What are the likely outcomes of Saudi Arabia’s overseas investment drive?

Saudi Arabia has rapidly been increasing its business footprint overseas, last year tripling its foreign direct investment (FDI) outflows.

The Kingdom’s investments abroad totalled $21.2bn in 2018, up from $7.3bn in 2017, according to the “World Investment Report 2019”, released in mid-June by the UN Conference on Trade and Development.

These were concentrated in technology, finance and infrastructure-related activities. They included a $1bn outlay by the country’s sovereign wealth fund, 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.

See also: The Report – Saudi Arabia 2019

Public entities lead the charge

Saudi overseas investment is on an upward trend that has seen the total increase from $5.4bn in 2015.

Much of the activity is being driven by state institutions, chief among them the $300bn PIF, which has doubled in value since 2015 and by 2030 aims to be the largest sovereign wealth fund in the world.

At present, the fund has about 15% of its assets in foreign countries, a figure it is aiming to increase to 25% next year and 50% by 2030.

Much of the PIF’s recent outward activity has been directed towards expanding its equity portfolio in the US, including a $3.5bn investment in Uber in 2016 and the cumulative purchase of a 5% stake in electric car manufacturer Tesla.

In addition, the fund has made a series of investments through other bodies, which, while they do not qualify as FDI, further indicate the fund’s global investment ambitions.

These include contributions to Japan’s SoftBank Vision Fund in 2018; as of October that year PIF had contributed some $45bn of the fund’s total $93bn.

The PIF has also made a $20bn commitment to a $100bn infrastructure investment fund with US private equity firm Blackstone, 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 similarly expanded its interests abroad.

In late June the company announced it had signed 12 agreements with South Korean firms; this followed on the purchase of a 17% stake in Hyundai Oilbank for $1.25bn in April.

Private players look abroad

A number of private Saudi players have also made considerable foreign investments.

Last year 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.

Assisting diversification

The increase in outward investment aligns with the Kingdom’s aim of becoming a “global investment powerhouse”, as set out in Vision 2030, the country’s long-term economic development plan.

While attracting inward FDI is a prominent feature of government policy, investing in businesses and industries around the world can also help to diversify the economy.

Stronger connections with foreign companies are likewise expected to result in greater trade volume and efficiency going forward.

Expansion constraints

There are concerns, however, that the recent fast pace of outlays – coupled with an extensive domestic project pipeline – could see foreign investment reined in again over the short term.

The PIF is charged with overseeing the rollout of major projects at home, such as the $500bn NEOM high-tech economic zone, the $8bn Qiddiya entertainment park and the 34,000-sq-km Red Sea Project.

Given the size of these developments, a June 28 Reuters article noted that the fund may be inclined to slow the pace of its overseas activities until private investors for the projects are found. Indeed, data from research firm Refinitiv shows that the PIF did not make any foreign investment in the first half of this year.

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