A delegate arrives at the Future Investment Initiative (FII) Forum at the King Abdulaziz Conference Center in Riyadh, Saudi Arabia’s capital.
Fayez Noureddin | AFP | Getty Images
Thousands of financiers, founders and investors will gather in the Saudi capital of Riyadh for the eighth edition of the Saudi Future Investment Initiative, the flagship economic conference at the heart of Vision 2030 – the multi-trillion dollar modernization and diversification of the Kingdom. Planning the Arab Economy.
Some attendees have viewed the kingdom as a bonanza of cash in past years, but fund managers interviewed by CNBC this year painted a much different picture as the kingdom simultaneously demands more from potential fundraisers and investors. It also faces a squeeze on revenue and production from falling oil prices.
“There’s no question that competition to attract capital from Saudi Arabia has become more intense,” Omar Yacoub, a partner at ABS Global, a U.S. investment firm that manages nearly $8 billion, told CNBC. “It’s fair to say , in Riyadh, everyone and anyone ‘kisses the ring’.”
“Competition for capital has intensified, combined with other factors such as the Saudis’ ever-present ‘home bias’ towards investment, and the broader dynamics of lower oil prices leading to tighter budgets across the kingdom,” Jacobs said. “This means International investment has become more selective.”
As Saudi Arabia goes all-out on domestic investment, it has imposed stricter conditions for foreigners to come to the country to access capital elsewhere. The assets of the Public Investment Fund, the kingdom’s $925 billion sovereign wealth fund, grew 29% in 2023 to 2.87 trillion Saudi riyals ($765.2 billion) – with local investment the main driver.
Saudi Arabia’s recently updated Investment Law also seeks to attract more foreign investment and has set itself an ambitious target of $100 billion in annual foreign direct investment by 2030. Currently, this number is still a long way from that target as foreign investment has Average of approximately US$12 billion per year Since the announcement of Vision 2030 in 2017.
“It’s no longer about ‘take our money and leave,’ but about adding value,” said Fadi Arbid, founding partner and chief investment officer of Amwal Capital Partners, a Dubai-based investment management firm. “Value It means hiring, developing the asset management ecosystem, creating new products, bringing in talent and investing in the Saudi capital market. So it’s a multi-faceted investment, it’s not just a pure financial transaction.”
“More self-disciplined and more rational”
Meanwhile, with oil prices well below its fiscal breakeven figure and Saudi Arabia continuing to implement OPEC+-agreed crude production cuts, the kingdom is taking clear steps to scale back spending.
As Saudi Arabia pours trillions of dollars into the megaproject NEOM, fiscal breakeven oil prices (the kingdom needs a barrel of crude oil to balance the government budget) have risen sharply.
The International Monetary Fund’s latest forecast for April states Breakeven point in 2024 is $96.20;up approximately 19% from the previous year and approximately 28% above the current price per barrel Brent crude oil, As of Monday morning, it was trading around $72.75.
“I think the Saudi approach is different than it was two years ago,” said one regional investor who requested anonymity to speak freely. Still, they added, the kingdom “is still one of the very few countries that still has money to give. It’s possible today There’s a bit of a pause, but… now it’s more disciplined, more rational.”
Some fund managers with years of experience in the Gulf say it may be too late for many investors venturing into the country for the first time.
“You should have started this process two, three, four years ago,” Albid said. However, he added, “For those who are lining up now, that doesn’t mean they shouldn’t position themselves – because it’s a cycle, right? But now, I think they’re a little more thoughtful about it – they Say you need to contribute to the country.”
An example is Kingdom Headquarters Act, The bill, which takes effect on January 1, 2024, requires foreign companies operating in the Gulf to locate their Middle East headquarters offices in Riyadh if they want to sign contracts with the Saudi government.
In the shadow of local war
The glitzy meeting at the plush Riyadh Ritz-Carlton hotel also took place against the backdrop of a regional war, just over a year after Israel launched a war against Hamas in Gaza.
The Jewish state invaded Lebanon in September amid a surge in attacks between Israel and Iranian proxies including Hezbollah and Yemen’s Houthis. The region has been waiting on tenterhooks for Israel to publicly retaliate against Iran for its missile attacks on Tel Aviv and other parts of the country on October 1.
Earlier on Saturday, Israel struck an Iranian military base, targeting a missile manufacturing plant. The Israeli military later said it had completed “targeted” attacks on Iran, adding that it was ready to “take defensive and offensive actions.”
So far, oil prices and the Saudi economy appear largely unaffected, falling 4% early Monday After Israel attacks Iran over the weekend. A key reason for this may be that Kingdom signs reconciliation agreement with Iran, Facilitated by China, March 2023.
“Saudi Arabia has done an excellent job of late in protecting itself from geopolitical events,” Albid said.
This is also due to the fact that local investors account for the majority of market participants and local investors have strong confidence. Saudi Arabia’s main stock market index, the Tadawul All Shares Index, rose 16.48% last year.
Still, some analysts in the region warn that the expanding crisis in the Middle East threatens to lead to further instability.
“The war has gradually escalated to the point where it is a de facto regional war,” Aziz Alghashian, research director at the Middle East Observer Research Foundation, told CNBC. “The ongoing war is not just a geopolitical crisis; And its continuation has the potential to cause more radicalization in and around the region.”
“Attracting foreign direct investment and tourism while maintaining oil prices at desirable levels is key to keeping Saudi Arabia’s mega-projects and diversification plans on track,” Algashian said.
“Of course, regional wars complicate the situation, so economics and security are closely linked.”
