a day ago
GCC Foreign Investment Poised for 2025 Slowdown
FDI inflows into the Gulf Cooperation Council economies are set to decelerate in 2025, according to S&P Global Market Intelligence, ending a decade-long surge. Investor apprehension, shaped by evolving US trade policy, subdued oil prices, and delayed economic diversification, is expected to weigh on international capital flows.
Investor uncertainty stems partly from the US administration's tariff stance. Though current levies exclude energy products, supply‑chain disruptions and broader uncertainty remain. S&P highlights that a weak oil outlook, underpinned by anticipated oversupply from OPEC+, will erode hydrocarbon earnings, which have underwritten much of the region's investment capacity.
GCC governments have pursued ambitious non‑oil strategies, channeling FDI into infrastructure, renewables, tourism, logistics and construction. Yet progress has been mixed. Major diversification initiatives, such as Saudi Arabia's Vision 2030 and the UAE's investment in advanced sectors, are advancing but their timelines have slipped, diminishing investor momentum.
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S&P forecasts that global FDI will experience a net negative effect, driven largely by the indirect consequences of US trade policy and weaker oil earnings. Given the GCC currencies' peg to the US dollar, fluctuations in the greenback could offset some pressures; a softer dollar would reduce costs for non‑US investors and enhance regional competitiveness. However, that advantage may be insufficient to counteract broader headwinds.
Regionally, differing exposures emerge. Qatar is building on its robust liquefied natural gas sector, with plans to nearly double output over the next five years. That strategy helps offset oil's downturn, but broader diversification beyond energy remains crucial. In North Africa, Morocco and Egypt continue to attract FDI in renewables and tourism—a distinct dynamic from the GCC's energy transition.
Economists warn that protracted low oil prices could impair sovereign investment capacity. S&P's ratings division lowered its Brent and WTI price assumptions by around US$5 per barrel for the remainder of 2025 to US$65–70. Such projections signal slower government-led capital expenditure, potentially straining non‑oil sectors that depend on public spending.
Banking experts echo these concerns. While GCC banks exhibit strong capital positions and manageable exposure to external deposits, sustained low oil revenue could increase non‑performing loans and reduce credit growth, undermining economic resilience.
Security remains a latent but significant risk. Ongoing geopolitical tensions involving non‑state actors and civil conflicts continue to threaten investor sentiment. S&P emphasises that even perceived instability could deter capital inflows and exacerbate existing vulnerabilities.
Nevertheless, structural strengths provide a buffer. GCC economies benefit from strong government finances, policy reforms, and growing non‑oil sectors. Institutions like sovereign wealth funds and well‑capitalised banks add resilience, although their capacity to offset prolonged pressure remains untested.
Moving ahead, policy responses will be pivotal. A weaker US dollar could partially stabilise FDI, while GCC nations may need to accelerate reforms—streamlining foreign business regulations, enhancing project transparency, and boosting incentives for private and foreign investment. Greater alignment with global trade frameworks and diversification of export revenues are also likely to attract long‑term capital.
