ECONOMY

CONFIDENCE IN SAUDI ECONOMY BRINGS IN FDI BOOM

Saudi Arabia’s foreign direct investment (FDI) jumped to SAR 122 billion in 2022, according to new data. The figures were calculated based on a new methodology created by the Ministry of Investment (MISA), the General Authority for Statistics (GASTAT), and other government bodies, and adopting the International Monetary Fund’s (IMF) Balance of Payments and International Investment Position Manual.

“While FDI inflow in 2015 amounted to SAR 64 billion, in 2016 it was SAR 111 billion, in 2017 it was SAR 27 billion, in 2018 it was SAR 71 billion, in 2019 it was SAR 32 billion, in 2020 it was SAR 30 billion, in 2021 it was SAR 100 billion, and in 2022 it was SAR 122 billion,” the ministry announced.

The new, more precise methodology suggests that FDI stock (which includes cumulative data) hit SAR 775 billion (USD 207 billion) in 2022, placing the kingdom 16th among the Group of Twenty (G20) economies. 

“Investors are entering the fast-growing Saudi market with confidence due to its size and strategic position, which provides an excellent platform to access growth opportunities across the Middle East and beyond,” according to the minister of investment Khalid Al-Falih.

The MISA data also indicated that the number of new investment licenses increased by 93.9%, or 1,819, in the second quarter of 2023, compared to 938 in the same quarter of the previous year (excluding licenses issued as part of the anti-concealment law enforcement). The total number of new investment licenses reached 1,833 for the same period.

Egypt-based firms received the highest number of investment licenses issued by MISA in the second quarter of 2023 with 458, followed by those based India with 205 licenses, Yemen with 173, Jordan with 127, and Pakistan with 122.

WHAT LURES INVESTORS

The recent launch of four special economic zones (SEZs) has made SaudiArabia an even more attractive investment destination, with FDI reaching over SAR 48 billion (USD 12.9 billion) in the second quarter of 2023.

Other investment indicators suggest the country’s economic environment continues to be conducive. The contribution of fixed capital formation to nominal GDP rose to 28.8% in Q2 2023 compared to 24.2% in the same quarter of the previous year. In 2022, the nominal gross fixed capital formation (GFCF) grew by 31.2% compared to the previous year, reaching SAR 1.04 trillion, exceeding the SAR 747 billion target of the National Investment Strategy (NIS) for 2022.

“This is due to the increase in the fixed capital formation of the government and non-governmental sectors by 21.9% and 32.6%, respectively, which indicates efforts undertaken to promote the role of the private sector in economic development,” MISA noted.

 

COOLING ECONOMY

Saudi’s seasonally adjusted real GDP fell 3.9% in the third quarter, compared to the previous quarter, according to the latest GASTAT data. The decline was due to a drop in oil and government activities by 8.4% and 5.3%, respectively. However, a bright spot was that non-oil activities rose 0.1% on a quarterly basis.

In November, the kingdom confirmed it would continue with its additional voluntary oil output cut of 1 million barrels per day (bpd) translating into a production of around 9 million bpd for December. Oil prices hit a 2023 high in September at near USD 98 a barrel for Brent crude.

Other economic indicators suggest robust activity. Businesses in Saudi Arabia’s non-oil economy signalled a notable increase in employment in October, according to the latest Purchasing Managers’ Index (PMI) by S&P Global Rating. An impressive rise in new business supported a marked expansion in activity, leading to the greatest improvement in job numbers in exactly nine years.

“Business activity continued to grow at a marked rate at the start of the fourth quarter, in response to higher client orders and strengthening economic conditions,” S&P said. “Companies also reported a sharp increase in new business intakes, with the rate of expansion improving to a four-month high. Growth in output and new business remained widespread across the manufacturing, construction, wholesale and retail, and services sectors.”

 

INFLATION EASES

The kingdom’s annual inflation rate eased to 1.6% in October, from 1.7% the previous month, government data showed, with residential rents once again the main driver. Prices of housing, water, electricity, gas, and other fuels rose 7.8% in October, pushed higher by an increase in overall housing rents of 9.3%, of which rents for apartments rose almost 15%, GASTAT said.

PMI data shows a heated labour market fuelled enhanced wage pressures in October. “Combined with a faster increase in purchase prices, the pace of overall input cost inflation ticked up to the joint-fastest in over a year,” S&P said. “Nonetheless, price discounting continued for the second straight month as firms highlighted competitive pressures, resulting in the strongest drop in output prices since May 2020.