Complex Made Simple

What you need to know about Saudi investment

King Abdulla Economic City (KAEC) is in the spotlight as top executives in the region’s businesses and industry leaders have gathered here in Jeddah for Top CEO Conference and Awards.

On the second and final day of the event on Monday, speakers discussed new opportunities and challenges for investors in Saudi Arabia.

Foreign Direct Investment (FDI) in the kingdom has been steadily declining since 2012. Limited knowledge of the country and limited opportunities may partly explain the drop.

However, after a surge of oil-fueled prosperity in the kingdom and extensive efforts toward economic diversification, Saudi Arabia needs a new roadmap for its future. Experts believe that Vision 2030 is opening up the Saudi economy and attracting more number of investors.

Fewer opportunities

Industry pundits say that this dip in foreign investors’ interest in KSA is due to various factors.

“There were several reasons why the growth rate dropped dramatically, starting with the economic crisis in 2008-09, which had a strong impact on KSA and later on, due to the drop in oil prices. Large FDI flows have always been in the oil sector, so the economic crisis and reduction of investment in the oil sector have made it more difficult to invest, since there are fewer opportunities to invest in other sectors in the country,” said Philippe Yvergniaux, Executive Director, International Cooperation, Business France.

Banking on Vision 2030

No one doubts the value of diversification in principle, but Vision 2030, Saudi Arabia’s blueprint for the post-oil boom world, calls for growth in non-oil sectors of the economy, including resource extracting, housing, construction, retail, ecommerce, healthcare, education and, perhaps surprisingly, tourism.

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“I believe that Vision 2030 will definitely help to attract more investors, especially in the non-oil sectors. Of course,investors need to have a clear view on where the country will be in 2030 and the reforms that would have been passed, on the sectors and industries that would developed, so that they get an idea where their investment will be ten or 15 years from now and how safe their money would be,” says Yvergniaux.

“They really want to increase the number of people coming for Umrah, the lesser pilgrimage that runs throughout the year,” explains Graham Griffiths, analyst for Saudi Arabia, Yemen and Kuwait at Control Risks Group in Dubai. He suggests that while diversification targets appear feasible and make eminent sense, the plan may be too ambitious for the time projected.

“The time frame they are looking at is too short for the kind of transformation that is required,” he says during an interview from Dubai. “They will make progress toward those goals, but (as for) actually achieving them, when you look at the kind of growth rates they would need to achieve, it’s kind of off the charts.”