Saudi Arabia records steep increase in 2021 FDI to reach $19.3bn

Kingdom handed out 4,400 new foreign investment licences last year, more than three times the number issued in 2020

The kingdom aims to increase the contribution of FDI to 5.7 per cent of its GDP by 2030. Reuters
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Saudi Arabia recorded a surge in foreign direct investment in 2021 to reach $19.3 billion, with the second half of the year strongly supporting international capital flows into the country as it seeks to diversify its economy.

The cumulative amount of FDI was up 257 per cent annually last year, with the second half of the year showing a 23.7 per cent year-on-year increase, the Ministry of Investment said in its National Investment Strategy report, released on Tuesday.

“A more favourable economic backdrop combined with the government’s ongoing diversification efforts have made the kingdom an attractive prospect for foreign investors,” the report said.

The number of new foreign investment licences issued last year also surged more than three times annually to 4,400, including 3,386 issued in the second half of the year. The number represents a “significant improvement on even pre-pandemic levels”, the ministry said.

The growth was supported by the “government’s efforts to improve the investment environment; strengthening investor sentiment as global economies rebound from the Covid-19 pandemic; an increase in the number of companies choosing to establish their regional headquarters in Riyadh; and the government’s campaign to correct the status of small companies and establishments”, the report stated.

In October, Saudi Arabia’s Crown Prince Mohammed bin Salman launched the National Investment Strategy, which seeks to net 388bn Saudi riyals ($103.47bn) in FDI annually by 2030 to support the kingdom's Vision 2030 economic diversification plan.

As per the strategy, the kingdom aims to increase the contribution of the private sector to its gross domestic product to 65 per cent and increase the share of FDI to 5.7 per cent of its GDP.

Saudi Arabia also plans to establish special economic zones with competitive regulations and sector-focused investor incentives to attract foreign investment in priority sectors. As a result of the strategy, the investment-to-GDP ratio of the kingdom is expected to rise to 30 per cent in 2030, from 22 per cent in 2019.

“Many of the initiatives introduced by the National Investment Strategy are linked to our desire to boost the kingdom’s attractiveness as an investment destination,” Khalid Al Falih, Minister of Investment, said in a foreword for the report.

To ensure we remain an attractive destination, we intend to establish Saudi Arabia as one of the top 10 economies in the World Economic Forum’s Global Competitiveness Index by 2030
Khalid Al Falih, Minister of Investment

“The private sector will benefit from these measures' regulatory and legislative reform. It will also benefit from new incentive packages for selected projects, government assistance in connecting with investment opportunities and increased support with placing products and services in regional and global markets.”

A $12.4bn infrastructure deal closed by Aramco with a global investor consortium contributed significantly to the growth of FDI last year, the ministry said. The consortium, which included investors from North America, Asia and the Middle East, acquired a 49 per cent stake in Aramco Oil Pipelines Company.

Meanwhile, looking at the second half of the year, the wholesale and retail sector continued to dominate foreign investment licence issuances, with 1,481 new licences, followed by manufacturing (536) and construction (491). The accommodation and food sector (274) and professional and scientific sector (147) rounded off the top five.

The increase in economic activity last year helped the kingdom to bolster its FX reserves, which in September recorded a 4 per cent increase to reach their highest level in 18 months, before registering a slight drop in December to $455.4bn, the report said.

Both Fitch and Moody’s responded to Saudi Arabia's improved position by revising their credit outlooks from negative to stable, with long-term ratings of A and A1, respectively. S&P also raised the kingdom’s outlook to positive in March 2022.

Looking ahead, Mr Al Falih said that some of the “most exciting” new initiatives that are coming up in the country are in investment financing.

“We plan to introduce a range of innovative models that will provide investors with fresh routes to the capital they require to launch or expand their businesses. These will include measures to bridge the gap between standard debt and equity funding, such as mezzanine financing, guarantee funds and hybrid debt instruments,” he said.

“Global competition for investment is intense — everyone wants to attract the world’s most innovative and entrepreneurial enterprises. To ensure we remain an attractive destination, we intend to establish Saudi Arabia as one of the top 10 economies in the World Economic Forum’s Global Competitiveness Index by 2030,” he added.

Updated: March 29, 2022, 3:48 PM