing more of their assets towards the energy transition.

"With a long-term investment horizon, SWFs and PPFs are uniquely positioned for investing in infrastructure and energy, including the renewable energy sector, and have become important investors in the sectors," the Unctad report said.

"Between 2016 and 2022, PPFs and SWFs significantly increased their investment in renewable energy, driven by policy changes aimed at decarbonising, the continuously decreasing costs of renewables and the need for portfolio diversification."

Pension funds and sovereign investor invested $18.7 billion in renewable energy projects last year, a 21 per cent decline from 2021, but still almost double the annual average since 2016, Unctad said.

Canadian pension funds were the largest source of capital for investment in renewable energy, accounting for 33 per cent of total investment in 2022.

GCC investors contributed 29 per cent and Singaporean funds accounted for 26 per cent.

GIC in Singapore was the largest single investor, followed by Mubadala.

"Gulf SWFs are important investors in renewable energy, as they seek to diversify domestic and regional economies and progress towards the Paris Agreement goals," the report said.