Saudi Arabia’s FDI inflows rise on adoption of international calculation standards

Saudi Arabia’s FDI inflows rise on adoption of international calculation standards
Looking ahead, the Kingdom aims to achieve an FDI inflow target of SR388 billion by 2030, equivalent to 5.7 percent of gross domestic product, while also positioning itself among the 15 largest economies in the world. (SPA)
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Updated 17 February 2024
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Saudi Arabia’s FDI inflows rise on adoption of international calculation standards

Saudi Arabia’s FDI inflows rise on adoption of international calculation standards
  • FDI inflows in the first 9 months of 2023 reached SR52.9 billion, up from SR49.9 billion in the previous period

RIYADH: Foreign direct investment inflows to Saudi Arabia saw a 6 percent annual rise in the first 9 months of 2023, a new methodology used by the Ministry of Investment has revealed.

Utilizing an updated approach characterized by heightened transparency and governance standards, FDI inflows were shown to have reached SR52.9 billion ($14.11 billion), up from SR49.9 billion in the previous period, as revealed in the ministry’s report.

Notably, these figures exclude an Aramco deal in 2022 worth SR58.1 billion which saw a consortium led by BlackRock Real Assets and Hassana Investment Co. purchase a 49 percent stake in a newly formed gas pipelines subsidiary.

The updated methodology for calculating FDIs aligns with international standards, and was developed to enhance accuracy and comprehensiveness through collaborative efforts by the Ministry of Investment, the General Authority for Statistics, and the Saudi Central Bank, in conjunction with the International Monetary Fund.

This method, according to the Ministry, categorizes FDI based on various criteria such as economic activity, financial instrument, and geographical region. 

It also includes investment income from dividends and interest and evaluates FDI based on companies’ financial statements. The framework of foreign companies is updated annually, considering new establishments and excluding liquidated or merged companies.

FDI assessment is based on market price for listed companies and Own Fund at Book Value for non-listed ones. The calculation includes special purpose entities, capital and individual companies.

In alignment with the objectives outlined in the National Investment Strategy and the Vision 2030 targets, significant legal, economic, and social reforms were implemented to stimulate FDI inflows, aiming to reach SR83 billion by 2023.

This suggests that by the third quarter of 2023, the Kingdom had attained 64 percent of this objective. 




Eastern Province Municipality Mayor Fahad Al-Jubeir emphasized the benefits for investors and entrepreneurs, including extended contract durations, exemption periods, and reduced bank guarantees. (Supplied)

Looking ahead, the Kingdom aims to achieve an FDI inflow target of SR388 billion by 2030, equivalent to 5.7 percent of gross domestic product, while also positioning itself among the 15 largest economies in the world.

The Kingdom’s regional headquarters program has enticed multinational giants such as Google, Microsoft, and Amazon to relocate to Saudi Arabia, alongside firms like Northern Trust, Bechtel, and Pepsico from the US, as well as IHG Hotels & Resorts, PwC, and Deloitte from the UK.

This initiative has not only positioned these companies to qualify for government contracts but has also invigorated Saudi Arabia’s hospitality sector, and solidified its position as a hub for international business.

FDI stock, representing the total accumulated value of foreign investments in Saudi Arabia, also saw a 6 percent increase, reaching SR795 billion.

Additionally, Gross Fixed Capital Formation, measuring the total value of new physical assets like machinery, equipment, buildings, and infrastructure added to the existing stock of fixed assets in the economy, rose by 10 percent to reach SR833.9 billion. Notably, 88 percent of this increase stemmed from the nongovernment sector.

Kingdom’s 2022 FDI performance

According to the Ministry of Investment, global FDI net inflow declined by 12 percent in 2022, amounting to $1.3 trillion based on UN data. Despite this, FDI net inflows into Saudi Arabia surged by 21 percent annually, reaching SR105 billion.

Ministry data further revealed that inflows to the Kingdom also saw a rise of 21 percent, totaling SR123 billion, equivalent to 3 percent of GDP, surpassing the ministry’s 2 percent target. The Eastern Province led with the highest FDI inflow of SR90.7 billion, followed by Riyadh with SR22.4 billion, and then Makkah with SR6.6 billion. 

