Selected MENA Countries’ Attractiveness to G7 Investors

The objective of this paper is to evaluate the relative attractiveness of seven MENA countries (Algeria, Egypt, Iran, Saudi Arabia, Morocco, Tunisia and Turkey) as a location for foreign portfolio investment (FPI) from the G7 investors viewpoint. We suggest a methodology based on the combination of the gravity model, the Analytic Hierarchy Process (AHP) and the goal programming model (GP). The gravity model is used to determine the attractiveness factors of a country with respect to FPI for 30 investing and 43 receiving countries for the year 2001. Results show the importance of information costs and bilateral trade in the determination of the bilateral asset holdings. The AHP method is applied to prioritize the set of FPI location alternatives from the different viewpoints of G7 investors according to variables’ significance in the gravity model outcome; information costs, bilateral trade, investment freedom, GDP, institutional quality and geographic distance. Results for the year 2005 show that Saudi Arabia is the most attractive country for Japanese and American investors, Turkey is the favorite location for French, German, Italian and British investors and Algeria is the preferred destination for Canadian investors. A combined AHP-GP model has been used to determine the degree of portfolio investment in each MENA country from the viewpoint of G7 investors for the period 2003-2006. Results show that the relative attractiveness of MENA countries is time-varying but they have approximately the same degree of attractiveness from the G7 investor’s viewpoints. In general, the most attractive country for FPI is Turkey for all G7 investors and Saudi Arabia ranks second. For a MENA country to attract more FPI it should especially improve bilateral trade and institutional quality and reduce foreign investment restrictions and information costs.