A delegate arrives at the King Abdulaziz Conference Center in Saudi Arabia's capital Riyadh to attend the Future Investment Initiative (FII) forum.
Fayez Nureldine | Afp | Getty Images
Thousands of financiers, founders and investors will descend on the Saudi capital Riyadh for the eighth edition of the Kingdom's Future Investment Initiative, the flagship economic conference at the heart of Vision 2030 – Saudi Arabia's multi-trillion-dollar plan to modernize and diversify its economy .
In recent years it has been described by some participants as a goldmine for Saudi cash. Fund managers who spoke to CNBC this year paint a markedly different picture, as the kingdom simultaneously maintains higher demands on potential fundraisers and investors while also facing a revenue crisis due to lower oil prices and production.
“Without question, it has become much more competitive to attract money from the kingdom,” Omar Yacoub, partner at U.S. investment firm ABS Global, which manages nearly $8 billion in assets, told CNBC. “Everyone and everyone in Riyadh ‘kissed the rings’, so to speak.”
“Competition for capital has intensified, along with other factors such as the fact that Saudis always have a 'home-orientation' approach to investments, as well as the broader dynamic of a tighter budget across the Kingdom due to lower oil prices,” Yacoub said. “This has led to international investments becoming much more selective.”
As Saudi Arabia pushes full steam ahead with its focus on domestic investment, it has introduced stricter conditions for foreigners coming to the kingdom to raise capital elsewhere. The kingdom's $925 billion sovereign wealth fund, the Public Investment Fund, saw its assets rise 29% to 2.87 trillion Saudi riyals ($765.2 billion) in 2023 – and local investments were a essential driver.
Saudi Arabia's recently updated investment law also aims to attract more foreign investment – and it has set the lofty goal of reaching $100 billion in annual foreign direct investment by 2030. Currently, this figure is still far from this target, as has foreign investment averaging around $12 billion per year since Vision 2030 was announced in 2017.
“It's no longer about 'taking our money and walking away' – it's about creating value,” said Fadi Arbid, founding partner and chief investment officer of Dubai-based investment manager Amwal Capital Partners. “Value means hiring new employees, developing the asset management ecosystem, developing new products, attracting talent and also investing in the Saudi capital markets. So it is a multi-faceted investment, not just a pure financial transaction. She goes beyond that.”
“More disciplined, more rational”
At the same time, the kingdom is taking clear steps to reduce spending as oil prices fall well below the fiscal breakeven level and crude oil production cuts agreed by OPEC+ continue.
The fiscal breakeven price of oil – which the kingdom needs for a barrel of crude to balance its national budget – has risen sharply as Saudi Arabia invests trillions of dollars in the NEOM gigaproject.
The IMF's last forecast in April put this breakeven value at $96.20 for 2024; an increase of about 19% from a year ago and about 28% above the current price of a barrel of Brent crude oil, which was trading at around $72.75 as of Monday morning.
“I don’t think Saudi Arabia has the same resources as it did literally two years ago,” said a regional investor who spoke on condition of anonymity to speak freely. Still, they added, “the kingdom remains one of the very few countries that can still give money. It may be taking a bit of a break today, but…it's more disciplined and rational now.”
Some fund managers with extensive experience in the Gulf suggest it may be too late for many investors making their first forays into the kingdom.
“They should have started this process two, three, four years ago,” Arbid said. However, he added: “For those who are queuing now, that doesn't mean they shouldn't take a position – because it's a cycle, right?” But now I think they are more conscious about it – they say, “I have to commit to the country.”
One example is the Kingdom's Headquarters Law, which came into force on January 1, 2024, and requires foreign companies operating in the Gulf region to locate their Middle East headquarters offices in Riyadh if they want contracts with the Saudi government .
In the shadow of the regional war
The glittering conference, held at the opulent Ritz-Carlton Riyadh, also comes against the backdrop of a regional war and just over a year after Israel began its war against Hamas in Gaza.
During that time, attacks between Israel and Iranian proxies, including Hezbollah and the Houthis in Yemen, have increased sharply, with the Jewish state invading Lebanon in September. The region is eagerly awaiting Israel's declared revenge on Iran for its rocket fire on Tel Aviv and other parts of the country on October 1.
Early Saturday, Israel attacked military sites in Iran, targeting missile factories. The Israeli military later said it had carried out “targeted” attacks inside Iran, adding that it was prepared to “carry out defensive and offensive actions.”
Oil prices and the Saudi economy appear to have remained largely unscathed so far, falling 4% early Monday following Israel's weekend attack on Iran. A key reason for this could be the rapprochement agreement brokered by China between the kingdom and Iran in March 2023.
“Saudi has done a phenomenal job of protecting itself from geopolitical events recently,” Arbid said.
This is also helped by the fact that local investors make up the majority of market participants and the trust of local investors is high. The Tadawul All Shares Index, Saudi Arabia's leading stock market index, has risen 16.48% in the last year.
Still, some analysts in the region warn that the widening crises in the Middle East have the potential to lead to further instability.
“The war has gradually escalated to the point where it is de facto a regional war,” Aziz Alghashian, research director at the Observer Research Foundation Middle East, told CNBC. “The ongoing war is not only a geopolitical crisis, but its continuation has the potential to lead to more radicalization in and around the region.”
“Attracting foreign direct investment and tourism while maintaining oil prices at desired levels is key to keeping Saudi Arabia’s mega-projects and diversification plans on track,” Alghashian said.
“This is of course complicated by regional wars, and so economics and security go hand in hand.”
Comments are closed.