direct foreign investment

direct foreign investment

Foreign direct investment is defined as a type of international investment that expresses the goal of an investor residing in a particular economy to obtain a permanent interest in an institution residing in another economy, and this interest includes a long-term relationship between the direct investor and the institution. Direct investment is characterized by a large degree of influence of the direct investor in the management of the institution, which enhances continuous interaction between the two parties.

foreign investment It is considered one of the most important sources of financing at the macroeconomic level, and is among the main factors that contribute to achieving economic development in any country. It is considered a real addition to the gross domestic product, unlike indirect foreign investment, which aims mainly to achieve profit without adding effective value to the national economy.

Foreign investment plays an important role in promoting global trade, opens up new markets for businesses to market their products, facilitates low-cost production processes and introduces new technologies. All countries compete competitively to attract foreign direct investment, whether they are considered developed or developing, due to its positive contribution to achieving the targeted growth rates, through its constructive role in bridging the gap between domestic savings and achieving the desired economic goals.

Forms of foreign direct investment:

Joint investment: This type of investment is the most common, as it involves a partnership between the host country and the foreign investor.

It involves establishing a joint venture or company between the foreign investor and the local company.

Investment entirely owned by foreign companies: It includes foreign companies wholly owning their projects in the host country.

It shows the foreign company taking over the business without a local partner.

Assembly projects or operations: It involves implementing new projects or expanding existing activities for the purpose of improving production or providing new products and services. Consolidation may involve corporate restructuring or development of new technologies.

There are many components and determinants of foreign direct investment, as all countries seek to attract this type of investment due to their continuous pursuit of achieving real economic development and developing an economy built on diversity. Countries also seek to offer real products and services that make them an attractive destination for investment.

For example, Saudi Arabia achieved foreign direct investments in the second quarter of 2022 amounting to US$2.1 billion, with a growth of 9.5% compared to the same period of the previous year. These numbers reflect the efforts made to enhance investment attractiveness in the Kingdom of Saudi Arabia and achieve sustainable economic growth.

The following table shows the foreign direct investment index (net inflows) as a percentage of GDP in the Gulf countries and Egypt:

Country Foreign direct investment index.
Kingdom of Saudi Arabia 80.%
The United Arab Emirates 5.50%
Kuwait 1.30%
Oman 1.70%
Egypt 1.60%
Iraq (-1.70%)
Qatar (-1.70%)

It is clear from the previous table that the United Arab Emirates is the most attractive country for foreign direct investment.

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