Breaking: Is Saudi no longer attractive to foreign investors?

June 8, 2018 11:12 am


Forbes just published an article saying inward investment into Saudi Arabia collapsed in 2017, based on published data from the UN Conference on Trade and Development (UNCTAD).

The report said foreign direct investment (FDI) into Saudi Arabia last year amounted to just $1.4 billion, down from $7.5bn the year before and as much as $12.2bn in 2012.

“The precipitous fall means the country was outranked by far smaller economies in terms of its ability to attract international investment last year, with the likes of Oman and Jordan overtaking it in 2017, with inward FDI of $1.9bn and $1.7bn respectively,” said Forbes.

“While the kingdom accounted for around 25% of total regional FDI between 2012 and 2016, last year it attracted just 5.6% of the regional total.”

It is worth noting worldwide FDI inflows were down 23% last year to $1.43 trillion.

Read: With its economy back in black, will Saudi pump more oil, risk lower prices?

Why is Saudi losing?

FDI inflows to developing Asia remained stable at $476 billion in 2017, thanks to the high-tech sector in China, a rebound in Indonesia, and increases in most ASEAN countries.

“This was enough to offset declines in other large recipient economies in the region, including Hong Kong (China), Singapore, India and Saudi Arabia,” said UNCTAD

UNCTAD attributed the fall in investment into Saudi Arabia to significant divestments and negative intra-company loans by foreign multinationals.

As an example, it pointed to the UK/Dutch Shell Group which sold its 50% stake in the Sadaf petrochemicals venture to its partner Saudi Basic Industries Corporation (SABIC) for $820 million in August 2017.

“FDI to the country has been contracting since the global financial crisis and, as a result, Saudi Arabia’s share in total FDI inflows to West Asia has collapsed from 53% in 2009 to 27% in 2015 and a mere 6% in 2017,” said UNCTAD.

A report in the Financial Times (FT) in March 2018 revealed that the Kingdom had received the smallest number of investment projects in a decade as future uncertainty loomed over the kingdom, following massive corruption crackdowns last November leading to the arrest and detention of scores of high-profile businessmen.

FT said in a report that there were only 58 foreign projects in 2017 compared to a high of 140 in 2011 and that investments from Western Europe and the US fell by $144 million and $457 million, respectively.

“Between 2010 and 2016, the yearly average for foreign direct investment is said to be a hefty $2.9 billion from Western Europe and $2.1 billion from the US,” FT said.

Read: Saudi Aramco has a major ‘Ace in the hole’ to maximize value of its IPO

Saudi countermeasures

On 26 February 2018, the General Investment Authority of Saudi Arabia extended the licensing period for foreign investors to five years – up from the current 1 year. The licensing period can also be renewed upon expiry of the five-year period, and foreign investors still have the option of holding a one-year license.

Riyadh, which had hosted a Future Investment Initiative conference last year which attracted some high-profile names, such as Larry Fink of BlackRock and venture capitalist Peter Thiel, is planning a second conference scheduled for October this year.

Saudi Crown Prince Mohammed bin Salman traveled extensively across the US and Europe to drum up interest in his plans earlier in March this year.

Read: Saudi, UAE, may have indirectly announced the end of the GCC as we know it

Winners

While the Saudi economy has been losing out, the UAE gained a bigger piece of the pie.

The UAE has seen its share of regional FDI more than double over the past six years, from 19% in 2012 to 41% in 2017,” Forbes said.

Just recently, the UAE and Saudi announced a number of joint projects including a plan to establish an agricultural investment company with a capital of $1.36 billion, a joint venture fund for renewable energy and a third investment fund for small and medium enterprises.

The economies of Saudi and the UAE represent a GDP of $1trn dollars, with combined exports ranking fourth globally and amount to $750 bn, plus $40.9bn annually invested in infrastructure projects, which generates huge opportunities for bilateral cooperation.

The volume of non-oil trade between the two countries is worth $24 billion, while imports totaled nearly $550 billion.

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Hadi Khatib
By Hadi Khatib
Hadi Khatib is a business editor with more than 15 years' experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about it.



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