Daily Management Review

Doubts About Overambitious Foreign Investments Efforts Of Saudi Arabia


Doubts About Overambitious Foreign Investments Efforts Of Saudi Arabia
Saudi Arabia may lose credibility if it continues to alter the goal posts in terms of the amount of foreign investment it needs to realise its vision of a future beyond oil, according to financial sources and analysts.
Foreign direct investment (FDI) has fallen far short of objectives five years after Crown Prince Mohammed bin Salman unveiled Vision 2030 to decrease the kingdom's reliance on fossil fuels.
Riyadh announced the strategy in 2016, with the goal of increasing annual FDI to approximately $19 billion by 2020, up from $8 billion in 2015. However, it only reached $5.5 billion last year. The longer-term ambition was for FDI to reach 5.7 per cent of GDP by 2030, however Riyadh did not specify a dollar figure.
The kingdom has now upped the bar once further, announcing a new objective of $100 billion in annual FDI by 2030, a new target that many observers believe is overly unrealistic.
"(It) does raise eyebrows as to how it looks quite unattainable, particularly that over the past four quarters FDI has totalled $18.6 billion and the total FDI inflow since the start of 2011 is only equal to $92.2 billion," said Capital Economics economist James Swanston.
To meet the $100 billion aim, the economy would have to grow by 150 percent to $1.75 trillion by 2030, a number that would have made Saudi Arabia the world's ninth largest economy last year, behind Italy but ahead of Canada, South Korea, and Russia.
To be fair, the years following the launch of Vision 2030 have not been kind to FDI. Private investment was hindered by a purge of Saudi business elites in 2017 and the murder of Jamal Khashoggi in 2018. Then came the epidemic.
Analysts, however, believe the monarchy and its major reform plan would eventually lose credibility in the eyes of investors.
"Low year-on-year inward FDI levels will eventually stop being perceived optimistically as room for Saudi Arabia to improve and instead beg the question: what's going on here?" said Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington.
Saudi officials claim that much of the plan is still in its early stages, consisting largely of laws and planning, and that money will start streaming into the country in the coming years.
According to Saudi Investment Minister Khalid al-Falih, FDI statistics are already improving.
"We are fixing the system, we are preparing the deals, we are engaging companies," he told Reuters. "A lot of our transactions are being prepared."
FDI increased by 33 per cent in the first six months of 2021 compared to the same time in 2020, excluding the lease of Saudi Aramco's oil pipelines, and was already ahead of targets for the year, he said.
Several memorandums of understanding were signed at Saudi Arabia's annual "Davos in the Desert" Future Investment Initiative last month, but dreams of a significant investment announcement were crushed.
Lucid, an electric carmaker located in Silicon Valley and majority controlled by the Saudi sovereign Public Investment Fund (PIF), did not reveal a much-anticipated proposal to open a facility in the country.
Saudi Arabia did launch a national infrastructure fund, presenting it as a strategic relationship with BlackRock (BLK.N), the world's largest asset manager, but BlackRock is advising Riyadh rather than investing.
"Saudi wealth remains attractive to foreign asset managers. Wall Street titans praised the local economy on stage, signed lucrative deals and walked away without committing any of their own capital. Speaks volumes," said a senior banker in the Gulf.
According to a BlackRock spokesman, the firm has a consultancy contract with the fund, which will be wholly funded by the National Development Fund, a government agency, and will thereafter seek capital from other sources.
"It is certainly possible that BlackRock could be amongst these providers of external capital," the spokesperson said.