The writer is an economic and political risk expert and founder of Ziemba Insights

Saudi Arabia’s Public Investment Fund (PIF) recently hosted its eighth Future Investment Summit, bringing financiers and business leaders to Riyadh in a bid to attract significant foreign direct investment (FDI). Oil revenue declines have dented the country’s steps towards its ambitious Vision 2030 plan to transform its economy and increased the importance of FDI in helping to meet its bold economic development goals.

It has prompted a shake-up in its foreign investment flows, with a refocusing of national attention on domestic rather than outbound investment. The PIF — Saudi Arabia’s sovereign wealth fund (SWF) — is the key mover behind this shift, and has come to epitomise the broader trend of SWFs focusing more extensively at home than abroad, and catalysing inbound capital inflows. 

As a result, PIF — via its portfolio companies — is even more focused on domestic investment to develop new supply chains that diversify its economy, hoping that it will attract global capital investments. Its annual reports show that international assets at end-2023 accounted for 21% of its total holdings, down from 29% in 2021. 

While the fund is still investing abroad, especially via its subsidiaries like Alat, new flows are smaller and tend to have local economic development goals and technology transfer as a priority. The biggest shift has come in portfolio flow rather than FDI, with  PIF pulling back on some of its foreign portfolio holdings, including those in the US gaming industry. Some of these sales are just profitable exits, but prioritisation is underway. 

Saudi Arabia has also issued significant debt in 2024, with international bond sales by the government, Saudi Aramco and PIF making it the second-biggest issuer among emerging markets in 2024, beaten only by China. This sharp increase compared to years prior is in part a shifting of assets and liabilities on the sovereign balance sheet, but also confirms the end of an era when the sovereign sent significant funds abroad. 

The country’s efforts to attract FDI have sparked an uptick in project announcements (according to fDi Markets) and actual inflows according to government data. However, coming close to the ambitious goal of $100bn in FDI per year by 2030 will be tough. As a result, local public capital may continue to be deployed to try to attract foreign capital. 

An area of recent success is in artificial intelligence and cloud computing, with Google recently signing a deal with PIF subsidiaries to help develop data centres in the country. Beyond this, Saudi Arabia mandates that foreign companies seeking government contracts set up regional offices within the country, hoping these will be a vehicle for FDI and other investment. Some of these offices manage local wealth or advise the government, but the government hopes others will lead to FDI.

Still, investors will come only if the terms are right. 2025 will be pivotal as the government looks to rationalise spending at a time of sluggish oil prices to reposition for the medium term. It will have to balance between efforts to grow local capital markets and the real economy. 

International rebalancing 

PIF is the most notable example of SWFs’ shift away from their traditional mandate of investing abroad, to focusing on domestic projects. The growth of these so-called development funds, which aim to attract FDI by derisking the local environment, is particularly prevalent in Asia. India’s National Investment and Infrastructure Fund and the Indonesia Investment Authority are making notable efforts to pull in capital both from other sovereign funds and other private long-term investors engaging in FDI. 

The Saudi SWF’s focus on attracting inward FDI is partly shared by other sovereigns in the Middle East, especially those like Oman and Bahrain which have low volumes of oil exports per capita and lower banked savings than their regional peers. Most notably, the Oman Investment Authority aims to pull in and derisk global capital. In early 2024 it launched a $5.2bn programme to develop the national economy and attract FDI. While the larger Abu Dhabi and Qatari SWFs will remain strongly involved in strategic investment abroad (and their energy companies even more so), their sectors of focus will be aligned with areas prioritised for local development. 

With Saudi using PIF as a vehicle to pursue its Vision 2030 plan, the country reveals the tensions faced by SWFs and governments in balancing the desire to engage in FDI abroad and attracting it at home.

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This article first appeared in the December 2024/January 2025 print edition of fDi Intelligence