Eastern Province municipality of Saudi Arabia has unveiled 238 investment opportunities, covering both permanent and temporary ventures across the region, totaling over 20,000 assets across an area exceeding 116 million sq. m.

Mayor Fahad Al-Jubeir has emphasized that this initiative aims to engage the private sector in line with Vision 2030 objectives. Reported by the Saudi Press Agency in January, he highlighted the diverse array of projects, ranging from maritime activities and sports facilities to tourism sites and commercial venues.

Al-Jubeir emphasized the benefits for investors and entrepreneurs, including extended contract durations, exemption periods, and reduced bank guarantees.

In terms of categorization by continents, the ministry noted that inflows from Europe constituted 66 percent of FDIs to the Kingdom, followed by Asia at 11 percent, with Gulf Cooperation Council countries excluded, estimated at 9 percent.

FDI outflows, representing the Kingdom’s investments in foreign countries, increased by 13 percent to SR17 billion during this period. Consequently, the net inflow, reflecting the difference between the two, reached SR105 billion.

The transportation and storage sector received the largest share of inflows at 42 percent, followed by manufacturing at 33 percent. 

FASTFACT

The updated methodology for calculating FDIs aligns with international standards, and was developed to enhance accuracy and comprehensiveness through collaborative efforts by the Ministry of Investment, the General Authority for Statistics, and the Saudi Central Bank, in conjunction with the International Monetary Fund.

The transportation allocation is linked to the 2022 Aramco transaction.

Saudi Arabia’s manufacturing sector has also experienced remarkable growth in recent years, driven by strategic initiatives like Vision 2030. Through the issuance of numerous new manufacturing licenses and investments, the country has bolstered its domestic production capacity, contributing to economic diversification and job creation.

Moreover, FDI stock experienced a 16 percent growth during this period, with manufacturing activity comprising the highest share at 31 percent. Other sectors included transportation and storage at 15 percent, wholesale and retail trade at 13 percent, financial and insurance activities at 11 percent, real estate activities at 8 percent, and construction at 6 percent.

The UAE held the highest FDI stock in 2022 at SR104 billion according to a report by the General Authority of Statistics, followed by Luxembourg with SR103 billion, and the US with SR77 billion.

According to the Ministry of Investment, initiatives introduced under Saudi Vision 2030 have significantly improved FDI in Saudi Arabia, resulting in a 52 percent increase in FDI stock and a 337 percent increase in FDI inflow from 2017 to 2022.


Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen

Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen
Updated 5 sec ago
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Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen

Chinese investors embrace Saudi equities as 2 ETFs debut in Shanghai, Shenzhen

RIYADH: Chinese investors showed strong interest in Saudi equities as two new exchange-traded funds focused on the Kingdom’s stocks debuted in Shanghai and Shenzhen.

The feeder funds, operating under the Qualified Domestic Institutional Investor program, began trading on July 16, with both briefly hitting the 10 percent daily limit on their launch day.  

The first fund, CSOP Saudi Arabia ETF QDII, managed by China Southern Asset Management, is listed on the Shenzhen Stock Exchange after raising 634 million Chinese yuan ($87 million). 

The second fund, the Huatai-PineBridge managed CSOP Saudi Arabia ETF QDII, started trading on the Shanghai Stock Exchange after raising 590 million Chinese yuan, Bloomberg reported. 

The new offerings mark a significant step in the deepening economic ties between China and Saudi Arabia, allowing mainland investors to diversify their portfolios with exposure to the Kingdom’s stock market.   

This comes as investor relations between the two nations flourish with China becoming the top greenfield foreign direct investor in Saudi Arabia with investments amounting to $16.8 billion in 2023, a 1,020 percent rise from the previous year.    

The two ETFs indirectly invest in the Kingdom’s stock market through the CSOP Saudi Arabia ETF, which was listed on the Hong Kong Stock Exchange, marking the first Saudi Arabia-focused ETF in the Asia-Pacific region. 

Following their approval from the China Securities Regulatory Commission last month, these funds are designed to facilitate greater international diversification for Chinese investors, particularly in sectors where Saudi Arabia has considerable influence, such as energy and oil. 


