The frontier of foreign direct investment (FDI) proved as lively as ever in 2023, despite a challenging macroeconomic cycle. Some of the ‘Uncharted FDI’ developments that we tracked in 2023 promise to catalyse FDI for the years to come.
When we launched the series, we set out on a journey to report on the most interesting stories on this frontier, in countries that would typically fly under the radar of multinational companies.
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Although they may be far from the economic centres of power, these countries continuously go through transformations that, for better or for worse, upend local and regional economies. The companies that venture into these markets face great risks, as well as great opportunities.
Iraq is a case in point. Two decades since the outbreak of the Iraq war, most of the commentary has focused on the disastrous legacy that the US-led coalition has left behind. And yet, if we look at the developments that followed Mohammed Shia’ al-Sudani’s rise to power, after he was sworn in as prime minister in October 2022, a new chapter is clearly shaping up.
Data from fDi Markets shows that inbound FDI over the first nine months of this year hit a record $24bn — more than double the previous full-year record in 2008, with hydrocarbons accounting for the bulk of it. “The country is definitely making a U-turn in terms of its longer-term trajectory,” argued Auke Lootsma, Iraq’s resident representative of the UN Development Program. “Less and less, it’s considered a crisis country, and more as a country that is moving forward.”
As much as the world tries to shift to renewables, hydrocarbons catalyse major FDI far beyond the Middle East. Guyana is likely the most spectacular oil-powered growth story of the past years. Since Exxon discovered massive oil resources off its coast, the small, then relatively unknown country has become a frontier market sensation. FDI spiked up, as did gross domestic growth per capita, but the country is also reckoning with the challenges that its oil bonanza engenders.
“Failure to strengthen the country’s institutional framework increases the risk of Guyana falling victim to the resource curse,” said Arantza Alonso, senior Americas analyst at risk intelligence company Verisk Maplecroft, referring to the phenomenon where countries with an endowment of natural resources have worse development outcomes.
Guayana’s oil promises to rewrite energy relations across the region, and spurred neighbouring Suriname to look for similar fortunes.
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If investors are actively chasing natural resources in frontier markets, policy-makers in more established resource-rich countries are chasing investors to diversify their economies.
In Papua New Guinea (PNG), the Pacific nation that has long pinned its economic development to the fortunes of its oil and gas resources, the government has launched a special economic zone (SEZ) programme to diversity its economy.
“PNG’s decision to go into SEZs is probably the most important economic decision any government has made since independence [in 1975 from Australia],” said Richard Maru, the country’s minister for international trade and investment.
In Ras al Khaimah, one of the seven emirates that make up the United Arab Emirates (UAE), authorities are pushing the boundaries even further. The emirate, which has built a flourishing ceramic industry on the back of Khor Khuwair, the largest limestone quarry in the world, is working with Las Vegas-based hotel and casino company Wynn Resorts to build the first casino in the whole of the Middle East in a push to boost its tourism industry.
Diversification and stability have also prompted the ongoing FDI boom experienced by the Dominican Republic. The Caribbean island has not only quick to reignite its tourism industry in the wake of the pandemic, but has increasingly been able to attract investment in other sectors.
“This is likely the best moment to invest in the Dominican Republic,” said Biviana Riveiro, the director of national investment and exports promotion agency ProDominicana. “We have achieved social stability, political stability, and economic stability. These are all important signals for investment.”
In Europe, Albania has also reaped good dividends from the recovery of its tourism industry and is now working to replicate the success of countries like the Dominican Republic in turning tourism into a springboard for the development of other sectors and a more diversified economy.
But FDI is not only an instrument of development and growth. In frontier markets, FDI can be an instrument of independence and sovereignty too. History is fraught with such examples — notably, Kazakhstan asserted its independence and sovereignty by signing oil licences with US Chevron in 1993. Somaliland is following a similar trajectory. The breakaway state signed a concession with DP World in 2016 for the development of a port in Barbera aimed to provide neighbouring, landlocked Ethiopia with a new foreign trade gateway. Over the course of 2023, DP World also built an adjacent SEZ that is meant to add capacity and business allure to the port complex.
As we go into 2024, the outlook on emerging markets appears promising, with interest rates expected to come down in the US and Europe, and thus free up resources for investments away from developed economies. The FDI frontier will inevitably remain an eventful place to keep an eye on.