Academic journal article International Journal of Business and Information

Analyzing the Business and Economic Scenario of Foreign Direct Investment in Yemen Compared with That of Selected Countries in the Middle East and North Africa (MENA)

Academic journal article International Journal of Business and Information

Analyzing the Business and Economic Scenario of Foreign Direct Investment in Yemen Compared with That of Selected Countries in the Middle East and North Africa (MENA)

Article excerpt

ABSTRACT

This paper examines the comparative trend and pattern of foreign direct investment (FDI) flows into Yemen for the last decade and the beginning of the current decade in comparison with that of selected countries in the Middle East and North Africa (MENA). Astonishingly, the study detected a declining and fluctuating trend of FDI inflows into Yemen at the end of the previous decade and the beginning of the current decade. Together with other parameters for Yemen, this study analyzes the business environment of the country to gain a better perception of the situation and to identify galvanizing ideas for policy diagnosis and the direction of FDI in Yemen in the future. The results suggest that, in order to promote economic and financial stability, policy makers in Yemen should take action on several priorities that are discussed in the paper.

Keywords: Foreign direct investment, MENA, Yemen, transnationality, performance index

1. INTRODUCTION

As reported in the balance of payment manuals (5th edition) of the International Monetary Fund [IMF], foreign direct investment (FDI) is the type of

". . . international investment which represent[s] the aim and objective of direct investor (resident in one economy) gaining a lasting interest in the direct investment, enterprise (enterprise resident in another economy). The interest which is implemented in the presence of a relationship which is long term between the direct investor and direct investment enterprise, and important level of finance provided by investors and the enterprise management" [IMF, 2003, p. 6).

Foreign direct investments consist of a beginning and all subsequent capital transactions between the two parties that are involved - the direct investor and the investment enterprise - from various countries. The interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise, and a significant degree of finance by the investor and the management of the enterprise [IMF, 2003, p. 6].

Inflows of FDI consist largely of equity capital. Other contents include credits for trade, loans, and advance payments. The importance of FDI is attributed to the positive effect it has in the host country, specifically with regard to business organizations which gain the investment. In the host country, FDI is a source of the latest technologies; increased business capital; information relating to procedures, development, and improvement of products; and information on organizational procedures and marketing and managerial skills. In brief, FDI is a strong impetus for growth related to business and economic development.

The flows of FDI are of two types: inflows and outflows. Inflows are the net inward transactions of FDI (inward investments minus dis-investments) in the resident or the country in which it is reported. Outflows are the net outward transactions of FDI (outward investments minus dis-investments) done abroad by the reporting economy. Because of the high level of communication within capital markets (which are international), there has been substantial growth in the flows of FDI worldwide.

Yemen is said to have suffered greatly in recent decades because of its weak and volatile economy, compared with the situation in the countries of North Africa and elsewhere in the Middle East. For this reason, Yemen has started to focus greater attention on attracting more investments. As a start, it is important to analyze the characteristics of growth in Yemen under the flows of FDI with regard to development, procedures, performance, and prospects. Over a 12-year period, 2001-2012, inflows of FDI into Yemen exhibited huge variances and fluctuations. Inflows into the country reached a peak of US$ 1,554 million in the year 2008, after which the level declined, dipping to US$ -518 million in the year 2011 before increasing to US$ 349 million in 2012, as shown in Table 1.

The literature contains various studies on flows of FDI, including reports on emerging economies in the countries of MENA. …

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