China’s envoy to KSA meets with Saudi finance vice minister

China’s envoy to KSA meets with Saudi finance vice minister
Updated 19 min 39 sec ago
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China’s envoy to KSA meets with Saudi finance vice minister

China’s envoy to KSA meets with Saudi finance vice minister

RIYADH: China’s newly appointed ambassador to the Kingdom met with Saudi Arabia’s finance vice minister in Riyadh, signaling that relations between the two countries are set to flourish.

Abdulmuhsen Al-Khalaf welcomed Chang Hua on July 15 at the headquarters of the Ministry of Finance, where the pair discussed joint relations between their nations and ways to enhance them, as well as additional economic and financial topics of common interest, according to the Saudi Finance Ministry.

Diplomatic and economic ties between Saudi Arabia and China have been strengthening in recent years. In November 2023, the Kingdom’s central bank, also known as SAMA, and the People’s Bank of China signed a local currency swap agreement worth $6.93 billion


Global sukuk issuance hits $91.9bn in H1: S&P Global 

Global sukuk issuance hits $91.9bn in H1: S&P Global 
Updated 43 min 29 sec ago
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Global sukuk issuance hits $91.9bn in H1: S&P Global 

Global sukuk issuance hits $91.9bn in H1: S&P Global 

RIYADH: Global sukuk issuances reached $91.9 billion in the first half of 2024, marking a marginal year-on-year increase of 0.87 percent, driven by issuers from Saudi Arabia and the UAE. 

According to the latest report from S&P Global, foreign currency issuances reached $32.7 billion in the first six months of 2024, marking a 23.8 percent surge compared to the same period the previous year.  

The credit rating agency highlighted that improved visibility on the medium-term trajectory of interest rates has boosted foreign currency-denominated sukuk issuance. 

A sukuk is an Islamic financial certificate that represents ownership of an asset and complies with Shariah law, distinguishing it from conventional bonds. 

Saudi Arabia has strategically expanded its sukuk issuance to diversify financing sources and promote Islamic finance within its economy, supporting infrastructure and economic development while attracting global investors seeking Shariah-compliant opportunities. 

“High financing needs in core Islamic finance countries, stable rates, and improved clarity on the future path of rate cuts explain the continued increase in foreign currency-denominated issuances,” stated S&P Global. 

Its findings follow a recent report by Saudi Arabia’s Capital Market Authority, indicating significant growth in the Kingdom’s sukuk and debt capital market since 2019, exceeding SR30 billion, and achieving an annual growth rate of 7.9 percent. 

Moreover, Saudi Arabia’s National Debt Management Center reported completing the issuance of a riyal-denominated Islamic bond for June totaling SR4.4 billion. The Kingdom had issued sukuk amounting to SR3.23 billion in May, SR7.39 billion in April, and SR4.4 billion in March. 

Global forecast  

Meanwhile, S&P Global has maintained its global sukuk issuance forecast at around $160 billion to $170 billion, buoyed by strong market performance in the first half of 2024. 

The US-based firm emphasized that the Islamic bond market’s steady growth will be propelled by economic diversification initiatives in countries such as Saudi Arabia, as well as the robust expansion of the non-oil sectors in the UAE. 

The report also underscored contributions to the sukuk market’s growth from countries like Oman, Malaysia, and Kuwait. 

It added that geopolitical risks are not expected to adversely impact the issuances of these Shariah-compliant debt products globally. 

“Geopolitical risk has not yet dragged on issuance but could pose some downside risk, though, under our base-case scenario, we do not expect significant disruption,” said the agency.  

S&P noted that the adoption of the Accounting and Auditing Organization for Islamic Financial Institutions’ Sharia Standard 62 might lower issuance volumes in the medium term if it significantly changes the nature and risk profile of sukuk instruments. 

In late 2023, the AAOIFI released its exposure draft of Sharia Standard 62 on sukuk, delaying the industry feedback deadline twice, with the final extension set to July 31, 2024, from March 31, 2024. 

According to the credit rating agency, the proposed draft could potentially alter the nature of the sukuk market and lead to increased fragmentation.  

The guidelines cover Shariah requirements for issuances, asset backing, and ownership transfer. They also address investment structures, financing mechanisms, and trading and settlement procedures. 

