Signing co-investment agreements with big money managers at a recent flagship conference demonstrated Saudi Arabia’s new strategy to draw in foreign investment: invest in the Kingdom and enjoy the security of Saudi funds alongside your own. The Gulf giant is competing to get more foreign funding to support its ambitious plans to diversify its economy under the “Vision 2030” agenda.
The nation set the ambitious goal of bringing in USD 100 billion in foreign direct investment (FDI) annually by the start of the decade. About a quarter of that was attained last year.
“The narrative today is local and reciprocity,” Francois-Aissa Touazi, senior managing director at French investment firm Ardian, told Reuters. “Saudi Arabia is leading this trend in the GCC. The role of a fund manager is to adapt their approach to this new trend.”
A new USD 2 billion Middle East fund, which will be anchored by the Public Investment Fund (PIF), the Saudi sovereign wealth fund, and the investment arm of the Kingdom’s primary pension fund, was recently announced by Canadian asset manager Brookfield.
The agreement was revealed during the recently concluded annual Future Investment Initiative conference, sometimes referred to as “Davos in the desert.”
In non-binding agreements, PIF will contribute an undisclosed amount to Brookfield Middle East Partners, the fund’s anchor, and Hassana, the investment arm of the Saudi pension fund, will contribute USD 500 million in addition to Brookfield’s contribution.
“Our whole business is literally pricing risk,” Brookfield’s CEO for private equity, Anuj Ranjan, said during a panel discussion at the conference.
“That’s why it was very important to form this partnership…with the PIF, because you know that’s going to give us a great amount of confidence and help us underwrite that risk better when investing locally in Saudi,” he added.
A total of USD 51 billion in memorandums of understanding were also linked by the PIF with Japanese financial institutions, including MUFG, Mizuho, and Sumitomo Mitsui Financial Group.
Along with announcing its intention to co-lead a new fund with the Hong Kong Monetary Authority, the USD 925 billion sovereign wealth fund said it was looking to invest USD 1 billion in companies with a “Hong Kong nexus” that are growing in Saudi Arabia, with a focus on industries like manufacturing and renewable energy.
According to government data, inflows of foreign direct investment reached 96 billion riyals (USD 25.6 billion) in 2023, or roughly 2% of GDP. This was in line with the National Investment Strategy’s goal for the year, which was intended to propel the Vision 2030 economic reform.
Meanwhile, Saudi Arabia has logged a budget deficit of 30 billion riyals (USD 8 billion) in Q3 2024, a Finance Ministry statement showed, as lower oil prices weighed on revenue.
The Kingdom’s total spending came to 339 billion riyals in the quarter as it continued to spend heavily on its “Vision 2030” transformation programme. Total revenue stood at 309 billion riyals, with oil revenue at 191 billion riyals and non-oil revenue at 118 billion riyals.
Saudi Arabia is “doubling down” on its multi-billion-dollar economic overhaul, Finance Minister Mohammed Al Jadaan said during an investor summit in Riyadh in October 2024.
While the Gulf major has accelerated its efforts to bolster non-oil growth, oil remains an economic mainstay however, and amid lower oil prices and output, government earnings have fallen. The Kingdom is also reviewing spending, under which some “Vision 2030” projects may be delayed/scaled back and others prioritised.
Oil output, however, is expected to rise in 2025, driving a rebound in overall economic growth. The non-oil sector now makes up more than 50% of GDP and, while there has been some softening there this year, it is still estimated at around 4%.
However, in some good news, business conditions in the Kingdom’s non-oil private sector economy improved at its fastest pace for six months in October 2024, as showed by the seasonally adjusted Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI), which rose for the third month in a row in October, rising to 56.9 from 56.3 in September. The pick-up in pace was largely attributed to an increase in sales, which supported further expansions in business activity, employment, purchasing activity and stocks.
“Over 40% of surveyed companies reported a surge in demand, spurred by robust domestic client interest, creative marketing strategies, and continuous infrastructure investments,” said Naif Al-Ghaith PhD, Chief Economist at Riyad Bank, while interacting with Zawya news agency.
“With this ongoing expansion, the non-oil sector’s contribution is projected to exceed 52% of the overall GDP,” he added.
However, October 2024 also saw increases in material costs and wages with the rate of salary inflation particularly marked. This led to total input price inflation rising to its sharpest pace since the beginning of the year.