Foreign Direct Investment Inflows to Saudi Arabia Increase by 6% in 2023
Foreign direct investment (FDI) inflows to Saudi Arabia have seen a 6 percent annual rise in the first 9 months of 2023. This positive growth can be attributed to an updated approach characterized by heightened transparency and governance standards. According to the new methodology, FDI inflows reached SR52.9 billion, up from SR49.9 billion in the previous period.
Updated Methodology Aligned with International Standards
The updated methodology for calculating FDIs in Saudi Arabia aligns with international standards and was developed to enhance accuracy and comprehensiveness. It categorizes FDI based on various criteria such as economic activity, financial instrument, and geographical region, including investment income from dividends and interest. It also evaluates FDI based on companies' financial statements. The calculation includes special purpose entities, capital, and individual companies.
Stimulating FDI through Reforms
Significant legal, economic, and social reforms have been implemented in Saudi Arabia to stimulate FDI inflows. The aim is to reach SR83 billion by 2023, and the Kingdom has already achieved 64 percent of this objective by the third quarter of 2023. Furthermore, Saudi Arabia aims to achieve an FDI inflow target of SR388 billion by 2030, equivalent to 5.7 percent of gross domestic product. This ambitious goal is part of the Kingdom's broader plan to position itself among the 15 largest economies in the world.
Saudi Arabia's Regional Headquarters Program Attracts Multinational Giants
Saudi Arabia's regional headquarters program has successfully enticed multinational giants to relocate to the Kingdom. These companies are attracted by the favorable business environment and the opportunities for growth and expansion in the region.
FDI Stock and Gross Fixed Capital Formation
The FDI stock in Saudi Arabia has seen a 6 percent increase, reaching SR795 billion. Additionally, the Gross Fixed Capital Formation has risen by 10 percent to reach SR833.9 billion, with 88 percent of this coming from the non-government sector.
Saudi Arabia Outperforms Global FDI Trends
While global FDI net inflows declined by 12 percent in 2022, Saudi Arabia experienced a surge of 21 percent in FDI net inflows, reaching SR105 billion. Europe constituted 66 percent of FDIs to the Kingdom, followed by Asia at 11 percent. On the other hand, FDI outflows from Saudi Arabia increased by 13 percent during this period, totaling SR17 billion.
Key Sectors Driving FDI Inflows
The transportation and storage sector received the largest share of FDI inflows at 42 percent, followed closely by manufacturing at 33 percent. Saudi Arabia's manufacturing sector has experienced remarkable growth, driven by strategic initiatives such as Vision 2030.
Comparison with Other Countries
According to a report, the United Arab Emirates held the highest FDI stock in 2022 at SR104 billion, followed by Luxembourg with SR103 billion, and the United States with SR77 billion.
Initiatives Under Saudi Vision 2030 Boost FDI
Initiatives introduced under Saudi Vision 2030 have significantly improved FDI in Saudi Arabia. Between 2017 and 2022, FDI stock witnessed a 52 percent increase, while FDI inflow experienced a staggering 337 percent increase.
Source: Bloomberg
Analyst comment
Positive news: Foreign direct investment (FDI) inflows to Saudi Arabia saw a 6% annual rise in the first 9 months of 2023, reaching SR52.9 billion, with the objective of reaching SR83 billion by 2023. FDI stock also increased by 6%, reaching SR795 billion. The Kingdom aims to achieve an FDI inflow target of SR388 billion by 2030 and position itself among the 15 largest economies globally. Initiatives under Saudi Vision 2030 have significantly improved FDI, resulting in a 52% increase in FDI stock and 337% increase in FDI inflow from 2017 to 2022.
As an analyst, it can be expected that the market will continue to attract foreign direct investment due to the implemented legal, economic, and social reforms. This could lead to increased economic growth, job creation, and technological advancements in Saudi Arabia, strengthening its position in the global economy. The focus on enhancing transparency and governance standards in calculating FDIs aligns with international standards and could further enhance investor confidence.
