In 2021, the global landscape for Foreign Direct Investment (FDI) experienced significant fluctuations. FDI flows worldwide reached USD 1.58 trillion. There was a substantial 64% increase compared to the prior year’s exceptionally low levels, mainly due to the pandemic. Thriving M&A markets and lenient financing conditions fueled this growth in international project finance with substantial infrastructure stimulus. However, 2022 saw a considerable shift in the international business and cross-border investment climate.
Several factors played a pivotal role in this shift. This includes the pandemic aftermath and the Ukraine conflict, which compounded food, fuel, and financial crises worldwide. Consequently, investor confidence waned, raising concerns about the potential decline of global FDI in 2022. This downward trend, seen in the second quarter of 2022, reflects a change in investor sentiment attributed to various factors. These include global crises, rising inflation, interest rates, and apprehensions of an impending economic downturn. Expectations for the full year point towards a notable slowdown.
Despite recent challenges, FDI flows to Saudi Arabia demonstrated resilience. Political factors and lower oil prices initially led to a gradual decline in FDI. However, the nation’s commitment to economic diversification and ventures beyond the oil and gas sector has reversed this trend. According to UNCTAD’s World Investment Report 2022, FDI inflows into Saudi Arabia reached USD 5.39 billion in 2020. This positive trajectory continued in 2021, with FDI inflows surging to USD 19.28 billion. The effectiveness of policy interventions evidently aims to diversify investment, with key investments spanning financial services, retail, e-commerce, and ICT.
The stock of FDI in Saudi Arabia also rose, reaching USD 241 billion in 2020. Key investors in the country include the United Arab Emirates, the United States, France, Singapore, Japan, Kuwait, and Malaysia. These investments predominantly target sectors like the chemical industry, real estate, fossil fuels, automobiles, tourism, plastics, and machinery. Outflows from Saudi Arabia similarly picked up in 2021, reaching USD 23.86 billion.
Saudi Arabia’s proactive approach aligns with its Vision 2030 plan to reduce reliance on fossil fuels and attract USD 100 billion in annual FDI by 2030. The country has embraced “Guiding Principles for Investment Policymaking,” emphasizing non-discrimination, investment protection, sustainability, transparency, public policy concerns, ease of entry for employees, and knowledge and technology transfer. The government upgraded the Saudi Arabian General Investment Authority to the Ministry of Investment. It highlights the government’s commitment to attracting FDI. Saudi Arabia recently launched the Special Economic Zone (SEZ) program. It targets non-traditional industries such as cloud computing, tourism, renewable energy, and logistics,
Despite political and social tensions, reduced credit access, and the “Saudization” policy favoring domestic labor, the government has invested significantly in national infrastructure to stimulate FDI. FDI is a vital tool for diversifying the economy and generating employment opportunities for the younger population. The government has allowed 100% foreign ownership in the retail and wholesale sectors and initiated an extensive privatization program.
Saudi Arabia’s controlled inflation, stable exchange rate, openness to foreign capital in upstream gas, and widespread privatization efforts continue to attract investors. The nation’s abundant oil reserves, low energy costs, and high standard of living further cement its appeal to foreign investors. However, oil exploration, drilling, production, fisheries, security and detective services, and real estate investment are off-limits in Mecca and Medina.
Source: Lloyds Bank
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