(Dec 31): Saudi Arabia’s inflows of foreign direct investment slumped in the third quarter, a sign the kingdom continues to face challenges in drawing external cash to back its economic overhaul.
FDI inflows dropped 8% quarter-on-quarter to 18 billion riyals (RM21.46 billion) in the three months through September and were also down from a year ago, according to data released Monday (Dec 30) by the Saudi General Authority for Statistics.
The tally brings inflows to US$14.5 billion (RM64.84 billion) for the first nine months of 2024. That’s below year-ago levels and just halfway to reaching the government’s target of US$29 billion in 2024. To meet that goal, Saudi Arabia would need one of its biggest quarterly hauls ever for foreign investment.
Saudi Arabia aims to quadruple FDI inflows to US$100 billion by 2030 as it seeks to share some of the financial burden of spending on its economic diversification plan. Crown Prince Mohammed Salman's government also sees foreign expertise as critical to training the local population in new industries like technology and minerals exploration and catalysing growth in those sectors.
FDI inflows amounted to about US$26 billion last year, above target but still the lowest since 2020.
Geopolitics is one factor impacting FDI growth, according to Abdul Kadir Hussain, managing director for fixed income asset management at Arqaam Capital Limited. Foreign investors are also waiting to see how vast infrastructure projects, which have so far been domestically driven, play out before jumping in, he added.
In October, Investment Minister Khalid Al-Falih conceded the kingdom has a long way to go to meet its future goals while expressing optimism around recent trends in the data.
“All the leading indicators are pointing upward. All lights are flashing green,” he said.
A number of announcements were made that same month at the Future Investment Initiative in Riyadh, including by Goldman Sachs Group Inc. and Z Capital Group, in a sign of potential promise for future FDI. Saudi Arabia hopes reforms to its investment laws in 2025 will also pave the way for more inflows.
The oil-exporting economy is under pressure to broaden its funding sources as lacklustre oil prices and elevated spending constrain the kingdom’s accounts and finances.
Saudi Arabia posted its first current account deficit since 2021 in the third quarter, data released on Sunday showed, and is expected to record a fiscal shortfall of about 2.8% of GDP this year.
The kingdom has outlined plans to trim outlays in 2025 as it adjusts to weakness in oil prices.
Global benchmark Brent is on course for an annual loss of almost 4% this year, with prices trading around US$74 a barrel. Saudi Arabia needs crude prices at US$93 to balance its budget this year, according to Ziad Daoud, chief emerging markets economist for Bloomberg Economics.
When factoring in domestic investment by the sovereign wealth fund, which is tasked with executing many economic transformation projects on behalf of the Saudi state, the so-called break-even oil price rises to US$108 a barrel, he said.
Saudi Arabia has increasingly turned to borrowing to meet its financing needs, becoming one of the year’s top issuers of sovereign debt among emerging markets. State-owned oil giant Saudi Aramco and the sovereign wealth fund have tapped bond investors as well in 2024.
The sovereign wealth fund, known as the PIF, has also sought to sell stakes in its portfolio companies as a means to raise cash to help fund Vision 2030 ambitions.
Arqaam’s Hussain expects Saudi Arabia and government-related entities to issue US$35 billion to US$40 billion of debt next year.
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