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Saudi Arabia Sees Record Inward Investment In Q2 Due To Aramco Pipeline Deal

Saudi Arabia recorded its highest level of inward foreign direct investment (F.D.I.) in the second quarter of the year, with the figure soaring to $13.8 billion.

It is the highest figure logged by the Saudi Central Bank (Sama) in records that go back to the start of 2006 and marks a dramatic rise on the performance of recent years.

Inward foreign investment into the Gulf kingdom was $8 billion to $10 billion a quarter through most of the period from 2008-2010. It fell sharply in 2011 to an average of $4 billion a quarter and declined steadily over the following years, before collapsing to just $1.4 billion for the whole of 2017. Since then, the figure has recovered somewhat, averaging a little over $1 billion a quarter from 2018-2020.

Given that recent history, the figure of $13.8 billion for the second quarter of this year marks a dramatic shift. However, it appears to be down to a single large transaction, rather than representing a wider shift in investor sentiment to the kingdom.

Near the end of the quarter, on 21 June, local oil giant Saudi Aramco concluded a deal to sell a 49% stake in its Aramco Oil Pipelines Company subsidiary for $12.4 billion. The buyer was a consortium of investors from North America, Asia and the Middle East including U.S.-headquartered E.I.G. and Abu Dhabi-based Mubadala.

“I think this deal is the main driver of the pick-up in inward F.D.I. in Q2,” said James Swanston, Middle East and North Africa economist at London-based Capital Economics. “As this was a deal that included selling more than 10% of the voting share then it is classified as inward F.D.I.”

As such, it is likely that when the F.D.I. figure is released for the most recently-ended quarter, covering the three months to the end of September, it will show a reversion to the longer-term average.

Saudi Arabia needs to attract more inward investment into the country to support crown prince Mohammed Bin Salman’s ambitious economic diversification plans – which include the futuristic city of Neom and other megaprojects that form the Vision 2030 strategic plan launched in 2016. While investors remain attracted to the country’s oil assets, it has proved much harder to attract capital into smaller, nascent sectors.

The latest F.D.I. figures were released by Sama on 28 September, as part of its regular monthly data release, but the sharp rise in investment was not highlighted by the government – which may be a sign of the political sensitivity around any change in ownership of the country’s energy assets. Aramco retains a controlling stake of 51% in its pipeline subsidiary.

The Ministry of Investment said in mid-August it had issued more foreign investor licenses during the first quarter of 2021 than in any previous quarter since records began in 2005. However, that did not translate into any noticeable shift in the amount of money flowing into the country. In fact, the inward F.D.I. of $1.8 billion in Q1 marked a slight decline on the $1.9 billion of the previous three-month period.

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