Saudi Arabia's $600 billion place in the sun - success or risk?

Saudi Arabia's $600 billion place in the sun - success or risk?

Saudi Arabia announced a massive investment offensive in the US during US President Donald Trump's visit. According to a report by Economy TV The country plans to invest a total of $600 billion over a four-year period. Investment Minister Khalid al-Falih made the remarks at the Investor Forum in Riyadh, emphasizing the commitment to deeper economic cooperation with the United States.

However, there is a question mark behind this promise. Economists warn that Saudi Arabia may struggle to maintain these investments, especially as oil prices have fallen below the required $90 to $95 a barrel. This could lead to a budget deficit of up to $75 billion this year.

The gigantic projects in Saudi Arabia

Another key Saudi Arabian project is the Neom megaproject, which is estimated to cost up to $1.5 trillion and whose financing is still unclear. Neom is envisioned as a futuristic city in the desert that aims to revolutionize Saudi Arabia's technological market and transform the country into a center for sustainable development. As part of this development, Saudi Arabia is pursuing the “Vision 2030” plan, which aims for comprehensive economic transformation.

The aim of the plan is to reduce dependence on oil and position itself as a global center for technology, tourism and industry. An important player in this restructuring is the Saudi sovereign wealth fund PIF (Public Investment Fund), which has assets of around $620 billion. In the first half of 2023, the PIF made $1.3 billion in investments in major European companies, particularly in telecommunications, energy and financial services.

Long-term investments and risks

In addition, the PIF invested over $3 billion in around 40 different venture capital funds in 2022, including well-known partners such as Andreessen Horowitz and Khosla Ventures. These long-term investments are part of a strategy that could last decades and aims to advance Saudi Arabia's economic diversification.

However, creating Neom and strengthening the tech economy also pose significant risks. Since 2021, international companies have had to move their regional headquarters to Saudi Arabia to receive public contracts. Companies such as SAP and PepsiCo have already opened their own offices in the kingdom. However, there is a possibility that foreign companies will avoid Saudi Arabia if the political or economic situation worsens.

The challenges presented by recent investment announcements and progress in implementing the Vision 2030 plan could be crucial for the Kingdom's future economic development, especially given current volatile imported oil prices. How these factors will develop remains to be seen.