Narissa Thelo 
As Saudi Arabia continues its economic diversification and reform initiatives, investors worldwide increasingly look to this major economy as a source of opportunity. In addition, the kingdom’s tourism and entertainment industries are being heavily developed, further contributing to its attractiveness for foreign investors.
SoftBank has recently made its first major investment in Saudi Arabia following investments in the UAE and Turkey. The tech giant is leading a consortium in a $2 billion transaction for 20 percent of ride-sharing company Careem’s shares alongside Daimler AG and Kuwait Investment Authority (KIA). This marks an important milestone in foreign direct investments into Saudi Arabia, as it suggests that international investors have become more comfortable with investing in the market environment.
This article will explore the risks and opportunities other potential investors may face when investing in Saudi Arabia. It will assess the country’s current investment climate, including laws, regulations, tax systems, and external factors such as political risk, currency fluctuations, and public sentiment.
SoftBank’s First Saudi Deal Follows UAE, Turkey Investments
SoftBank’s recent investment in Saudi Arabia is a major opportunity for other regional investors. The tech giant is investing $21 billion in the Public Investment Fund of Saudi Arabia, which would create a new tech hub to make the country a leading digital economy hub. It will also lead to the creation of jobs and the facilitation of knowledge transfer.
Let’s look at the risks and opportunities in this investment for other investors.
SoftBank’s First Saudi Deal
SoftBank, the Japanese conglomerate led by Masayoshi Son, has recently announced its first significant investment in Saudi Arabia, a $200 million Series B financing for Zain Group. This agreement follows a string of investments the company has made in countries such as Turkey and the United Arab Emirates. The deal with Zain Group marks an important milestone for SoftBank as it continues to build its presence in the Middle East and broaden its footprint beyond Japan.
The move to invest in Saudi Arabia is consistent with SoftBank’s strategy of making long-term commitments in multiple geographies. In addition to this most recent announcement, SoftBank has invested in Saudi fintech startups Taqadam and Takhleeq, both part of the Saudi Vision 2030 initiative to diversify the economy away from oil.
SoftBank’s moves into Saudi Arabia will bring risks and opportunities for other investors. On one hand, it could lead to more competition and lower returns on new investments due to increased valuations and aggressive bidding due to foreign investment. But, on the other hand, having SoftBank enter a market could bring higher technology standards, improved infrastructure and increased economic growth due to increased capital flow into businesses that might have otherwise remained untapped for some time. Moreover, as more investors remain wary about investing in emerging markets like Saudi Arabia- where social dynamics are relatively different than developed markets – companies like SoftBank could be a force of influence bringing others along with them.
SoftBank’s Other Investments in the Region
SoftBank is no stranger to investing in the Middle East and Turkey. It recently closed a deal with Abu Dhabi’s Mubadala Investment Company and its first deal in Turkey with the digital payments firm Iyzico. However, its investment in Saudi Arabia marks a notable shift for the company as it’s the first time it’s invested directly into a country within the region, putting SoftBank’s risk profile and appetite for regional investments into focus.
In 2017, SoftBank’s Vision Fund made an $845 million investment in Egypt-based ride-hailing firm Swvl. The two companies are reportedly looking to close their second round of financing soon, which is expected to raise $50 million and give the startup a valuation of over $450 million. In April 2018, SoftBank’s Vision Fund announced a strategic partnership with Ghanaian online payment platform Expresspay to create long-term value through consolidation among African digital payment platforms.
SoftBank also recently invested in online grocery delivery service InstaKart that serves customers across Pakistan and Bangladesh — marking its first foray into shopping services among Muslim consumers — while last November it bought a 23% stake worth US$627 million in Turkish dominant e-commerce player Trendyol Group, becoming one of most prominent foreign investors after China’s Alibaba Group Holding Ltd., according to Reuters.
SoftBAK has demonstrated that it has deep pockets and an appetite for large investments worldwide — particularly within emerging markets of digitally enabled companies operating at scale — but with greater risk comes greater rewards. International players may be encouraged by Softbank’s audacious move towards Saudi Arabia, prompting them to explore opportunities there more readily than ever before.
