Development

Foreign investment flows to Saudi Arabia suffer drop

November 22, 2023, 2:57 AM

FDI down 21% year on year
Kingdom revises methodology
Companies set up regional HQs

Foreign direct investment to Saudi Arabia in the second quarter of 2023 stood at SAR6.2 billion ($1.65 billion), 21 percent down from the previous year and at a three-year low, a report said this week.

The figures, published by Saudi business news site Argaam and based on ministry of investment data, showed investment down from SAR8.1 billion in the first quarter of 2023 and also lower than the SAR6.5 billion recorded for the third quarter of 2021.

The statistics appeared to have been calculated before the ministry revamped its methodology, which allowed it to revise upwards the total FDI for 2022 from around SAR30 billion to SAR122 billion, putting Saudi Arabia tenth among the G20 economies.

It was not clear why the figure had slipped in the second quarter or why the ministry had used its previous calculation mechanism. The ministry did not respond to a request for comment.

The numbers have risen since the Vision 2030 development plan was launched in 2016 but fluctuated in a narrow band in recent years, except for exceptional circumstances such as receipts from Saudi Aramco selling a SAR46.5 billion stake in an oil pipelines entity to investors led by EIG Global Energy Partners LLC.

The number of investment licences issued by the Ministry of Investment stood at 1,819 in the second quarter of 2023, up 94 percent on the previous year.

The ministry has issued licences to 180 companies to set up regional headquarters inside the country, as a January deadline approaches for international businesses to move or be cut out of lucrative contracts.

The government says its new system for calculating FDI has been approved by the International Monetary Fund and praised by the United Nations Conference on Trade and Development, whose annual World Investment Report is the standard source for FDI inflows. Neither have commented publicly on the changes.

Economic analysts are unsure how to evaluate the government’s revised FDI figures. One said that, if correct, the higher cash flow should reflect in time in other statistics related to the balance of payments and central bank foreign reserves.

The world’s biggest oil exporter, Saudi Arabia has the region’s largest economy with GDP of SAR4.125 trillion ($1.1 trillion) in 2022.

FDI flows nonetheless lag far behind a target of SAR375 billion ($100 billion) a year that the government published in 2021 in a revised FDI investment strategy.