The Future Investment Initiative (FII) conference in Riyadh, Saudi Arabia, is underway, marking a significant moment for the kingdom’s ambitious Vision 2030 economic diversification plan. While past FII events were characterized by an abundance of Saudi capital readily available to investors, this year presents a markedly different landscape. Amidst lower oil prices and increased domestic investment priorities, the kingdom is adopting a more selective and stringent approach to attracting foreign investment, creating a more competitive environment for both investors and fundraisers seeking Saudi capital.
Saudi Arabia’s FII 2024: A Shift in Investment Landscape
- Increased Competition for Saudi Capital: The influx of investors seeking Saudi funding has intensified competition, leading to a more discerning investment approach from the kingdom.
- Stringent Investment Requirements: Saudi Arabia is implementing stricter conditions for foreign investors, demanding more than just simple capital injections; a focus on long-term value addition is paramount.
- Domestic Investment Focus: The kingdom’s prioritization of domestic investment, fueled by the substantial growth of its Public Investment Fund (PIF), is reshaping the investment landscape, emphasizing local opportunities.
- Lower Oil Prices and Fiscal Challenges: Reduced oil prices and the kingdom’s substantial investment in mega-projects like NEOM have increased the fiscal breakeven oil price, impacting Saudi Arabia’s spending capacity and investment strategies.
- Geopolitical Instability and Regional War: The ongoing regional conflicts, including the recent escalation between Israel and Iran, cast a shadow over the FII, potentially impacting investor sentiment and future investment flows.
Thousands of financiers, founders, and investors are converging on Riyadh for the eighth edition of the Future Investment Initiative (FII), the cornerstone of Saudi Arabia’s Vision 2030. This multi-trillion dollar plan aims to modernize and diversify the kingdom’s economy, reducing its reliance on oil. However, this year’s FII presents a different narrative compared to previous years. Instead of easily accessible Saudi capital, fund managers describe a **significantly more competitive** environment. “Without question, it’s gotten way more competitive to attract money from the kingdom,” stated Omar Yacoub, a partner at ABS Global, an investment firm managing nearly $8 billion in assets. He further explained that the intense competition is coupled with a “home bias” among Saudi investors and tighter budgets due to lower oil prices, resulting in significantly more selective international investment.
The kingdom’s $925 billion Public Investment Fund (PIF), a key player in driving investment, saw a remarkable 29% increase in assets in 2023, reaching $765.2 billion. This growth is largely attributed to **domestic investment**, highlighting Saudi Arabia’s strategic shift in focus. While Saudi Arabia’s recently updated Investment Law aims to attract more foreign investment, targeting $100 billion in annual foreign direct investment (FDI) by 2030, the current average of around $12 billion annually since 2017 (the year Vision 2030 was launched) indicates a considerable gap.
The changed approach is evident in the evolving expectations for foreign investors. “It’s no longer about ‘take our money and leave’ — it’s about adding value,” emphasized Fadi Arbid, founding partner and chief investment officer of Amwal Capital Partners. This “value” encompasses job creation, development of the asset management ecosystem, creation of new products, talent acquisition, and investment in Saudi capital markets – a multifaceted approach beyond basic financial transactions.
Simultaneously, Saudi Arabia is implementing fiscal restraint due to lower oil prices, which now fall below its fiscal breakeven point. The International Monetary Fund (IMF) projected this **breakeven oil price at $96.20 for 2024**, reflecting a substantial increase compared to previous years and significantly higher than the current Brent crude price. “I don’t think Saudi has the same means that they had literally two years ago,” noted a regional investor who preferred to remain anonymous. However, they added, **”it remains one of the very few countries that still have money to give. It might be somewhat on pause today, but… now it’s more disciplined, more rational.”**
For seasoned Gulf investors, the shift may seem to have come late for newcomers. “You should have started that process two, three, four years ago,” Arbid commented. Yet, he acknowledged the cyclical nature of investment, urging new entrants to strategically position themselves. The kingdom’s **headquarters law**, effective January 1, 2024, which mandates that foreign companies operating in the Gulf must base their Middle Eastern headquarters in Riyadh to secure contracts with Saudi government, exemplifies this commitment-driven investment strategy.
The FII 2024 unfolds against a backdrop of heightened regional tension. The ongoing conflicts in the Middle East, including the recent escalation between Israel and Iran following Israel’s weekend strikes on Iranian military targets, adds another layer of complexity. While initial reactions suggest that recent geopolitical events have not severely impacted oil prices, the **growing regional instability** poses a significant risk. “The war has gradually escalated to the point where there is a de-facto regional war,” stated Aziz Alghashian, director of research at the Observer Research Foundation Middle East. He highlighted that a prolonged war could lead to increased radicalization and threaten the region’s stability.
The rapprochement deal between Saudi Arabia and Iran, brokered by China, has seemingly buffered the Saudi economy against the immediate impact of regional conflicts. However, long term impacts may still be witnessed. Although local investor confidence remains strong, with the Tadawul All Shares Index showing a 16.48% increase in the past year, the ongoing instability presents challenges in attracting foreign investment and tourism which both play a vital role in supporting the Saudi mega-projects which Vision 2030 projects.
In conclusion, the FII 2024 showcases a significant shift in Saudi Arabia’s investment strategy. While ambitious plans continue under Vision 2030, securing long-term investment means navigating increasing competition, stringent requirements, and a challenging geopolitical climate, creating a new reality for those seeking to tap into Saudi Arabia’s economic potential. The kingdom’s focus is now firmly on securing investment committed to adding long-term, sustainable value, rather than simply attracting short-term capital inflows.
