Saudi Arabia increases its investment footprint abroad

 

Saudi Arabia has been dramatically increasing the volume of investment outside of its borders in line with economic development goals. The Kingdom’s investments abroad have increased almost threefold in recent years, rising from $7.3bn in 2017 to $21.2bn in 2018, according to the “World Investment Report 2019”, published by the UN Conference on Trade and Development. These funds have been concentrated in technology, finance and infrastructure-related activities, and included a $1bn outlay by the country’s sovereign wealth fund, the Public Investment Fund (PIF), in US-based electric vehicle start-up Lucid Motors, and $400m in Magic Leap, another US company specialising in virtual reality.

The increase in outward investment is aligned with the Kingdom’s aim of transforming itself into a “global investment powerhouse”, as defined in Saudi Vision 2030, the country’s long-term economic development blueprint. While attracting inward FDI is a prominent aspect of government policy, investing in businesses and industries around the world is also poised to help diversify the economy. Stronger connections with foreign companies are likewise forecast to result in greater trade volume and efficiency going forward.

Public Entities

The Kingdom’s overseas investment has been on an upward trend that has seen the total increase from $5.4bn in 2015. Much of this activity is being driven by government and semi-government institutions, chief among them the $320bn PIF, which has doubled in value between 2015 and 2020, and which aims to be the largest sovereign wealth fund in the world by 2030.

At the beginning of 2020 the fund had about 15% of its assets in foreign countries. Much of PIF’s recent outward activity has been directed to its equity portfolio in the US, which included a $3.5bn investment in Uber in 2016 and the purchase of a 5% stake in electric car manufacturer Tesla in 2018. In addition, the fund has made a series of investments through other bodies, which, while they do not qualify as FDI, represent further indications of the fund’s global investment ambitions. These include contributions to Japan’s SoftBank Vision Fund in 2018; as of October of that year PIF had contributed some $45bn of the Vision Fund’s total $93bn. PIF also made a $20bn commitment to a $100bn infrastructure investment fund managed by US private equity firm Blackstone towards the end of 2017, which is expected to undertake a series of projects across the US.

Meanwhile, national oil company Saudi Aramco, which has an extensive network of downstream operations in 20 countries, has also expanded its interests abroad. In late June 2019 it announced it had signed 12 agreements with South Korean firms; this followed the purchase of a 17% stake in Hyundai Oilbank for $1.3bn in April that year.

Private Players

A number of private Saudi firms have also made considerable foreign investments. In 2019 investment firm Atrabah Integrated Holding announced plans to construct a 500,000-sq-km medical city in Egypt, with initial investment valued at around $1bn. This builds on significant overseas commitments by firms such as Kingdom Holding, whose portfolio includes shares in French streaming company Deezer and US ride-hailing app Lyft.

Expansion Constraints

There are concerns, however, that the global outbreak of Covid-19 in early 2020 could cause inward flows of FDI to slow in the short term and lead Saudi Arabia to redirect outward investment to its extensive domestic project pipeline. Several major projects are currently being rolled out across the Kingdom; these include the $500bn NEOM high-tech city and economic zone, the $8bn Qiddiya entertainment park and the 34,000-sq-km Red Sea Project. Given the size of these developments, international media have noted that the fund may be inclined to slow the pace of its overseas activities until private investors for the projects are found.

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The Report: Saudi Arabia 2020

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