Saudi Arabia’s race to attract investment dogged by scepticism

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DUBAI (Businesshala) – Saudi Arabia could have credibility problems if it continues to shift target positions for foreign investment volumes as it seeks to turn its future vision into a reality beyond oil, financial sources and analysts said.

FILE PHOTO: A large banner shows the Saudi Vision for 2030 as a soldier appears before the arrival of Saudi King Salman at the inauguration of several energy projects in Ras Al Khair, Saudi Arabia, November 29, 2016. Businesshala / Zuhair Al-Traffy

Five years after Crown Prince Mohammed bin Salman launched Vision 2030 to end the kingdom’s dependence on fossil fuels, the foreign direct investment (FDI) is well short of the target.

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When Riyadh unveiled the plan in 2016, it aimed to increase annual FDI to about $19 billion by 2020 from $8 billion in 2015, but last year it was just $5.5 billion. FDI had a long-term goal of reaching 5.7% of gross domestic product (GDP) by 2030, although Riyadh did not provide a dollar target.

Now the state has taken the bet again, saying it wants $100 billion in annual FDI by 2030, a new target that many analysts consider too ambitious.

Capital Economics economist James said, “(It) raises eyebrows how this looks quite unattainable, especially given that the total FDI in the last four quarters has grown to $18.6 billion and the total FDI inflows since the beginning of 2011 have only equaled $92.2 billion.” Is.” Swanston.

To be in line with its GDP target, the $100 billion target means the economy would have to expand by 150% to reach $1.75 trillion by 2030 – a level that last year pushed Saudi Arabia over Italy. behind and would have made the world’s ninth largest economy after Italy. Canada, South Korea and Russia.

Certainly, the years since the launch of Vision 2030 have not been conducive to FDI. The wiping out of the Saudi business elite in 2017 and the assassination of Jamal Khashoggi in 2018 stifled private investment. Then the pandemic struck.

But analysts say the state and its grand reform plan will soon start losing credibility in the eyes of investors.

“Year-over-year low FDI levels will eventually stop being optimistically perceived as Saudi Arabia has room for reform and instead ask the question: What’s going on here?” said Robert Mogielniki, senior resident scholar at the Arab Gulf States Institute in Washington.

‘Fix the system’

Saudi officials say much of the plan is still in its early stages, consisting mostly of rules and planning, and that money will begin to flow into the kingdom more rapidly over the next few years.

Saudi Investment Minister Khaled Al-Falih said that the FDI numbers are already improving.

“We’re fixing the system, we’re working out deals, we’re connecting companies,” he told Businesshala. “A lot of our transactions are being prepared.”

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In the first half of 2021 – excluding leasing of Saudi Aramco’s oil pipelines – FDI grew 33% from the same period in 2020 and was already above this year’s target, he said.

Last month at Saudi Arabia’s annual “Davos in the Desert” Future Investment Initiative, several MoUs were signed, but hopes of a major investment announcement were dashed.

For example, electric car maker Lucid, which is owned by the Saudi Sovereign Public Investment Fund (PIF) and headquartered in Silicon Valley, did not announce much-anticipated plans to build a factory in the kingdom.

Saudi Arabia launched a national infrastructure fund, touted as a strategic partnership with the world’s largest asset manager, BlackRock, but the US firm is advising Riyadh instead of providing capital.

“Saudi assets remain attractive to foreign asset managers. Wall Street stalwarts praised the local economy on stage, signing lucrative deals and leaving without investing any of their own capital. The volume speaks,” said a senior banker in the Gulf.

A BlackRock spokesperson said it had a consultancy work with the fund, which would be funded entirely by the National Development Fund, a government body, and then aim to attract capital from other investors.

“It is certainly possible that BlackRock is among these providers of external capital,” the spokesperson said.

‘Notoriously difficult’

In a sign of its desire to attract more investors, Saudi Arabia this year issued an ultimatum that foreign firms must set up their regional headquarters in the country by the end of 2023, or risk losing government contracts.

Saudi Arabia has a much larger consumer base than its regional neighbors and international companies operating in the Gulf do not want to miss out on lucrative opportunities arising from their plans for economic transformation.

Saudi authorities announced at the investment forum that they have licensed 44 international companies to set up regional headquarters in the capital, Riyadh.

But with the sudden change in trade deals and taxation regimes, the ultimatum is seen as yet another sign of unpredictable policies of the state. Many Gulf officials believe firms will find work to live in Dubai, which has a more developed market and a less conservative society.

Forum attendees, who spoke on condition of anonymity, said there were concerns about regulations and taxes, as well as high operating costs and a lack of skilled local workers.

The Saudi Ministry of Investment did not respond to requests for comment about the criticisms.

“The Saudi business environment is still extremely difficult to navigate as a foreign investor”, Swanston said.

“In the context of trying to get some credibility to the investment goals of Vision 2030, it will be quite important for Saudi to get some genuine commitments from firms and foreign investors,” he said.

‘Country within country’

Progress on NEOM, a $500 billion signature project of Vision 2030 reut.rs/3qtvm5VIt is also difficult to assess, adding to concerns about the state’s financial transparency. reut.rs/3HfLv53,

The planned megacity in the desert, announced in 2017 and supported by PIF, is studying its economic and legislative framework, NEOM www.neom.com/en-us Chief executive Nadmi al-Nasr told Businesshala.

When asked how many contracts were awarded, or how much was spent, he declined to give a detailed answer.

“Honestly, we don’t pay much attention to progress at this point in terms of how much of a prize we’ve made, because it’s just the beginning of a long journey. When your ambition is to make almost a country within a country, you’re talking big. We are not ready to talk about how much we spent,” he said.

However, detailing project expenditures, investments achieved and foreign commitments could help Riyadh gain more credibility, especially given the size of its targets, analysts said.

Taking net FDI to $100 billion annually is part of a larger plan that envisages investments of more than $3 trillion into the domestic economy by 2030 and economists fear that even the local target will be difficult to achieve. reut.rs/3C9enYM,

“At this stage, it is still possible to move the economic target positions within the 2030 ballpark. Yet there will come a day when the final scorecard will need to be tallied and progress can no longer be measured by the ambition of project announcements, ‘ said Mogielniki.

Editing by David Clark

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