“A key requirement of the standard is that the ownership and risks related to the underlying assets are to be transferred to sukuk holders. As such, the market will shift from structures where the contractual obligations of sukuk sponsors underpin the repayment to structures where the underlying assets have a more prominent role,” said S&P Global.  

The report further noted that the adoption of these proposed standards could make these Islamic bonds more expensive than conventional issuances.  

It added: “However, it is difficult to anticipate the appetite for such instruments from both investors and issuers, as well as the legality of moving assets off their balance sheets, given the current market structure. This could either lead to further market fragmentation or worse, issuance could be put on hold until sukuk structures figure out a middle ground.”  

The report, however, added that the adoption of the AAOIFI’s Standard 62 guidelines is unlikely to disrupt existing sukuk, since any changes in contractual obligations are subject to investors’ consent.  

Local issuances  

Despite the growth of foreign issuances, local currency-denominated issuances witnessed a decline of 8.8 percent in the first half of this year compared to the same period in 2023. 

S&P Global noted that this downturn was driven by the drop in local currency issuances in countries like Turkiye, the UAE, and Pakistan.  

“The largest drop of local currency issuances was in Turkiye, where monetary tightening combined with better fiscal policy coordination continues to help rebalance the economy,” said the report.  

It added: “In the UAE, the decline can be explained by lower local-currency denominated issuance by the Federal Government and other authorities. For Pakistan, the issue might be related to a lack of data on issuances in the first half of 2024.”  

On a positive note, the report underscored the growth of Saudi Arabia’s local currency issuance.  

“We have observed that local currency issuance in Saudi Arabia has resumed its growing trend. The government has tapped the market with jumbo issuances and has also started to issue retail sukuk,” added S&P Global.  

On the other hand, financing needs in core Islamic finance countries, stable rates, and improved clarity on the future path of rate cuts drove the continued increase in foreign currency-denominated issuances.  

“We have seen a high issuance volume in Saudi where the government and banks continue to tap into the market to finance various projects related to the economic transformation plan. We now expect the Saudi banking system to shift to a moderate net external debt position in the next few months,” said the report.  

S&P Global added that countries like the UAE, Malaysia, Kuwait and Qatar also witnessed a rise in foreign currency-denominated issuances during the first half of this year.  

Sustainable sukuk  

According to the analysis, the total volume of sustainable sukuk issuance reached $5.2 billion during the first half of 2024, down from $5.7 billion during the same period last year.  

The credit rating agency projected that the volume of these green bonds is expected to hover around $10 billion to $12 billion, barring any significant acceleration in the implementation of net-zero policies by key Islamic finance countries or regulatory actions. 

Sustainable sukuk is a Shariah-compliant financial tool wherein issuers utilize the proceeds solely to finance investments in renewable energy or other environmental assets. 

The report also highlighted that 80 percent of sustainability issuance in the first six months of 2024 came from banks in the Gulf Cooperation Council region as they started pursuing their climate transition journey.  

In May, another analysis by Fitch Ratings projected that the global sukuk market linked to environmental, social, and governance principles is expected to exceed $50 billion in the next two years.  

The credit rating agency noted that the projected growth of the market is driven by new ESG mandates, regulatory frameworks, and government-led sustainability initiatives. 

Fitch also revealed that the GCC debt capital market has reached $940 billion in outstanding sukuk and is steadily approaching the $1 trillion mark. 


Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year
Updated 16 July 2024
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Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

Saudi Arabia in top 2 among G20 in ICT development for 2nd consecutive year

RIYADH: Saudi Arabia has maintained second place among G20 countries in a UN ICT Development Index, highlighting the resiliance of the Kingdom’s digital infrastructure.

Published by the international organization’s International Telecommunication Union, the ranking tracks the digital development and progress of 170 nations in information and communication technology services through sub-indicators divided into two axes: inclusive and effective communication. 

It also measures the strength of digital infrastructure, according to a statement.

The analysis also revealed that the Kingdom ranked first among the G20 countries in the effective communication axis and second in the inclusive communication axis, according to the Saudi Press Agency.

The Kingdom’s Communications, Space, and Technology Commission indicated that Saudi Arabia’s continuous advancement in the index underscores the robustness of its digital infrastructure and its role in propelling the growth and expansion of the digital economy and attracting investment, the SPA report noted.

