Saudi Arabia’s public and private companies have stepped up their campaigns abroad as investment becomes the country’s favored tool for soft power in the Middle East and the Islamic world.

Foreign investment by public and private companies in Saudi Arabia totaled a record $22.6 billion in the first 11 months of 2022, compared to $2.2 billion in the same period of 2021, according to fDi Markets. The Public Investment Fund (PIF), the country’s sovereign wealth fund, deployed $20.3 billion in 2022, up 448.6% from the previous year, according to research by Global SWF.

Change of strategy

These rising levels of foreign investment signal a shift in how Saudi Arabia uses its financial resources to increase its influence in 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 some countries, such as Lebanon, this has not always resulted in greater great influence. Yet Saudi Arabia’s development role in the Middle East and the Islamic world is notable, and its aid to Muslim-majority countries dwarfs that flowing to Christian-majority countries in Asia and Africa. according to figures from the Saudi Fund for Development (SfD), cross-checked with statistics from the Pew Research Center, a US-based nonpartisan think tank focused on social issues, public opinion and demographic trends.

A notable example of this shift in strategy is Pakistan. On January 10, Saudi Prince Mohammed bin Salman asked the country to consider increasing its investments in “the sister Islamic Republic of Pakistan”. from a previously reported figure of $1 billion to $10 billion, according to the Saudi Press Agency.

Madiha Afzal, a fellow in the Brookings Institution’s foreign policy program, says Saudi Arabia has “long come to the aid of its friend Pakistan out of trouble.” The difference now, she adds, is that Saudi Arabia has said it is “changing the model, seeking investment instead of lending, and demanding reform in return.”

This is evidenced by the fact that as outward investment increases, the SfD has seen a decline in signed loan agreements, according to the latest figures, from a total of nearly SR4 billion ($1 billion) in 2017. to SR 281 million in 2021.

power play

Neil Quilliam, associate researcher in the Middle East and North Africa program at Chatham House in the UK, notes that now “the Saudis want to play a bigger diplomatic role” and want to “invest in building that influence”.

This comes as the country catches up with other Gulf states, such as the United Arab Emirates, which have extended their influence in the region to Pakistan, India and notably Israel, he said.

The PIF announced last year that it would invest $24 billion through investment companies in six Arab states: Bahrain, Iraq, Jordan, Oman, Sudan and Egypt. The fund targets sectors such as infrastructure, real estate, mining, manufacturing and financial services. Elsewhere, Gulf sovereign wealth funds increased their investments amid market uncertainty.

Tie ropes

At the World Economic Forum held from January 16-20 in Davos, Switzerland, Mohammed al-Jadaan, Saudi Arabia’s finance minister, said the country is “changing the way we provide development aid” .

“We used to give grants and direct deposits with no strings attached and we are changing that. We are working with multilateral institutions to say we need to see reforms,” he said on January 18.

Monica Malik, chief economist at the Abu Dhabi Commercial Bank, says this is in line with the government’s aim to play a bigger role in development. “Saudi Arabia has shifted its aid to the region to be more reform-oriented. It’s no longer ‘no strings attached’; they need to see results,” she said.

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