Saudi Arabia's foreign direct investment (FDI) inflows showed minimal growth in the first half of this year, highlighting the country's ongoing challenges in attracting capital to support its extensive economic transformation agenda. According to data released by Saudi Arabia's General Authority for Statistics on Monday, the total FDI inflows for the first half of 2024 reached $9.7 billion, only slightly higher than the same period in 2023. However, second-quarter FDI inflows grew by 14.5% compared to the first quarter, reaching $5.2 billion.
The goal for Saudi Arabia this year is to attract $29 billion in FDI. Crown Prince Mohammed bin Salman is seeking additional capital to propel the multi-trillion-dollar economic diversification plan and reduce the country's reliance on oil. To meet this year's target, Saudi Arabia would need to achieve its highest-ever FDI inflows in the second half of the year.
Historically, Saudi Arabia has struggled to meet its capital attraction goals. Significant investments and deals outside the energy sector have progressed slowly. The country aims to attract $100 billion in annual FDI by 2030. Last week, Capital Economics noted in a research report that high entry barriers and persistent concerns about reputational risks are primary challenges in attracting foreign investment. The report emphasized that these issues are pivotal obstacles to economic diversification.
With weakened oil prices turning the budget into a deficit, Saudi Arabia's need for funding has become more urgent, leading to a re-prioritization of projects. This year, Saudi Arabia has been one of the largest issuers of sovereign debt in emerging markets. Last week, Saudi Aramco, the oil giant that pays substantial dividends to the Saudi government, issued $3 billion in notes.
Recent developments could potentially boost Saudi Arabia's FDI inflows. Wall Street advisory firm PJT Partners plans to increase its staff in Saudi Arabia, billionaire Adam Neumann is expanding his real estate enterprise with new projects in the country, and UAE-based Aster DM Healthcare is seeking to acquire up to $250 million in Saudi assets.
To encourage more foreign capital, Saudi Arabia recently reformed its investment law, with new regulations set to take effect in 2025. These reforms aim to reduce bureaucratic hurdles, making it easier for foreign investors to conduct business locally. Capital Economics suggests that this update could be a "game changer," potentially attracting more foreign funds into Saudi Arabia. However, they also caution that weak FDI remains a concern.
