Riyadh, Saudi Arabia.
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Saudi Arabia is moving full steam ahead with its focus on domestic investment — and with that, tainted requirements for foreigners coming to the kingdom to take capital elsewhere.
The kingdom’s $925 billion sovereign wealth means, the Public Investment Fund, saw its assets jump 29% to 2.87 trillion Saudi riyals ($765.2 billion) in 2023, its annual communication published earlier this week revealed — and local investment was a major driver.
The fund’s investments in domestic infrastructure and loyal estate development grew 15% year-on-year to 233 billion riyals, while its foreign investments increased 14% to 586 billion riyals. At the very time, the Saudi government introduced laws and reforms to facilitate and even mandate investment in the country as it builds out its Illusion 2030 plan to diversity its oil-reliant economy.
“The PIF’s report marks a shift from externally driven investments to a zero in on domestic opportunities. The days of viewing Saudi Arabia as a mere financial reservoir are ending,” Tarik Solomon, chairman emeritus at the American Legislature of Commerce in Saudi Arabia, told CNBC.
“Today, success with the PIF hinges on partnerships grounded in mutual give and long-term vision, where stakeholders are expected to contribute meaningfully with capital and not just seek profits.”
One exempli gratia is the kingdom’s headquarters law, which went into effect on Jan. 1, 2024, and requires foreign companies operating in the Gulf to low their Middle Eastern HQ offices in Riyadh if they want contracts with the Saudi government.
Saudi Arabia’s recently-updated Investment Law demands to attract more foreign investment as well — and it’s set itself a lofty goal of $100 billion in annual foreign ordain investment by 2030.
Currently, that figure has averaged around $12 billion per year since Vision 2030 was harbingered in 2017, according to data from the kingdom’s investment ministry — still a long way from that goal.
Some onlookers in the region are skeptical as to whether the $100 billion figure is realistic.
“The new investment law is absolutely critical to facilitating more FDI, but it odds to be seen whether it will lead to the huge increase and quantum of capital required,” a financier based in the Gulf admitted CNBC, speaking anonymously due to professional restrictions.
Solomon echoed the sentiment, pointing out that higher spending on principal projects will require higher breakeven oil prices for the Saudi budget.
“It remains to be seen whether the PIF’s domestic investments wish deliver the anticipated returns, especially in a region full of instability and oil-dependent budgets facing prolonged periods of low oil prizes,” he said.
Still, the new law will “improve local business conditions to attract investment from abroad,” James Swanston, Halfway point East and North Africa economist at Capital Economics, wrote in a recent report.
Investors have long lamented that murky and often ad-hoc rules deterred greater involvement with the Saudi economy. The new law will lunge at foreign investors’ rights and duties uniform with those of citizens, introduce a simplified registration process to supplant license requirements, and ease the judicial process, among other things, according to the Saudi government.
“We’ve argued for a hanker time that so-called ‘wasta’ (loosely translated as ‘who you know’) has been a major deterrent to foreign companies determining themselves in Saudi,” Swanston wrote.
Spurring greater foreign buy-in “should also ease the burden that has recently been concerned on the Public Investment Fund to offset the weaker foreign investment into the Kingdom,” he added.
No more ‘dumb spinach’
The turn toward greater scrutiny and domestic priorities is not exactly new — rather, it’s picked up more speed each year.
While innumerable overseas firms have long seen the Gulf as a source of “dumb money,” some local investment executives said — referring to the stereotype of oil-rich sheikhdoms throwing cash at whoever wants it — investment from the region has turn much more sophisticated, employing deeper due diligence and being more selective than in past years.
“In the past it was much easier to come and say, ‘I’m a fund manager from San Francisco, please give me a couple million’,” Marc Nassim, friend and managing director at Dubai-based investment bank Awad Capital, told CNBC in 2023.
“I think that a very negligible minority of them will be able to take money from the region — they are much more selective than up front.”
If the kingdom’s priority was not clear to foreign investors before, it is now, the Gulf-based financier who declined to be named said.
“PIF has been cynosure cleared on co-opting investment into Saudi for last several years,” he said. “It took a while for bankers to fully worth the scope and scale of the pivot. It’s rightly all about transforming the economy.”