Risks for Other Investors in Saudi Arabia
When SoftBank invested in Saudi Arabia, other regional investors were presented with risks and opportunities.
On one hand, SoftBank’s move is seen as a sign of confidence in the Saudi economy, which has opened up to foreign investments and presented a more welcoming environment for international investors.
On the other hand, the political climate in Saudi Arabia can present significant risks for individual investors that might not be familiar with the region.
This article will discuss the risks and opportunities for other investors in Saudi Arabia.
Political Risk
Political risk is among the most important risks to consider when investing in any foreign country, including Saudi Arabia. Political instability can significantly limit foreign investment, lowering returns and risks. In particular, investors need to be aware of the potential for political unrest or a change in government that could lead to volatility in the local currency’s value, nationalization of assets, or restrictive policies concerning capital flows and repatriating profits.
In recent years, some have noted that Saudi Arabia’s geopolitical location puts it at unique risk about its relationship with the US and other countries who have imposed economic sanctions over human rights issues such as Yemen conflict. In addition, US President Donald Trump’s support for the country after Jamal Khashoggi’s murder was criminalized further compounded these risks for investors.
In addition, there are heightened tensions between Saudi Arabia and neighbouring countries including Qatar which opened up further risk of disruption due to interference or meddling within international affairs. This was seen particularly during the arrest and detention of a number of senior Qatari nationals within Saudi Arabia during late 2018 which had serious political and economic implications.
The ongoing protests in Iran and Iraq reverberate throughout the region with uncertainty surrounding Iran’s nuclear deal causing further disruptions in diplomatic relations across Middle Eastern countries with little foreseeable solution. Therefore, investors must pay close attention to regional news developments, particularly threats posed by foreign powers such as Iran, which could drastically alter political policies and environment if left unchecked, disrupting their investments on a wide scale basis.
Economic Risk
Economic risk is a key consideration for other investors in Saudi Arabia following SoftBank’s recent investment announcement. Saudi Arabia’s economy is extremely vulnerable to changes in global oil prices, along with geopolitical trends like the current US-Iran tensions.
The kingdom is also facing an increasingly competitive market thanks to its various regional rivals such as the United Arab Emirates, Qatar and other nations. This could lead to significant economic uncertainty that could harm foreign investment opportunities. As a result, investors should be sure to factor this into their decision-making process when considering any potential investments in Saudi Arabia.
In addition, several internal factors must be considered when considering doing business in Saudi Arabia, such as the country’s stringent foreign exchange and banking regulations. The regulatory landscape in Saudi Arabia can be complex. Therefore, protecting investments from potential losses caused by sudden policy changes needs careful consideration by all investors looking at opportunities in the kingdom.
Social Risk
The social risk associated with other investments in Saudi Arabia primarily refers to the possibility of limited access to foreign capital and labor as well as considerable levels of corruption that can complicate a project. In addition, despite recent liberalization in opening up the country’s financial system, it remains underdeveloped compared to some of its regional counterparts. Such a financial system means that repatriation of profits back to the parent company can prove more complex and time-consuming than usual.
Further, there is the potential for other investors to be financially exposed due to a lack of availability or even reliability from government sources regarding taxation laws or economic regulations. In addition, regulators and authorities may also have varying interpretations on what constitutes compliance with statutory rules or even changing their views as they please, creating a level uncertainty which could impose heavy burden on firms trying to operate within the country. On top of this, there has also been reported incidents relating to corruption which have potential implications for other investors who do not adhere closely enough and could face significant fines or worse should they be discovered breaking any applicable laws by officials.
Opportunities for Other Investors in Saudi Arabia
Since the initial investment of SoftBank into Saudi Arabia, other investors have begun to explore the opportunities present in the region. The Kingdom of Saudi Arabia is home to a thriving economy, with investments in technology, finance and entertainment poised to benefit local and international businesses.
In this article, we’ll look at the opportunities for international investors in Saudi Arabia and the associated risks involved.
