Saudi Crown Prince MBS’ US$100bil foreign investment quest falters

Saudi Arabia has long recognised its funding requirements would mostly be backed by local capital and only partly by foreign money. — Bloomberg

DUBAI: At a gleaming white hangar on Saudi Arabia’s western coast last year, the kingdom’s business and political elite gathered to applaud one of Crown Prince Mohammed bin Salman’s or MBS riskiest bets yet.

The first electric cars assembled in Saudi Arabia with Lucid Group Inc twinkled under factory spotlights, designed to show the world how a kingdom built on oil could draw in foreign capital to become a global hub for the industries of the future.

The short-term reality is more complicated. California-based Lucid is increasingly guzzling Saudi money to stay in business.

Last week, it got a US$1bil cash lifeline from the kingdom, on top of the US$5.4bil Saudi Arabia’s Public Investment Fund (PIF) has already pumped in.

Lucid, which counts the PIF as its top shareholder, had been held up as an example of foreign firms investing in Saudi Arabia’s multi-trillion-dollar “Vision 2030” economic transformation plan.

But Lucid’s need for Saudi money is one sign the country’s rushed attempt at reinvention is being paid for out of pocket, with the kingdom relying heavily on its oil riches to entice firms in.

“The government had to give Lucid tremendous incentives to come,” said Karen Young, a Gulf-focused political economist at the Columbia University Centre on Global Energy Policy.

It also speaks of the difficulties foreign companies face in Saudi Arabia, a country with little experience of complex manufacturing or heavy industry beyond the petroleum sector.

“Lucid is fully committed to our long-term partnership with the PIF and supporting the goals of Saudi Arabia’s Vision 2030,” chief executive officer Peter Rawlinson said in a statement to Bloomberg. “Lucid is creating hundreds, and eventually thousands, of new employment opportunities for Saudi talent.”

The PIF did not respond to a request for comment.

Saudi Arabia has long recognised its funding requirements would mostly be backed by local capital and only partly by foreign money. Still, it wants to hit US$100bil of foreign direct investment (FDI) annually by 2030, a haul roughly three times bigger than it has ever achieved and about 50% more than what India gets today.

Between 2017 and 2022, annual FDI inflows into the kingdom averaged just over US$17bil. Preliminary data for 2023 shows FDI below target, at about US$19bil, according to a statement from the Investment Ministry.

Scaling up to the 2030 goal seems out of reach for now as foreign investors remain cautious, according to conversations with bankers, lawyers who advise investors and people with knowledge of Saudi Arabia’s fundraising efforts.

That’s led to a reckoning for the government as it weighs up the possibility of self-funding a larger portion of its economic remake on a tight timeline.

Already, it has started to cut back on megaprojects designed to revamp its US$1.1 trillion economy. And it’s issuing billions of dollars in bonds to help plug a fiscal deficit that it hadn’t been forecasting until late last year.

How it wields its money carries implications for its investments at home and abroad, and for oil policies that shape global markets.

The crown prince, or MBS as he is known, wants foreign investors to transfer expertise and co-fund megaprojects like the one to develop Neom. That US$500bil plan envisions turning the remote north-western region into a carbon-free high tech hub filled with robots.

While Neom has rolled out marketing and investor roadshows, it’s not made serious progress raising capital yet, people familiar with the matter said.

It’s not just along the less-developed coastline that projects are facing headwinds. Near the capital, an entertainment city dubbed Qiddiya has more than US$1 trillion of committed spending – but that’s backed entirely by the PIF and a Saudi developer it owns, two people briefed on the project said.

“If we don’t have clear evidence of more funding by the end of the year, then it’s certainly worth asking where the money is going to come from for these projects,” said David Dawkins from London-based investment data firm Preqin, which analyses Saudi trends.

“They are insanely expensive.”Delays approving regulations for Neom have left question marks for investors. Many said their reluctance to commit funds to the kingdom is often down to unclear and untested laws governing contracts and investment.

There are signs the push for more external capital is gaining traction. There were 232 investment deals closed in 2023, many of which have “sizeable” components of foreign investments that may start “working their way” into 2024 FDI numbers, the Investment Ministry said in a statement.

More recently, Inc’s cloud unit led a group of firms that agreed to invest more than US$10bil in Saudi data centres.

But the government, burning through cash, is stepping up efforts to attract much more foreign money. It asked smaller neighbour Kuwait for over US$16bil in financing for projects including Neom as recently as this year, people familiar with the matter said.

At stake for MBS are ambitions synonymous with Vision 2030. While companies like US-based Air Products have signed on for joint ventures at Neom, Saudi Arabia is still on the hook for underwriting close to the entirety of the cost – roughly equivalent to half its current economic output. —Bloomberg

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