Davide Barbuscia. Saeed Azhar. Yousef Saba.

DUBAI, (Reuters) – Saudi Arabia might have a credibility problem if the country keeps changing its goal posts to increase foreign investment. Analysts and financial sources said that Saudi Arabia is likely to lose trust if it shifts the goal posts in pursuit of its dream of a world beyond oil.

Five years ago, Crown Prince Mohammed Bin Salman launched Vision 2030 in an effort to reduce the kingdom’s dependence upon fossil fuels. Foreign direct investment (FDI), however, is still far short of its targets.

    When Riyadh unveiled the plan in 2016, it aimed to boost annual FDI to nearly $19 billion by 2020 from $8 billion in 2015, but last year it was just $5.5 billion. Riyadh stated that the long-term goal of FDI was 5.7% gross domestic product (GDP), but did not specify a dollar figure.

The kingdom is now aiming to raise the stakes by claiming it will seek $100 billion annually in FDI for 2030. This new goal, many analysts believe, is too ambitious.

James Swanston from Capital Economics stated that “it raises eyebrows at how unattainable it seems, especially considering the fact that FDI over the last four quarters has reached $18.6 Billion and that FDI total since the beginning of 2011 only amounts to $92.2 billion.”

The $100 billion target means that the economy will need to grow 150% in order to achieve $1.75 trillion by 2030. That would put Saudi Arabia behind Canada, South Korea, Russia and Italy as the ninth-largest economy.

FDI has not seen much success in the years since Vision 2030 was launched. Private investment was discouraged by the 2017 purge of Saudi business elite and Jamal Khashoggi’s murder in 2018. The pandemic then struck.

Analysts warn that investors may lose faith in the kingdom and the grand reform plan it has.

“Low inward FDI levels year-on–year will end up being seen optimistically as Saudi Arabia’s potential improvement and instead raises questions about: What is going on? Robert Mogielnicki is a senior resident scholar at Washington’s Arab Gulf States Institute.

    ‘FIXING THE SYSTEM’

    Saudi authorities say much of the plan is still in its initial phases, which consist mostly of regulations and planning, and money will increasingly start pouring into the kingdom over the next few years.

Saudi Investment Minister Khalid al-Falih stated that FDI numbers are already increasing.

    “We are fixing the system, we are preparing the deals, we are engaging companies,” he told Reuters. “A large number of our transactions have been prepared.”

    In the first half of 2021 – excluding the leasing of Saudi Aramco (SE:) Oil pipelines – FDI increased 33% in the same time period as 2020, and is already higher than targets for this entire year, he stated.

Last month at Saudi Arabia’s “Davos in the Desert”, Future Investment Initiative, several memoranda were signed. However, there was no prospect of an announcement of major investments.

Lucid Electric Carmaker, an electric vehicle manufacturer, is not revealing a plan to open a factory in Saudi Arabia. Its majority ownership is held by the Saudi sovereign Public Investment Fund.

Saudi Arabia launched a national infrastructure fund. It was promoted as a strategic partnership between BlackRock (NYSE:). However, the U.S. company is now advising Riyadh and not committing capital.

    “Saudi wealth remains attractive to foreign asset managers. Wall Street’s top executives praised the economy and made lucrative deals, but they didn’t commit any capital. “Speaks volumes,” said an experienced banker from the Gulf.

    A BlackRock spokesperson said it had a consulting assignment with the fund, which would be entirely financed by the National Development Fund, a government body, and would then aim to attract capital from other investors.

    “It is certainly possible that BlackRock could be amongst these providers of external capital,” the spokesperson said.

    ‘NOTORIOUSLY DIFFICULT’

    In a sign of its desire to attract more investors, Saudi Arabia issued an ultimatum this year that foreign firms must set up their regional headquarters in the country by the end of 2023, or risk losing out on government contracts.

    Saudi Arabia has a much larger consumer base than regional neighbours and international firms operating in the Gulf may not want to miss out on lucrative opportunities arising from its plans for economic transformation.

    Saudi authorities announced at the investment forum that they had licensed 44 international companies to set up regional headquarters in the capital Riyadh.

    But ultimatums, combined with abrupt changes in trade deals and taxation regimes, are perceived as another sign of the kingdom’s unpredictable policies. Most Gulf executives think that firms will find ways to remain in Dubai’s more advanced market, and less conservative society.

    Forum attendees speaking on condition of anonymity said there were lingering worries about regulations and taxes as well as high operating costs and a lack of skilled local workers.

Saudi Arabia’s investment ministry didn’t respond to inquiries about criticisms.

Swanston said that “the Saudi business environment remains notoriously difficult for foreign investors to navigate”

“It would be quite crucial that Saudi get some concrete commitments from foreign investors and firms in order to try to establish some credibility for the investment goals set forth by Vision 2030,” he stated.

    ‘COUNTRY WITHIN A COUNTRY’

    Progress on NEOM, Vision 2030’s $500 billion signature project https://reut.rs/3qtvm5V, also remains difficult to assess, adding to concerns about the kingdom’s financial transparency https://reut.rs/3HfLv53.

    The planned megacity in the desert, announced in 2017 and backed by PIF, is studying its economic and legislative framework, NEOM https://www.neom.com/en-us Chief Executive Nadhmi al-Nasr told Reuters.

    Asked how many contracts had been awarded, or how much had been spent, he declined to give detailed answers.

    “Honestly, we don’t pay much attention at this time of the progress on how much we awarded, because this is just the start of a long journey. If your dream is to make almost every country in the world, that’s a big ambition. We’re still not prepared to discuss how much we have spent.

    However, giving details of project spending, investments achieved and foreign commitments might help Riyadh gain more credibility, particularly given the size of its targets, analysts said.

    Pushing net FDI to $100 billion a year is part of a larger plan envisaging more than $3 trillion in investment in the domestic economy by 2030 and economists fear even local targets will be tough to meet https://reut.rs/3C9enYM.

    “At this stage, moving economic goal posts within the 2030 ballpark is still feasible. Mogielnicki stated that progress will not be measured in the ambitious project announcements. However, there will be a point when all the numbers need to be added up.