Saudi Arabia’s FDI surges to $65 bln after pandemic, topping West Asia list: report
RIYADH: Saudi Arabia attracted $65.1 billion in foreign direct investment in the three years to 2023 following the pandemic, making it one of the largest recipients in West Asia, according to new data.
According to the latest World Investment Report from the United Nations Conference on Trade and Development, Saudi Arabia’s foreign direct investment (FDI) outflows totaled $73.1 billion over the same period, with $16 billion recorded last year alone, putting the country in the top 20 economies in the world by FDI outflows, ranking it 16th.
In accordance with the objectives set out in the National Investment Strategy and Vision 2030 goals, Saudi Arabia has implemented significant legal, economic and social reforms aimed at stimulating foreign direct investment inflows.
Launched in 2021, the NIS aims to develop comprehensive investment plans across a range of sectors, including manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure and healthcare.
Furthermore, it aims to increase annual FDI inflows to more than $103 billion and annual domestic investment to more than $453 billion by 2030.
The UN report also noted that the value of international project finance deals in Saudi Arabia will grow 55 percent annually to reach $22 billion in 2023.
Last year, there were 19 transactions in the country, marking a 90 percent increase from the previous year.
Additionally, 389 greenfield projects have been announced in Saudi Arabia for 2023, with a total value of $29 billion, reflecting a 108 percent increase in annual value.
At the global level, FDI will experience a slight decline of 2% per year in 2023, falling to $1.3 trillion.
The analysis highlighted that the overall figure is heavily influenced by large financial flows through several European intermediary economies.
Excluding the impact of these conduits, global FDI flows were more than 10 percent lower than in 2022.
A conduit economy is a country that acts as an intermediary for capital flows, especially foreign direct investment.
These economies attract multinational companies with favorable tax laws and regulatory environments, allowing funds to pass through on the way to their final investment destination, often obtaining tax optimization and regulatory benefits. Examples include the Netherlands, Luxembourg, Switzerland, as well as Cyprus and Ireland.
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UNCTAD said the global investment climate will remain challenging in 2024. Factors such as weakening growth prospects, economic fragmentation, trade and geopolitical tensions are affecting FDI patterns. Industrial policies and supply chain diversification are also constraints.
These factors have led many multinational companies to adopt a cautious approach to international expansion.
“However, MNE profit levels remain high, financing conditions are easing and more greenfield project announcements in 2023 will have a positive impact on FDI. Moderate growth is expected for the full year,” the report said.
In 2023, international project finance and cross-border mergers and acquisitions were particularly weak.
M&A, which primarily influences foreign direct investment in developed countries, fell 46% in value, while project finance, a key component of infrastructure investment, fell 26%.
According to the report, the main reasons for the decline include stricter financing conditions, investor uncertainty, financial market volatility and increased regulation of M&A.
In developed economies, trends for 2023 were heavily influenced by MNE financial transactions, due in part to efforts to introduce a minimum tax on the largest MNEs.
Detailed survey of the area
FDI flows to Europe have shifted dramatically from negative $106 billion in 2022 to positive $16 billion in 2023 due to uncertainty in conduit economies.
Flows to the rest of Europe fell 14%, while flows to other developed countries stagnated, North America fell 5%, and other regions saw larger declines.
FDI inflows to developing countries fell 7 percent to $867 billion, mainly due to an 8 percent decline in developing Asia.
In Africa, inflows fell 3 percent and in Latin America and the Caribbean, they were down 1 percent. The number of international project finance deals fell by a quarter.
Announcements of greenfield projects in developing countries increased by more than 1,000, but these efforts were highly concentrated in certain regions.
A greenfield project announcement refers to the launch of a new investment venture where a company builds an operation from the ground up on undeveloped land, constructing new facilities and infrastructure.
Nearly half of these projects were in Southeast Asia and a quarter in Western Asia, while Africa saw a slight increase and Latin America and the Caribbean saw a decline in efforts.
FDI inflows to Africa are set to fall 3% to $53 billion in 2023. Despite the announcement of several megaprojects, including the world’s largest green hydrogen project in Mauritania, international project finance in Africa fell by a quarter in number of deals and half in value, negatively impacting the outlook for infrastructure investment.
In Developing Asia, FDI fell 8% to $621 billion. China, the world’s second-largest recipient of FDI, saw a rare decline in inflows, while India, West Asia and Central Asia also recorded large declines.
Despite the global downturn in project finance, industrial investment remained strong, with Southeast Asia the only region to remain stable, the report said.
FDI inflows to Latin America and the Caribbean fell 1 percent to $193 billion.
While the number of international project finance and greenfield investment announcements declined, the value of greenfield projects increased due to large investments in the commodity sector, critical minerals, renewable energy, green hydrogen and green ammonia.
Conversely, FDI inflows to structurally weak and vulnerable economies increased. Least developed countries received $31 billion in FDI inflows, accounting for 2.4 percent of global FDI inflows, the report said.
“FDI also increased in landlocked developing countries and small island developing States. In all three groups, FDI remains concentrated in a few countries,” the report added.
The global downturn in international project finance has disproportionately affected the poorest countries, where such finance is relatively important.
In terms of industry trends, investment in infrastructure and the digital economy declined, while global value chain-intensive sectors such as manufacturing and critical minerals saw solid growth.
The downturn in the project finance market has had a negative impact on infrastructure investment, and the digital economy sector has continued to slow after its boom ended in 2022.
The report further notes that global value-chain intensive sectors such as the automotive, electronics and machinery industries saw strong growth, driven by pressures to reorganize supply chains. Investment in the mining and processing of critical minerals almost doubled in number of projects and value.
