A group of delegates arrives at the King Abdulaziz Conference Center in Riyadh, the capital of Saudi Arabia, for the Future Investment Initiative (FII) Forum.
Fayez Nureldin | AFP | Getty Images
Thousands of investors, entrepreneurs, and financiers gathered for the eighth installment of the Saudi Future Investment Initiative, a pivotal economic conference central to Vision 2030, a far-reaching program aimed at modernizing and diversifying the Saudi economy. Participants are converging in Riyadh, the capital of Saudi Arabia, to engage in discussions.
In previous years, attendees frequently referred to Saudi funding as a wealth of opportunities; however, this year’s fund managers have reported that Saudi Arabia has become more discerning about who it is willing to fund. With the decline in oil prices tightening revenues, they presented a markedly different outlook this year.
“There’s no denying that the competition for attracting Saudi capital is heating up,” said Omar Yacoub, a partner at ABS Global, a US-based investment firm managing nearly $8 billion in assets. “Everyone in Riyadh is eager to impress.”
“In addition to the competitive landscape, Saudi Arabia’s ongoing preference for local investments and broader fiscal tightenings driven by reduced oil revenues are intensifying the race for capital. This shift indicates that international investment opportunities are under more scrutiny,” Jacob added. “We’re working diligently to meet these new standards.”
As the focus on domestic investment intensifies, Saudi Arabia has also set stricter stipulations for foreign investors looking to bring capital into the nation. The Public Investment Fund (PIF), which is a sovereign wealth fund amounting to $925 billion, saw its assets jump 29% to 2.87 trillion Saudi riyals (around $765.2 billion) in 2023, thanks to increased domestic investment.
Saudi Arabia has revamped its investment regulations with the goal of enhancing foreign investment, aiming for an annual $100 billion from foreign direct investments by 2030. Currently, that target remains a significant challenge, as investments have been averaging only around $12 billion annually since the Vision 2030 announcement in 2017.
“It is no longer a simple matter of taking money and leaving; the focus is now on creating value,” stated Fadi Albid, chief investment officer and founding partner of the Dubai-based investment firm Amwar Capital Partners. “Value creation involves hiring, building a robust asset management ecosystem, innovating new products, attracting talent, and investing within the Saudi capital market. It’s about holistic engagement rather than isolated financial transactions.”
“More disciplined and more rational”
At the same time, Saudi Arabia is implementing clear measures to curb spending as oil prices linger below the required fiscal break-even price, exacerbated by OPEC+ production cuts.
As Saudi Arabia invests heavily in ambitious projects such as NEOM, the oil price needed to balance the national budget has increased significantly.
The International Monetary Fund (IMF) projects the breakeven oil price will reach $96.20 per barrel in 2024, marking a 19% increase from the previous year and nearly 28% above the current Brent crude oil price, which was approximately $72.75 on Monday morning.
“I believe the Saudis no longer wield the same power they had two years back,” remarked a regional investor, who chose to remain anonymous for candidness. Nonetheless, they pointed out that Saudi Arabia remains “one of the few countries still equipped with significant funds to invest. While their activities may appear subdued now, they have become more strategic and rational in their approaches.”
Industry veterans have indicated that it may be too late for new investors looking to break into the Saudi market.
“We should have begun this process two, three, or four years back,” voiced Arvid. However, he added, “For newcomers, that doesn’t imply they shouldn’t seek a foothold—after all, economic cycles do exist. But there is a need for increased caution. Engaging meaningfully with the country is essential.”
One pertinent example is the recent Saudi Headquarters Law that went into effect on January 1, 2024, mandating foreign companies operating in the region to establish their Middle East headquarters in Riyadh if they wish to secure government contracts.
In the context of regional conflicts
The high-profile conference, hosted at the opulent Ritz-Carlton Riyadh, unfolds against the backdrop of ongoing regional conflict, just over a year post-Israel’s initiation of military actions against Hamas in Gaza.
Simultaneously, skirmishes between Israel and Iranian-backed groups, such as Hezbollah and the Houthis from Yemen, have intensified. The region remains on edge as it anticipates Israel’s planned retaliation against Iran following an October attack involving missile strikes on Tel Aviv and other Israeli territories.
In response, Israeli forces targeted Iranian military installations, including a missile manufacturing facility. The Israeli military subsequently claimed it had carried out a “targeted” operation in Iran, declaring its readiness for both defensive and offensive measures.
Current oil prices and the overall Saudi economy appear resilient, despite a 4% drop early on Monday after the recent Israeli bombardment of Iran. This steadiness might be attributed to the diplomatic relationship between Saudi Arabia and Iran established in March 2023, facilitated by China.
“Saudi Arabia has adeptly shielded itself from the repercussions of recent geopolitical developments,” stated Arbid.
This resilience is bolstered by the fact that local investors form the majority of the market participants, fostering strong investor confidence. The Saudi stock market index, the Tadawul All-Share Index, saw an impressive growth of 16.48% last year.
Nevertheless, several experts caution that the escalating conflicts in the Middle East could lead to increasing instability.
