© Reuters. FILE PHOTO: A large banner displays the Saudi vision for 2030 as a soldier stands guard at the inauguration of several energy projects in Ras Al Khair, Saudi Arabia, November 29, 2016, ahead of the arrival of Saudi King Salman. REUTERS / Zuhair Al-Traifi
By Davide Barbuscia, Saeed Azhar and Yousef Saba
DUBAI (Reuters) – Saudi Arabia could have a credibility problem if it continues to shift targets for the amount of foreign investment it wants to turn its vision of a future beyond oil into reality, financial sources and analysts said.
Five years after Crown Prince Mohammed bin Salman launched Vision 2030 to end the kingdom's dependence on fossil fuels, Foreign Direct Investment (FDI) has fallen far short of target.
When Riyadh unveiled the plan in 2016, it aimed to increase annual FDI from $ 8 billion in 2015 to nearly $ 19 billion by 2020, but it was only $ 5.5 billion last year . The longer-term goal was for FDI to reach 5.7% of gross domestic product (GDP) by 2030, although Riyadh did not set a dollar target.
Now the kingdom has raised the stake again, saying it wants $ 100 billion in FDI annually by 2030, a new target many analysts believe is overambitious.
"(It) raises eyebrows because it looks pretty unreachable, especially that the past four quarters of FDI has been $ 18.6 billion and the total FDI inflow since early 2011 is only $ 92.2 billion. Dollars, "said Capital Economics economist James Swanston.
To be in line with its GDP target, the economy would need to grow 150% with the target of $ 100 billion to reach $ 1.75 trillion by 2030 – a level that Saudi Arabia did last Year would have made it the ninth largest economy in the world, behind Italy and ahead of Italy Canada, South Korea and Russia.
Certainly the years after the introduction of Vision 2030 were not helpful for FDI. A purge of the Saudi business elite in 2017 and the assassination of Jamal Khashoggi in 2018 discouraged private investment. Then the pandemic struck.
However, analysts say the kingdom and its grand reform plan could soon lose credibility in the eyes of investors.
"The FDI levels, which are low compared to the previous year, will at some point no longer be perceived optimistically as potential for improvement for Saudi Arabia and instead raise the question: What is going on here?" said Robert Mogielnicki, Senior Resident Scholar at the Arab Gulf States Institute in Washington.
& # 39; FASTENING THE SYSTEM & # 39;
The Saudi authorities say much of the plan is still in its early stages, which will mostly consist of regulations and planning, and there will be an increasing amount of money pouring into the kingdom over the next few years.
Saudi Investment Minister Khalid al-Falih said FDI numbers are already improving.
"We fix the system, we prepare the deals, we engage companies," he told Reuters. "Many of our transactions are in preparation."
In the first half of 2021 – excluding the rental of Saudi Aramco (SE 🙂 Oil Pipelines – FDI was up 33% over the same period in 2020 and was already above targets for this year as a whole, he said.
Several letters of intent were signed at Saudi Arabia's annual Davos in the Desert future investment initiative last month, but hopes for a major investment announcement were dashed.
For example, the electric car maker Lucid, majority-owned by the Saudi sovereign wealth fund Public Investment Fund (PIF) and headquartered in Silicon Valley, has not announced a highly anticipated plan to build a factory in the kingdom.
Saudi Arabia has set up a national infrastructure fund and touted it as a strategic partnership with the world's largest asset manager BlackRock (NYSE :), but the US company advises Riyadh instead of tying up capital.
“Saudi wealth remains attractive to foreign asset managers. Wall Street Titans took to the stage to praise the local economy, sign lucrative deals, and walk away without investing their own capital. It speaks volumes, ”said a senior Gulf banker.
A BlackRock spokesman said it had an advisory mandate for the fund, which would be fully funded by the National Development Fund, a government agency, and then aim to attract capital from other investors.
"It is entirely possible that BlackRock is one of these lenders," said the spokesman.
& # 39; TOUCHED DIFFICULT & # 39;
As a sign of its desire to attract more investors, Saudi Arabia issued an ultimatum earlier this year that foreign companies must set up their regional headquarters in the country by the end of 2023, otherwise they risk losing government contracts.
Saudi Arabia has a much larger consumer base than its regional neighbors, and international firms operating in the Gulf may not want to miss the lucrative opportunities presented by its economic transformation plans.
The Saudi authorities announced at the investment forum that they had licensed 44 international companies to set up regional headquarters in the capital, Riyadh.
But ultimatums, combined with abrupt changes in trade agreements and tax systems, are perceived as yet another sign of the kingdom's unpredictable politics. Many executives in the Gulf region believe that companies will find solutions to stay in Dubai, which has a more developed market and a less conservative society.
The forum attendees, who spoke on condition of anonymity, said there were ongoing concerns about regulations and taxes, as well as high operating costs and a shortage of local skilled workers.
The Saudi Ministry of Investment did not respond to requests for comment on the criticisms.
"The Saudi business environment is still notoriously difficult to navigate as a foreign investor," said Swanston.
"To give some credibility to the investment goals of Vision 2030, it would be vital for Saudi Arabia to get real commitments from companies and overseas investors," he said.
"COUNTRY WITHIN A COUNTRY"
Progress on NEOM, Vision 2030's $ 500 billion signature project https://reut.rs/3qtvm5V, also remains difficult to assess, adding to concerns about the kingdom's financial transparency https://reut.rs/ 3HfLv53.
The planned megacity in the desert, which was announced in 2017 and supported by PIF, is investigating its economic and legal framework, NEOM https://www.neom.com/en-us- Managing Director Nadhmi al-Nasr told Reuters.
When asked how many contracts had been placed or issued, he refused to give detailed answers.
"Honestly, right now we don't pay much attention to the progress of how much we've given because this is just the beginning of a long journey. If you have the ambition to almost create a country within the country, speak big … us aren't ready to talk about how much we've spent yet, "he said.
However, giving details of project spending, investments made and overseas commitments could help Riyadh gain more credibility, especially given the size of its goals, analysts said.
Raising net FDI to $ 100 billion a year is part of a larger plan that will see more than $ 3 trillion in investments in the domestic economy by 2030, and economists fear that even local goals will be difficult to achieve https://reut.rs/3C9enYM.
"At this stage it is still possible to move economic goal posts within the Ballpark 2030. But there will come a day when the final scorecard has to be counted and progress can no longer be measured by the ambition of project announcements," said Mogielnicki.