Saudi economic conference attracts foreign investors, but with less accessible funding.

• The eighth edition of the Future Investment Initiative in Riyadh will attract thousands of financiers, founders, and investors.
• The Kingdom of Saudi Arabia is intensifying its focus on domestic investment by imposing stricter conditions on foreigners seeking to invest in the country.
• The kingdom is reducing its spending as oil prices drop below its fiscal breakeven figure and it maintains crude production cuts with OPEC+.

The eighth edition of the Future Investment Initiative, a key economic conference in Saudi Arabia, is set to attract thousands of financiers, founders, and investors. This event, which takes place in Riyadh, is a central component of Vision 2030, the multi-trillion dollar plan to modernize and diversify the Saudi economy.

In past years, Saudi Arabia was viewed as a lucrative market for fund managers by some attendees. However, this year, fund managers who spoke to CNBC have a different perspective. While the kingdom has increased its requirements for fundraisers and investors, it is also grappling with a revenue shortfall due to lower oil prices and production.

"It has become increasingly competitive to secure funding from the kingdom," said Omar Yacoub, a partner at ABS Global, which manages $8 billion in assets. "Many individuals and organizations are vying for attention in Riyadh."

""The competition for capital has intensified, resulting in a more selective approach to international investing due to various factors, including the Saudis' tendency to favor domestic investments and the kingdom's tighter budget caused by lower oil prices," Yacoub stated."

Saudi Arabia has tightened the conditions for foreigners to invest in the kingdom, as it continues to prioritize domestic investment. 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) in 2023, with local investment playing a significant role.

Saudi Arabia's updated Investment Law aims to increase foreign investment and has set a target of $100 billion in annual foreign direct investment by 2030. Despite this goal, foreign investment has only averaged around $12 billion per year since Vision 2030 was announced in 2017.

"Fadi Arbid, founding partner and chief investment officer of Dubai-based investment manager Amwal Capital Partners, stated that the focus has shifted from "take our money and leave" to "adding value." This includes hiring, developing the asset management ecosystem, creating new products, bringing in talent, and investing in Saudi capital markets. As a result, multi-faceted investment is now the norm, going beyond a pure financial transaction."

'More disciplined, more rational'

The kingdom is reducing its spending as oil prices drop below its fiscal breakeven figure and it maintains crude production cuts with OPEC+.

The cost of a barrel of crude needed for Saudi Arabia to balance its government budget has increased significantly due to the large investments made in the NEOM project.

The IMF's forecast in April predicted a breakeven figure of $96.20 for 2024, a 19% increase from the previous year and about 28% higher than the current price of a barrel of Brent crude, which was trading at around $72.75 as of Monday morning.

"One regional investor, who requested anonymity, stated that although Saudi Arabia may not have the same resources as they did two years ago, they remain one of the few countries with money to give. However, the investor added that the kingdom's spending is now more disciplined and rational."

Gulf fund managers with extensive experience advised that it might be too late for first-time investors to succeed in the kingdom.

"Arbid advised that those who are just starting the process should not be discouraged, as it is a cycle. However, he emphasized that they should be more deliberate about committing to the country."

The Saudi government has enacted a 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.

In the shadow of regional war

The conference, held in the luxurious Ritz-Carlton Riyadh, takes place amidst regional conflict and only a year after Israel's war on Hamas in Gaza.

Since then, the number of attacks between Israel and Iranian proxies such as Hezbollah and the Houthis has increased, culminating in Israel's invasion of Lebanon in September. The region is now on high alert, waiting for Israel's promised retaliation against Iran for its missile attack on Tel Aviv and other parts of the country in October.

On Saturday morning, Israel launched airstrikes on Iranian military sites, specifically targeting missile production facilities. Israel's military announced that it had successfully completed its "targeted" attacks and was prepared to engage in both defensive and offensive actions.

The Saudi economy and oil prices have remained relatively unaffected by Israel's weekend strike on Iran, with a 4% drop early Monday. This may be due to the rapprochement deal signed by the kingdom with Iran, facilitated by China, in March 2023.

Arbid commended Saudi's recent efforts in protecting itself from geopolitical developments.

The Tadawul All Shares Index, Saudi Arabia's leading stock market index, has experienced a 16.48% increase in value over the past year, with local investors contributing to the majority of market participants and maintaining strong confidence.

Some analysts in the region caution that the escalating crises in the Middle East could lead to more instability.

"The escalating conflict in the region has resulted in a de-facto war, according to Aziz Alghashian, director of research at the Observer Research Foundation Middle East. He stated this to CNBC, emphasizing that the ongoing war is not just a geopolitical crisis but also has the potential to cause more radicalization in and around the region."

Alghashian stated that maintaining oil prices and attracting FDI and tourism are crucial for the success of Saudi Arabia's mega projects and diversification plans.

"Regional war complicates the economy and security, making them closely intertwined."