Foreign Direct Investment

FDI flows to Saudi Arabia had gradually declined due to political factors and lower oil prices; however, economic diversification and new projects outside the oil and gas sector helped reverse the trend. According to UNCTAD's World Investment Report 2021, FDI inflows in Saudi Arabia remained resilient despite the pandemic, increasing by 20% to USD 5.5 billion in 2020, up from USD 4.6 billion one year earlier. Notably, investments rebounded in the last quarter of 2020, reaching nearly USD 1.9 billion. Policy interventions aimed at diversifying investment seem to be effective: key investments in financial services, retail, e-commerce, and ICT have been reported. The stock of FDI in the country increased in 2020 and reached USD 241 billion. The United Arab Emirates, the United States, France, Singapore, Japan, Kuwait and Malaysia are the main investors in Saudi Arabia. The investments are mainly oriented towards the chemical industry, real estate, fossil fuels, automobiles, tourism, plastics and machinery. In the first half of 2021, Saudi authorities reported that FDI inflows rose 33% from the same period in 2020.
Meanwhile, outflows from Saudi Arabia decelerated sharply (-64% to USD 4.9 billion). This was the result of the Saudi Public Investment Fund focusing back on domestic investment to offset the negative economic effects of the pandemic, along with a slowdown in FDI inflows.

The Kingdom has pushed to increase FDI in recent years as part of the Vision 2030 plan to end reliance on fossil fuels, and it is aiming for USD 100 billion in annual FDI by 2030. Moreover, Saudi Arabia adopted seven “Guiding Principles for Investment Policymaking”, including non- discrimination, investment protection, investment sustainability, enhanced transparency, protection of public policy concerns, ease of entry for employees, and the transfer of knowledge and technology; and the Saudi Arabian General Investment Authority was upgraded, becoming the Ministry of Investment. Recently, Saudi Arabia also launched a SEZ program that focuses on non-traditional industries, which include cloud computing, tourism, renewable energy, and logistics. Political and social tensions, reduced access to credit and the policy of “Saudization”, which favours the domestic labour force, have all been obstacles to FDI. Nonetheless, the government has invested heavily in national infrastructure to attract investment, and FDI is seen as one of the most effective ways to diversify the economy and provide employment for younger generations. The government opened the retail and wholesale sectors to 100% foreign ownership and has launched a large privatization programme. The authorities welcome FDI due to its ability to transfer technology, employ and train the national workforce, foster economic development and enhance local raw materials. The country's controlled inflation and relatively stable exchange rate, openness to foreign capital in upstream gas, as well as extensive privatisation programmes are among the advantages attracting investors to the country. The dynamic performance of the banking sector is driving the growth of the non-oil sector. Lastly, access to the world's largest oil reserves, very low energy costs and a high standard of living are decisive factors for foreign investors. Nevertheless, foreign investment is currently prohibited in 10 sectors, including oil exploration, drilling, and production; fisheries; security and detective services; and real estate investment in the holy cities of Mecca and Medina.

Saudi Arabia ranked 62nd out of 190 economies in the latest World Bank's Doing Business Report, up by 30 places from the previous edition. The country was also ranked the world's top improver on the list, mainly as a result of significant progress recorded in trading across borders and obtaining credit.