UAE emerges as resilient FDI hub amid GCC slowdown

Khaleej Times

12-06-2025

Foreign Direct Investment (FDI) flows into the GCC region are expected to experience a slowdown in 2025 following a decade of sustained growth, but the UAE is expected to buck the trend and remain a regional bright spot.
The tempered outlook reflects a confluence of global uncertainties — including evolving US trade policies, declining oil prices, and a more measured pace in the execution of GCC economic diversification projects, according to a new analysis by S&P Global Market Intelligence.
The GCC, led by key economies such as the UAE and Saudi Arabia, has historically been a magnet for FDI, attracting capital with its resource-rich economies, stable currencies, and increasingly business-friendly regulatory environments. However, S&P's latest forecast underscores that geopolitical tensions, global economic adjustments, and sectoral realignments will moderate growth prospects over the coming year.
Despite this overall cautionary outlook, the UAE is expected to buck the trend and remain a regional bright spot. Recent data from the United Nations Conference on Trade and Development (Unctad) indicates that the UAE was the second-largest recipient of FDI in the Middle East in 2023, garnering over $23 billion, up by more than 28 per cent year-on-year. The Emirates has leveraged its strategic location, progressive reforms, and focus on high-tech and green investments to stay ahead of its peers in the FDI race.
S&P Global analysts suggest that the ongoing strategic competition between the US and China will continue to play out in the Mena region, offering opportunities for countries to attract capital from both economic giants. This rivalry is likely to result in a steady stream of bilateral deals, although no immediate shifts in strategy are expected despite high-profile visits and investment pledges.
One mitigating factor that could cushion the regional slowdown is the recent weakness in the US dollar, which effectively lowers the cost of investment for non-dollar investors — especially from Europe, China, and India. Since most GCC currencies are pegged to the dollar, the depreciation enhances the external competitiveness of their economies. This stands in contrast to non-GCC nations like Morocco and Tunisia, whose appreciating currencies have begun to erode their investment appeal.
Crucially, the nature of FDI inflows into the GCC has shifted decisively in recent years. Once dominated by the hydrocarbons sector, investments are increasingly targeting renewable energy, logistics, infrastructure, tourism, and advanced construction. For instance, the UAE has unveiled ambitious initiatives such as the Dubai Clean Energy Strategy 2050 and Masdar City, both aimed at boosting sustainability and clean-tech innovation. Abu Dhabi's ADIO (Abu Dhabi Investment Office) has also expanded its outreach to high-growth sectors like AgTech and advanced manufacturing.
Beyond clean energy, the UAE continues to draw global technology firms, supported by its free zones, talent-friendly visa reforms, and digital infrastructure. In 2024, the UAE launched a new Unified Investment Platform, streamlining licensing and approvals across its emirates, further bolstering its attractiveness to international investors.
Nevertheless, the broader regional picture remains mixed. Lower oil prices, driven by softening global demand and rising Opec production, have compressed the foreign exchange reserves of major oil exporters. This not only limits their ability to invest outwardly in the wider Mena region but also reduces fiscal room for further domestic diversification spending.
S&P Global notes that while GCC countries will likely resort to increased sovereign borrowing to keep diversification efforts on track, the net effect on global FDI flows will remain negative in the near term. The ripple effects of US tariffs and trade tensions are already manifesting in investor sentiment, with risk-averse capital reallocations away from emerging markets.
The UAE, however, continues to strengthen its resilience. In 2023, it signed comprehensive economic partnership agreements (CEPAs) with India, Indonesia, and Türkiye, expanding its trade horizons and enhancing its investment inflows. Additionally, its liberalized 100 per cent foreign ownership laws and golden visa program have been instrumental in positioning the Emirates as a regional headquarters for multinationals.
According to analysts, GCC states like Saudi Arabia are pushing ahead with giga-projects under their Vision 2030 umbrella — most notably Neom and The Line — though timelines remain uncertain given the capital-intensive nature of these undertakings and rising global financing costs. In contrast, non-GCC Mena countries may face deeper challenges. While countries like Egypt, Morocco, and Tunisia continue to attract sector-specific FDI in tourism and renewables, structural issues — currency volatility, political uncertainty.