ESCWA Warns Historic Decline in Foreign Investment due to COVID-19

The devastating effects of COVID-19 on economies worldwide are yet to unfold, but they will definitely not spare the Arab region which is set to witness its greatest decline in foreign direct investment (FDI) on record.

A new policy brief issued today by the Economic and Social Commission for Western Asia (ESCWA) to shed light on the impact of the pandemic on Arab trade and investment estimates that the region is likely to lose 45% of FDI inflows in 2020.

This alarming decline is even bigger than the 2011 drop-in FDI, which had been caused by political unrest in several Arab countries, aggravating concerns about financing businesses in the region.

“Arab Governments should support businesses to reduce layoffs and keep essential operations running,” said ESCWA Executive Secretary Rola Dashti. “They could adopt a policy mix including postponement of social contribution payments, extension of tax exemptions, provision of wage subsidies, and temporary suspension of loan repayments,” she suggested.

The region’s Governments will also be hard hit in their fiscal revenues, with the combined effects of COVID-19 and the dramatic March 2020 plunge in oil prices. These revenues are expected to drop by at least $20 billion this year, with lower imports weighing on customs revenues and other indirect taxes dropping as well due to reduced consumption.

“We do have means to cut our losses,” assured Dashti. “Urgent coordinated action is required to remove all barriers on imports and exports, especially on food, medical products and inputs for industries producing essential goods,” she added.

The prospects may be less bleak if world growth manages to remain positive. In terms of trade, depending on scenarios, the region may lose as much as $88 billion in exports.

The brief also calls on the World Trade Organization to facilitate the flow of essential medication to address the health crisis in developing countries, including through collective action to allow non-commercial usage of a COVID-19 vaccine when developed.

The ESCWA Executive Secretary had made an earlier appeal on establishing a regional social solidarity fund to support Arab vulnerable countries.

The new policy brief is part of a series of COVID-19 impact assessments undertaken by ESCWA to support Arab Governments in joining efforts to mitigate the effects of the pandemic.