Saudi Arabia ready to buck trend of falling foreign direct investment

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Time: May 28, 2018

As a source of external finance, foreign direct investment has emerged to play a crucial role in promoting economic growth, strengthening local economies, and improving the competitiveness of countries in the global economy. Nations like China, India, Malaysia, South Korea and Thailand are classic examples in this regard.

Global flows of FDI have increased significantly over the last few decades. Major factors behind this phenomenon are the increasing number of cross-border mergers and acquisitions, trends toward privatization, and growing competition among host countries to attract FDI.

FDI inflows have made a considerable impact on the Saudi economy, both directly and indirectly, by playing a major role in stimulating growth potentials and providing stability to the Kingdom’s economy.

However, a downward trend is noticeable in the sector of FDI flows in recent years, according to the World Investment Report 2017. After Turkey and the UAE, Saudi Arabia is considered the third largest FDI recipient in Western Asia, where estimated data showed FDI inflows fell by 8.5 percent in 2016 compared to the previous year, totaling $7.45 billion, which is the lowest FDI figure since 2014.

The Kingdom is currently embarking on a radical transition, sending a message to the world that it is open for business. Vision 2030 and its programs aim primarily at creating an investment environment geared to attracting foreign companies, building vital partnerships, and expanding business endeavors, as FDI is considered one of the most effective ways to diversify the economy and provide employment for younger generations.

Under the Saudi Vision 2030, the Kingdom wants to raise the inward FDI contribution to GDP to the international level of 5.7 percent from the current 3.8 percent, which would require an inward FDI average growth of 21 percent annually in nominal terms. Saudi Arabia also aims to be in the list of top 20 nations in the World Bank’s “ease of doing business index” by 2020. It is currently ranked number 92 in the index of 190 countries.

The government seeks foreign investment that explicitly promotes economic development, transfers foreign expertise and technology to Saudi Arabia, creates jobs for Saudi nationals, and expands Saudi’s non-oil exports.

The Saudi Arabian General Investment Authority plays an important role in creating an environment conducive to investment in the Kingdom. SAGIA has been striving since 2004 to place the country among the top 10 most competitive nations.

Foreign investors are no longer required to take local partners in many sectors and may own real estate for company activities. They are also allowed to transfer money from their enterprises outside of the country and can sponsor foreign employees. The continuous efforts of SAGIA, along with the Financial Sector Development Program and the newly announced giga-projects will definitely speed up the attraction of foreign investments.

Other private initiatives are also underway. The BMG Economic Forum, planned for July 11 at the London Stock Exchange, has the theme of “Investing in the Saudi Vision,” where multinational companies and global emerging fund managers will be invited to hear the investment rationale of the giga-projects, which include Neom city, Qiddiya and the Red Sea developments.

This article was first published in Arab News

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