State and private companies from Saudi Arabia have been boosting their outbound campaigns as investment becomes the country’s favoured tool for soft power in the Middle East and Islamic world.
Foreign investment from both state-owned and private companies in Saudi Arabia totalled a record $22.6bn in the first 11 months of 2022, up from $2.2bn over the same period in 2021, according to fDi Markets. The Public Investment Fund (PIF), the country’s sovereign wealth fund, deployed $20.3bn in 2022 — up by 448.6% from a year earlier, research from Global SWF has found.
These rising levels of foreign investment signal a change of tack in the way Saudi Arabia uses its financial resources to increase leverage over the region, and the Muslim world as a whole.
Since the 1970s, Saudi Arabia has poured billions into targeted countries through central bank deposits or loans but in certain countries, like Lebanon, this has not always resulted in greater influence. Still, Saudi’s development role in the Middle East and Islamic world is notable, and its aid given to Muslim-majority countries dwarfs that flowing into Christian-majority countries in Asia and Africa, according to figures from the Saudi Fund for Development (SfD), cross-referenced with statistics from the Pew Research Center, a nonpartisan, US-based think tank focussed on social issues, public opinion and demographic trends.
One notable example of this changing strategy is Pakistan. On January 10, Saudi prince Mohammed bin Salman instructed the country to look into increasing its investments in “the sisterly Islamic Republic of Pakistan” from a previously announced figure of $1bn to $10bn, according to the Saudi Press Agency.
Madiha Afzal, fellow in the foreign policy programme at the Brookings Institution, says that Saudi Arabia has “long come to the help of its friend, Pakistan, bailing it out of its troubles”. The difference now, she adds, is that Saudi Arabia has said that it “is changing its model, seeking investments instead of giving loans, and requiring reforms in return”.
Testament to that is the fact that while outbound investment is rising, the SfD has recorded a fall in signed loan agreements, according to latest figures, dropping from a total of almost SR4bn ($1bn) in 2017 to SR$281m in 2021.
Neil Quilliam, associate fellow in the Middle East and North Africa programme at the UK’s Chatham House, notes that now “the Saudis want to play a bigger diplomatic role” and want “to invest to build that influence”.
This comes as the country plays catch up with other Gulf states, such as the UAE, which has extended its influence across the region to Pakistan, India and notably Israel, he says.
The PIF announced last year it will invest $24bn through investment companies in six Arab states: Bahrain, Iraq, Jordan, Oman, Sudan and Egypt. The fund is targeting sectors including infrastructure, real estate, mining, manufacturing and financial services. Elsewhere, Gulf sovereign wealth funds have been increasing their investments amid market uncertainty.
During the World Economic Forum held between January 16 and 20 in Davos, Switzerland, Mohammed al-Jadaan, the Saudi finance minister, said that the country was “changing the way we provide development assistance”.
“We used to give direct grants and deposits without strings attached and we are changing that. We are working with multilateral institutions to actually say we need to see reforms,” he said on January 18.
Monica Malik, chief economist at Abu Dhabi Commercial Bank, says that this is in line with the government’s objective to play a more developmental role. “Saudi has been shifting its aid in the region to be more reforms-led. It’s no longer ‘no strings attached’; they need to see results,” she points out.