Saudi Arabia's spending shift in strategy is confirmed by its reduced financial reserves.

• In 2023, the Public Investment Fund, the sovereign wealth fund of the kingdom, experienced a 29% increase in assets, with domestic investment playing a significant role.
• One business executive informed CNBC that the days of seeing Saudi Arabia solely as a financial source are coming to an end.
• The updated Investment Law of Saudi Arabia aims to increase foreign investment and has set a goal of $100 billion in annual foreign direct investment by 2030.

The kingdom is intensifying its focus on domestic investment, which means stricter rules for foreigners looking to invest in the country.

In 2023, the Public Investment Fund, the kingdom's $925 billion sovereign wealth fund, experienced a 29% increase in assets to 2.87 trillion Saudi riyals ($765.2 billion), with local investment playing a significant role, according to its annual report published this week.

The fund's domestic investments in infrastructure and real estate development grew by 15% annually to 233 billion riyals, while its foreign investments increased by 14% to 586 billion riyals. Simultaneously, the Saudi government introduced laws and reforms to encourage and even mandate investment in the country as it works towards its Vision 2030 plan to diversify its oil-dependent economy.

According to Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, the PIF's report signifies a shift from external investment opportunities to a focus on domestic prospects. The era of viewing Saudi Arabia solely as a financial source is coming to an end.

"The key to achieving success with the PIF is through partnerships built on mutual trust and a shared long-term vision, where all stakeholders are expected to contribute significantly with capital and not solely focus on profits."

The Saudi government has implemented a new law that requires foreign companies operating in the Gulf to base their Middle Eastern HQ offices in Riyadh if they want to secure contracts with the kingdom.

The updated Investment Law of Saudi Arabia aims to increase foreign investment and has set a target of $100 billion in annual foreign direct investment by 2030.

Since the announcement of Vision 2030 in 2017, the figure has averaged approximately $12 billion per year, according to data from the kingdom's investment ministry, which is far from the target.

Some people in the area doubt the accuracy of the $100 billion estimate.

The Gulf-based financier stated to CNBC that the new investment law is crucial for attracting more FDI, but it is uncertain whether it will result in the significant increase and substantial amount of capital needed.

Solomon agreed, stating that an increase in spending on significant projects would necessitate a rise in breakeven oil prices for the Saudi budget.

Whether the PIF's domestic investments will yield the expected returns is uncertain, particularly in a region marked by instability and oil-dependent budgets facing extended periods of low oil prices, as stated.

James Swanston, Middle East and North Africa economist at Capital Economics, stated in a recent report that the new law will enhance local business conditions to entice foreign investment.

The Saudi government has announced a new law that aims to encourage greater foreign investment in the country by making the rules clearer and more uniform, simplifying the registration process, and streamlining the judicial process.

According to Swanston, the major obstacle to foreign companies establishing themselves in Saudi Arabia is the concept of "wasta," which roughly translates to "who you know."

To increase foreign investment in the Kingdom, it is important to reduce the burden on the Public Investment Fund and encourage more foreign investment.

No more 'dumb money'

The increased focus on domestic priorities and closer examination has been a gradual trend that has gained momentum annually.

Investment from the Gulf has become more sophisticated, with local investment managers employing deeper due diligence and being more selective than in past years, despite the stereotype of oil-rich sheikhdoms throwing cash at whoever wants it.

"It was simpler to come and say, 'I'm a fund manager from San Francisco, kindly provide me with a couple million,'" Marc Nassim, partner and managing director at Dubai-based investment bank Awad Capital, stated to CNBC in 2023.

"A small number of them will be able to extract funds from the region as they have become more choosy."

The Gulf-based financier who declined to be named said that the kingdom's priority was not clear to foreign investors before, but it is now.

"The pivot of PIF towards co-opting investment into Saudi Arabia has been ongoing for several years," he stated. "It took time for bankers to grasp the full extent of the shift. It's crucial to transform the economy."