The UAE is one of the leading destinations for capital attraction as the world undergoes a shift in capital flows and the emergence of a new economic order, according to a recent study released on Monday.
"The cases of the UAE, Singapore, and Malaysia illustrate the increasing impact of pull factors. Political stability, exchange rate stability, and financial stability all serve as additional incentives drawing global capital flows," states the report titled "A New Era of Capital Flows in a Polycentric World."
Following extensive structural market reforms and measures to enhance market appeal to foreign investors, the UAE and Singapore are experiencing record foreign direct investment inflows, while Malaysia's services and production sectors are thriving due to significant investments from countries like Hong Kong, Japan, and the US, according to the report.
The study was conducted by ADQ in partnership with Abu Dhabi Finance Week and Abu Dhabi Global Market, with Stern at NYU Abu Dhabi serving as an academic advisor. This comes as Abu Dhabi has been dubbed the 'Capital of Capital' due to its $1.7 trillion sovereign wealth funds, making it the richest city in the world.
The study further notes that global capital flows are originating from a broader range of contributors and are being directed to an increasingly diverse set of destinations. "The emerging pattern is consistent across portfolio, trade, and foreign direct investment flows. While capital flows have traditionally been driven by global factors such as liquidity and market volatility, the importance of domestic pull factors like economic growth, trade openness, or investor sentiment is growing," the report states.
Historically, the UAE's economic surpluses were predominantly invested abroad, but now domestic investments have become a focal point. Consequently, the UAE aims to double cumulative foreign direct investment (FDI) to Dh1.3 trillion and achieve a total FDI balance of $600 billion by 2031.
"The UAE's dual role as both an importer and exporter of capital creates a dynamic investment environment. To maximize the impact of capital flows, the UAE has diversified its investment sources, encouraging investments from both greenfield and M&A activities across various sectors," said Mohammed Al Hawi, Undersecretary of the Ministry of Investment of the UAE.
The volume of global capital originating from growth markets has significantly increased over the past 20 years, particularly in the last five. This trend is most apparent when examining sovereign wealth funds (SWFs). Currently, there are 176 recognized SWFs worldwide, a 73 increase over the past decade. The aggregate size of funds managed by SWFs has grown to over $12 trillion, doubling over the last twenty years.
"The geographic distribution of these funds has changed substantially. Nearly all new SWFs originate from global growth markets situated between the G7 and more frontier markets, although both the US and the UK have considered plans to establish their own SWFs," the report concludes.
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