Economic Opportunities
Saudi Arabia is one of the biggest economies in the Middle East and North Africa (MENA) region. It is a major oil exporter and an important Organization of Petroleum Exporting Countries (OPEC) member. The country has undergone significant economic reform since the appointment of Crown Prince Mohammed bin Salman in 2015 with economic performance strengthening due in part to these reforms. According to World Bank data, GDP growth hit 3.2% in 2019 from 2.3% in 2016, before dipping to 1.7% due to measures put in place around COVID-19 containment.
In addition, Saudi Arabia currently boasts a large labor force with great potential for growth given its relatively young population, a highly developed energy sector, and strong government support for non-oil sectors of the economy such as tourism, aviation and healthcare. Investors may also be interested that Saudi Arabia’s Saudi Tadawul—the largest stock exchange in the Middle East—noted a 15% increase year-on-year during March 2020 despite heavy drops elsewhere.
These features make Saudi Arabia an attractive potential destination for investments from international firms including SoftBank who recently completed their first major investment into the country’s most prominent ride-hailing company, Careem. This follows other SoftBank investments made into regional countries such as Turkey and the United Arab Emirates over recent months — putting forward their long belief that now is an ideal time for investors into MENA region markets given depressed valuations combined with strong underlying fundamentals present within its various economies.
Social Opportunities
In recent years, Saudi Arabian social dynamics have continued to play an important role in economic success. As the country has opened up its doors to foreign direct investment opportunities, investors can take advantage of social opportunities such as enhanced diversity and inclusion in the workforce. This greater diversity can build bridges between companies and local communities, allowing them to better understand internal interests and preferences. Moreover, these interactions can lead to greater understanding of local tastes and regulations, thus improving a company’s prospects for success.
In addition, the increasing demand for educated professionals is creating more job opportunities in the private sector, particularly for those with special skills or expertise in IT, robotics and artificial intelligence – key industries driving growth throughout the Middle East region. Furthermore, these well-educated professionals also contribute value across other sectors such as healthcare services through innovative technology advancements ranging from medical data analytics to telemedicine. With this endeavor taking flight in Saudi Arabia, businesses may find themselves with access to many diverse fields of talent capable of helping them attain their targets while adapting quickly to changing times.
Political Opportunities
Political opportunities in Saudi Arabia represent a major attraction for investors worldwide. With its rapidly growing economy, strategic location in the Middle East and access to some of the world’s most significant energy resources, Saudi Arabia is becoming increasingly attractive for foreign investment. In addition, the country has opened up many sectors of its economy to foreign investors, emphasizing liberalizing laws related to business operations and ownership stakes.
Foreign investors can enter into joint ventures with local partners and engage in equity investments in public companies such as banks and listed companies on the Tadawul Stock Exchange. Furthermore, they can commission new projects under existing regulations or take advantage of several specific investment programs that offer incentives and protections to foreign investors such as the Special Program for Establishing Industries (SPEI), Foreign Investors Fund (FIF), Real Estate Investment Entities (REIE), Al- Rajhi Investment Program (RIP) and SEZs.
Additionally, government-driven infrastructure projects like NEOM have attracted hundreds of billions worth of government and private sector investments worldwide. SoftBank’s massive $45 billion Tech Vision Fund – dominantly invested into cutting edge technology firms such as Uber Technologies Inc is another example that showcases the attractive investment climate in Saudi Arabia. These funds create jobs and serve as catalysts for economic change within governmental institutions.
Conclusion
In conclusion, the risks and opportunities for other investors in Saudi Arabia to follow SoftBank’s example of investing in the nation following a similar path to UAE and Turkey must be carefully evaluated. While the potential rewards may be considerable, there are also numerous unknowns due to the region’s uncertain political and economic conditions. Therefore, investors must consider this before committing to any investment or venture in the Kingdom.
It is also wise to consider a comprehensive due diligence process when researching opportunities in Saudi Arabia to ensure an informed decision is made before any commitments are made. Ultimately, it remains up to individual investors whether or not they choose to pursue investments in Saudi Arabia. However, with careful research, thorough evaluation of risks and potential gains and respect for local regulations, it is possible for investors interested in capitalizing on the nation’s growth prospects to find suitable projects that could yield extremely profitable returns.
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