Saudi Arabia Suffers 60% Fall In Inward Investment In Past Year

Foreign direct investment (FDI) into Saudi Arabia fell by almost 60% in 2022, in its first annual drop for five years and the second largest drop in more than 15 years.

Total inward investment into the kingdom last year was $7.9 billion, according to data released by the Saudi Central Bank (Sama) in late February. Although it was the second highest annual figure since 2016, it was far below the $19.3 billion recorded in 2021.

That 2021 figure was the highest point in more than a decade and was largely due to a $12.4 billion deal by local oil giant Saudi Aramco to sell a large minority stake in its Aramco Oil Pipelines Company subsidiary.

Even the 2021 figure was far below the FDI levels seen in the first decade of the century. In 2008, total foreign investment into the country had been $39.5 billion and it remained at an elevated level of $36.5 billion the following year and $29.2 billion the year after that.

However, the amount of money that investors were willing to put into the Gulf country’s economy steadily dwindled over the following years, hitting a low of just $1.4 billion in 2017.

While the Saudi economy has made up some of the lost ground since then, the amount of foreign capital coming into the country is still far below the level needed to fund the radical transformation of the economy being pursued by Crown Prince Mohammed Bin Salman, under his Vision 2030 initiative.

Under a National Investment Strategy launched in October last year, the government hopes to draw in more than $100 billion a year of FDI by 2030.

Getting close to that figure will require either a marked step change in the performance of the economy or a series of large deals to sell state assets, akin to the 2021 transaction by Aramco – or a combination of both.

The government has been taking a number of initiatives to try and accelerate the slow growth in FDI seen since 2017, combining both carrots and sticks. In early 2021, for example, it said it would exclude international companies from government contracts from 2024, unless they set up their regional headquarters in the kingdom. That was seen as a clear attempt to persuade multinationals to abandon their usual regional base of Dubai, and has fueled speculation about a rift between the Saudi and UAE leaderships.

In a further move in August last year, the Saudi government launched a new inward investment agency, the Saudi Investment Promotion Authority, to try and attract more foreign capital.

Against the backdrop of reluctant foreign investors, the government has stepped in to fill the gap, pouring more state funds into the domestic economy, most notably via the Public Investment Fund.

The authorities have also been pushing local companies to do more, not least through the SR5 trillion ($1.3 trillion) Shareek initiative launched by Mohammed Bin Salman in 2021. Some $51 billion worth of investments were announced under the Shareek programme in early March, although it is worth noting that many of the businesses involved were state-owned, including Aramco, petrochemicals giant Sabic and mining company Maaden.