Role of Foreign Direct Investment in the Economy of Saudi Arabia

12 Jul 2022

An Overview of the Saudi Arabian Economy

The Kingdom of Saudi Arabia has gone through a remarkable transformation phase, offering many opportunities and possibilities to investors, which makes it occupy a unique economic position among the countries of the Group of Twenty. Having abundant natural resources and linking the three continents, it makes it the most important gateway to the world as a hub for major trade lines. A broad economic reform package has begun to bear fruit, within the framework of Vision 2030 as it aims to create distinctive job opportunities and start benefiting from the Kingdom's main strategic assets and push the wheel of economic growth towards diversification. A comprehensive economic openness has been witnessed in the Kingdom that has led to a total transformation, and this is evident in the latest report issued by the World Bank Group on the facilities provided for doing business. The Kingdom of Saudi Arabia has advanced thirty places in providing these facilities, in a boom not witnessed by any country in the world in such a short time.


FDI in Saudi Arabian Context

Foreign direct investment to Saudi Arabia in 2020 recorded its annual growth for the third year in a row, as it rose by 1.8 percent in 2018, then 1.4 percent in 2019, and finally 4 percent in 2020. Before that, foreign direct investment to Saudi Arabia had declined for two consecutive years, as it declined 0.7 percent in 2016 to reach USD 7.5 billion, compared to USD 8.1 billion in 2015, then declined by 6 percent in 2017 to USD 1.4 billion. Major projects attract global capital, with an increase of 2.3 percent. Saudi Arabia is implementing ambitious plans to attract foreign investments within the "Vision 2030", which led to the growth of foreign investment flows to the Kingdom to 5.5 billion dollars, an increase of 2.3 percent during 2020, According to official data. The Kingdom's pace has become clear and fast, making it your first destination for investment with unique investment capabilities and opportunities.

The total inflows of foreign direct investment amounted to 907 billion riyals (242.1 billion dollars) at the end of 2020 according to the recent data issued by the Saudi Central Bank, “Sama”, compared to 886.4 billion riyals (236.6 billion dollars) at the end of 2019. The growth of foreign direct investment in the Kingdom came despite the decline in the volume of foreign investments globally due to the consequences associated with the Corona pandemic, which reflects the great confidence in the future of the Saudi economy and the growth potential, as in contrast, direct investments globally fell by 42 percent during the past year, in comparison to 2019.

The foreign investments flowing into Saudi Arabia are divided into three sections: "direct investment within the economy", "portfolio investments" and "other investments". The data showed that foreign direct investment accounted for 45.2 percent of the total foreign investments, and "portfolio investments" represented 29.2 percent of the total, while "other investments" accounted for 25.6 percent. The data indicated that portfolio investments increased by 10.1 percent, or USD 14.4 billion, at the end of last year, to 585.7 billion riyals (USD 156.4 billion), compared to 531.8 billion riyals (USD 142 billion) in 2019. Portfolio investments include equity and investment fund shares worth 199.9 billion riyals (USD 53.4 billion), in addition to debt securities worth 385.8 billion riyals (USD 103 billion). As for other investments, the data indicated an increase of 23.8 percent, or USD 26.3 billion, to reach 513.7 billion riyals (USD 137 billion), compared to 414.9 billion riyals (USD 110.8 billion) at the end of 2019.

The accession of the Saudi stock market, "Tadawul" to the emerging markets indices "MSCI" and "Standard & Poor's Dow Jones", made it easier for foreign investors to invest in Saudi Arabia, as the value of their holdings in the market increased by 195.9 percent to reach 208.3 billion riyals (55.54). billion) by the end of 2020, with an ownership percentage of 12.8% of the total value of shares, and contributed, along with the reforms that affected the market, to making “Tadawul” one of the top 10 financial markets around the world.

In the recently issued "38 Global Investment Trends Monitor" bulletin issued by the organization's trade arm, UNCTAD said that the Saudi government's policies regarding investment promotion and economic diversification under the Kingdom's Vision 2030 have begun to bear fruit.



In the Saudi stock market, the net purchases of foreign investors amounted to about 9.4 billion riyals (USD 2.5 billion) throughout four months of 2021, compared to 2.6 billion riyals (USD 694 million) in the same period last year, an annual growth of 258%. Vision 2030 led the expansion of investment in sectors such as tourism, infrastructure, health, education, housing, transportation, and manufacturing, which in the coming years will help diversify the economy, in addition, of course, to the consumer sector, which is supported by 33 million Kingdom's population. The industrial, construction, communications, and information technology sectors are at the fore in the most popular sectors, as the demand for these sectors has increased, in addition to the development of infrastructure, driven by the progress achieved in the mega projects that the country is perceiving in line with Vision 2030. The rate of international foreign investment flows shown in the Saudi Council of Economic and Development Affairs report has reduced by 58 percent since 2015, but it recorded a growth in the level of foreign direct investment flows in Saudi Arabia, reaching 17.625 billion riyals (USD 4.70 billion). By an increase to 331 percent, after it was 5.321 billion riyals (USD  1.42 billion) before the launch of the vision. Visit our official website to know more about the latest updates.