On October 29, 2019, a representative arrived at the King Abdulaziz Conference Center in Riyadh, the capital of Saudi Arabia, to attend the Future Investment Initiative (FII) Forum. The Saudi investment summit was in stark contrast to last year, when outrage over the murder of critic Jamal Khashoggi sparked a massive boycott. Organizers said 300 speakers from more than 30 countries will attend the three-day forum, including U.S. officials and the heads of global banks and major sovereign wealth funds. (Photo by FAYEZ NURELDINE/AFP) (Photo by FAYEZ NURELDINE/AFP via Getty Images)
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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 – a multi-trillion dollar Saudi Arabia plans to modernize and diversify the Arab economy.
Some attendees have viewed Saudi Arabia as a bonanza of cash in past years, but fund managers who spoke to CNBC this year painted a much different picture as the kingdom challenges both potential fundraisers and investors. demand for more, while also facing a squeeze on revenue and production caused by 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 that in Riyadh, everyone and anyone People ‘kiss the ring’.”
“Competition for capital has intensified, coupled with other factors such as Saudi Arabia’s 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 becomes 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. a long way to go, 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. ” It means recruiting, 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, the price of oil to break even (the kingdom needs a barrel of oil to balance the government budget) has risen sharply.
The International Monetary Fund’s latest forecast for April states that The 2024 breakeven point is $96.20; up about 19% from a year ago and about 28% above the current price of a barrel of Brent crude, which was trading at about $72.75 as of Monday morning.
“I think the Saudi approach is different than it was two years ago,” said one regional investor who asked not to be identified so he could speak freely. Still, they added, Saudi Arabia “remains one of the very few countries that still has money to give.” . It might be a little bit of a pause today, 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.
One example is the Kingdom of Saudi Arabia’s Headquarters Law, which came into effect on January 1, 2024, requiring foreign companies operating in the Gulf to locate their Middle East headquarters offices if they wish to enter into contracts with the Saudi Arabian government. Riyadh.
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 for Iran’s October 1 missile attacks on Tel Aviv and other parts of the country.
Earlier on Saturday, Israel attacked Iranian military bases, targeting missile manufacturing plants. The Israeli military later said it had completed “targeted” attacks against 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 attacked Iran over the weekend. A key reason for this may be the reconciliation agreement signed between Saudi Arabia and Iran in March 2023 under the mediation of China.
“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.”
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