In a strategic shift, Saudi Arabia has stepped up its focus on boosting domestic investment, as evidenced by recent regulatory changes requiring more substantial commitments from foreign companies operating in the kingdom.
This adjustment is underscored by the significant growth of the kingdom’s Public Investment Fund (PIF), which saw a 29% increase in assets to reach 2.87 trillion Saudi riyals ($765.2 billion) in 2023, according to its latest annual report. The surge in assets is largely attributed to a 15% increase in investment in the local infrastructure and real estate sectors, totaling 233 billion riyals. Meanwhile, overseas investment also saw a 14% increase to 586 billion riyals.
At the same time, the Saudi government has reformed its policies to increase investment in line with its Vision 2030 agenda, which aims to diversify the economy away from oil dependence. Notable among these reforms is the Headquarters Law, effective January 1, 2024, which requires foreign companies to establish their Middle East headquarters in Riyadh to secure contracts with the Saudi government.
Additionally, Saudi Arabia has revised its investment regulations to attract more foreign capital, setting an ambitious target of reaching $100 billion in annual foreign direct investment by 2030. However, current investment levels have averaged around $12 billion annually since Vision 2030 was announced in 2017, indicating a challenging path ahead.
The realism of these goals has been met with skepticism by some regional analysts. The success of the new investment laws in providing a significant boost to foreign direct investment remains uncertain, according to one Gulf financier.
In the context of these developments, Tarik Solomon, a senior fellow at the American Chamber of Commerce in Saudi Arabia, noted that the kingdom’s investment strategy has shifted significantly toward exploiting domestic opportunities, rather than simply serving as a financial haven.
Furthermore, the new investment framework aims to clarify and simplify the investment process, promoting fair treatment for foreign and domestic investors, thus improving the Saudi economic landscape. This new regulatory environment is expected to alleviate some pressure on the PIF by fostering a more attractive climate for external investors, as noted by James Swanston, an economist specializing in the Middle East and North Africa.
This strategic shift reflects a broader trend in the Gulf region, where investment practices are evolving from passive sources of finance to more engaged and selective financial partnerships.
