Foreign Investment Into Saudi Arabia Falls Back To Earth

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Inward investment in Saudi Arabia has fallen back to earth after reaching a new high in the year.

The latest figures from the Saudi Central Bank (Sama), released this week, show that foreign direct investment (FDI) into the country stood at $1.75 billion in the third quarter of 2021. This was a sharp drop from the record figure of $13.8 billion. The April-June quarter, which was boosted by a deal for energy giant Saudi Aramco’s pipeline network.

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The most recent figure is in line with the country’s performance in late 2020 and early 2021, and underscores the government’s continuing difficulty in attracting significant levels of inward investment – a need if Crown Prince Mohammed bin Salman’s plan is to be restructured. The economy has to be successful.

The level of inward FDI in Saudi Arabia collapsed in 2017 and has since made up some lost ground, nowhere near that level thanks to the success of major projects such as Neom’s $500 billion futuristic city Necessary.

When the Crown Prince launched his Vision 2030 economic strategy in 2016, it aimed to bring FDI to $19 billion by 2020, but it was actually $5.4 billion that year.

Efforts to attract inward investment have been hampered in 2017 by clout over senior business executives and other figures – billed by officials as an anti-corruption campaign. The ruthless murder of journalist Jamal Khashoggi at the Saudi consulate in Istanbul the following year made international companies even more alert to support the Riyadh regime. The Covid-19 pandemic has only added to the problems in the last two years.

Despite all this, the government seems adamant and in October 2021 it set a new $100 billion target In FDI a year by 2030, however, there is considerable doubt about how realistic that target is.

The government has taken a carrot and stick approach to bring more international money into the economy. As well as offering the region a generally low tax environment, the government has said that, from 2023, foreign companies should have their regional headquarters in the state if they want to compete for government contracts.

state-led investment

In place of more foreign investors, the government is turning to its own investment vehicles to support local projects and companies, particularly public investment funds (PIFs). In December, the government said The Sovereign Wealth Fund invested approximately SR84 billion ($22.4 billion) in the local economy in 2021 and was expected to increase to SR150 billion in 2022. The size of the fund’s local portfolio is expected to reach SR3 trillion by 2030, compared to SR11 billion. in 2016.

The government also wants local companies to do more. In March, it launched the Sharik program, which aims to encourage large private sector firms to invest more in the economy between now and 2030, fueled by tax breaks, soft loans and other support. State-owned enterprises such as Saudi Aramco are expected to play a significant role in the programme.

It remains to be seen how effective this strategy works. In mid-December, London-based consultancy firm Capital Economics noted that, while the government was expecting to run a budget surplus in 2022 (the first time since 2013), “the real fiscal stance is being disturbed by the increasing reliance on PIFs and others.” Is. Government entities to drive public investment. ,

It added: “These government entities are increasingly turning to central government investment alternatives … We have previously raised concerns that government-led investment in Saudi Arabia has been generally unproductive.”


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