In its bold pursuit of economic diversification, Saudi Arabia continues to bolster its reform agenda aimed at enhancing foreign direct investment (FDI) inflows and expanding investment strategies, despite a recent financial account slowdown. The Saudi Central Bank and the Ministry of Finance reported a 21% dip in FDI inflows in Q2 of 2023, compared to the same quarter in the previous year, recording SR6.2 billion ($1.65 billion). FDI outflows also saw a significant reduction, plummeting by 53%, totaling SR18.34 billion.
Reforms Bolster Investment Confidence
Undeterred by these declines, the Kingdom has steadfastly implemented significant legal, economic, and social reforms since the launch of the Vision 2030 initiative. Aimed at attracting more FDI, the Ministry of Investment has granted licenses to 180 companies to set up regional headquarters in the kingdom. These come with lucrative tax incentives, such as a 30-year corporate income tax exemption and no income tax for entities moving their regional headquarters, effective from the license issuance date.
NEOM Investment Fund and Global Confidence
The NEOM Investment Fund, introduced to attract investment and contribute to the development of the new city, is another testament to Saudi Arabia's strategic diversification efforts. The Kingdom's steadfast reform implementation has not gone unnoticed, with it achieving the second-highest FDI amount in the Middle East and Africa region during this period. This reflects a growing confidence among foreign investors and resonates with a World Bank report from 2020, which highlighted reforms focusing on business startup procedures, construction permits, and international trade facilitations.
Investment Licenses and GFCF Growth
A report by the International Bar Association in April 2023 cited increasing FDI flows in various sectors, with notable contributions from countries such as France, Japan, Kuwait, Malaysia, Singapore, the UAE, and the US. The Kingdom's attractiveness as an investment destination is further underscored by a 135.4% annual increase in investment licenses in Q3. This period also saw Gross Fixed Capital Formation (GFCF) surge by 7% to SR278.9 billion, with non-government GFCF accounting for 85% of the total. The financial account, including direct investment, portfolio investment, and reserve assets, fell by 70% to SR42.97 billion. However, the Kingdom's net acquisition of financial assets grew by 25%, demonstrating its resilience and commitment to its diversification projects.