This comes as the Kingdom’s communication and technology market is the largest and fastest growing in the Middle East and North Africa region, with an estimated value of SR166 billion ($44.2 billion).


Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors

Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors
Updated 16 July 2024
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Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors

Abu Dhabi’s GDP grows by 3.3% in Q1, driven by non-oil sectors

RIYADH: Abu Dhabi’s gross domestic product increased by 3.3 percent annually during the first quarter of 2024, driven by the growth of non-oil economic activities.

According to the Statistics Centre of Abu Dhabi, this rise is primarily attributed to the performance of non-oil economic activities; non-oil GDP increased significantly by 4.7 percent during the first three months of this year.

This trend of strong performance in non-oil sectors extends beyond Abu Dhabi, with Saudi Arabia’s real GDP expected to grow by 2.5 percent in 2024, driven by a robust 4.8 percent increase in non-oil private activities. 

Similarly, economic growth in the Gulf Cooperation Council region is projected to rebound to 2.8 percent in 2024 and 4.7 percent in 2025, according to the World Bank’s Spring 2024 Gulf Economic Update.

The SCAD’s report noted that transportation, construction, financial activities, and accommodation, as well as food sectors, led the positive trend, reflecting the success of the government’s economic diversification policies.

The center’s estimates revealed that non-oil activities contributed 54.1 percent to Abu Dhabi’s overall economy in that period, the highest level since 2015. 

The quarterly value of the non-oil economy reached 154.7 billion dirhams ($42.1 billion), while the total value of Abu Dhabi’s economy, including oil and non-oil sectors, was 286 billion dirhams.

Chairman of the Abu Dhabi Department of Economic Development, Ahmed Jasim Al-Zaabi, stated: “Our economy continues to deliver consistent, stellar growth, reaffirming its resilience and dynamism to navigate headwinds and global challenges impacting all economies and sectors.”

He added: “Guided by the leadership’s far-sighted vision and backed by strong fundamentals, Abu Dhabi’s soaring Falcon Economy has taken great strides to accelerate growth and transition to a smart, diversified, inclusive and sustainable economy.”

Al-Zaabi noted that with this growth, they are forging ahead with their strategies to cement Abu Dhabi’s position as a global magnet for outstanding talents, businesses, and investments. 

He also highlighted that their attributes as the Capital of Capital are attracting global financial powerhouses to Abu Dhabi, supporting monetary activities to grow by 9.7 percent, and supercharging non-oil sectors, which have contributed 54.1 percent to total GDP in the first quarter of 2024.

Abdulla Gharib Al-Qemzi, acting director general of SCAD, emphasized the sustained growth in non-oil sectors, which enhances Abu Dhabi’s local and international leadership position.

The emirate’s competitive climate attracts foreign investments, especially in construction, which contributed 8.8 percent to the overall economy, exceeding 25 billion dirhams in value. 

This growth reflects Abu Dhabi’s commitment to advancing its global position, focusing on increasing GDP, non-oil exports, and tourism’s economic contribution.

Construction activities grew by 9.5 percent in the first three months compared to the same period in 2023, contributing 8.8 percent to the overall economy—the highest in the past five years. 

This sector’s attractiveness for local and foreign investments is evident in its consistent quarterly growth of 22.6 percent over the past decade, coinciding with an increase in the number of real estate units in the emirate, totaling 754,555 units since 2011.

The finance and insurance sector grew 9.7 percent in this quarter compared to the corresponding period last year, contributing 7 percent to the emirate’s economy. The value added by this sector increased by 39 percent over the past decade, reaching 20 billion dirhams in the first three months of 2024.

Telecommunications, accommodation, and food activities grew by 5.9 percent and 6.2 percent, respectively, highlighting efforts to enhance the tourism sector’s GDP contribution. Transport and storage activities saw a 14.4 percent year-on-year growth.

Manufacturing activities grew by 1.7 percent, contributing 8.7 percent to the emirate’s GDP. The quarterly value of this sector exceeded 24.8 billion dirhams, marking a 102 percent increase over the past decade.

Abu Dhabi’s continuous growth rates result from strategic initiatives focused on economic diversification, industrial sector development, and encouraging foreign investments, reflected in the high performance of the non-oil GDP, which exceeded 9.1 percent in 2023.