Although the reasons behind low inflows vary from the Middle East to Africa, there is agreement that more regional integration would lead to improved levels of trade and investment. MENA states have not only been slow to open up markets and create a transparent and liberal investment environment to outside investors, but intra-regional moves to reduce tariffs and create a regional free trade area have also been stalled by what is regarded as lack of political will, over-reliance on the oil and gas sector and protection of large public sector interests.

GCC integration

The Gulf Co-operation Council (GCC) – made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – is the only functioning regional integration agreement in the area. It was established in 1981 and negotiations over trade tariffs have been lengthy with a customs union finally being set up in 2003. Intra-regional trade is expected to receive a boost from this development; at present it stands at 2.8% of the members’ total trade flows. This is very low when compared with intra-regional trade flows in Europe and Asia, which stand at 60% and 30% respectively.

Moves towards further economic liberalisation are expected to affect the investment environment within the GCC. Fluctuations in oil prices, poor economic performances and rising populations have prompted the countries of the region to look at ways of diversifying their economies. Most recognise that this aim can be fulfilled through attracting inward investment and, although investment regulations and regimes vary from country to country, the region is gradually opening up. Saudi Arabia, Bahrain and the UAE have all experienced a rise in inward investment as a result of relaxation of investment laws and reducing the number of industries closed to investment.

Efforts in Africa

Regional economic integration has been a prominent aim of African countries in the past decade. Governments have made a concerted effort to liberalise regulatory regimes and improve the business conditions for FDI by addressing investors’ concerns and actively promoting investment. The downturn in the past two years has had particularly negative effects on Africa because FDI had become the most important source of external development finance when compared with official flows, portfolio investment and commercial bank loans.

Most African countries’ markets are too small to attract substantial FDI; the major countries of Angola, Nigeria and South Africa account for 63% of the $50.7bn of FDI inflows into the region.

Joining forces

The move towards regional integration to create more economic power is the common aim of most African governments and, as a result there are a number of integration bodies. The largest of these are the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC).

COMESA has succeeded in creating the COMESA Common Investment Area (CCIA) as well as a regional investment agency to oversee the promotion of the region as a prime investment destination.

To encourage investors to the SADC region, member countries, including South Africa, have embarked on a programme aimed at inflation targeting and macroeconomic stability. All SADC member countries aim to create a competitive environment conducive to business by 2008 when the SADC Free Trade Area (FTA) will be in place.