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As countries and companies rush to get their hands on critical raw materials to bolster supply chains and deal with a rocky energy transition, Saudi Arabia is staking its claim. It stands a real chance, especially with growing discomfort around reliance on China. But are investors willing to trust it just yet?

The country’s sovereign wealth fund and state miner are plowing in as much 11.95 billion riyals ($3.2 billion) to create a fund that will invest across the world in resources such as copper, nickel and lithium, as a non-operating partner with a minority equity stake. The company’s formation was announced at Saudi Arabia’s annual Future Minerals Forum, where giants like BHP Group Ltd., Rio Tinto Plc to Ivanhoe Mines Ltd., and officials from the US and UK convened last week.

This comes as the kingdom vies to become a global mining hub and establish the sector as a crucial pillar of its economy. The new entity will invest up to $15 billion in companies and assets globally to secure supply for domestic use. Saudi Arabia has been pushing growth in non-oil businesses like manufacturing, and its economy is now among the fastest growing of the Group of 20 countries, with non-oil industries expanding.

The government’s focus on cornering raw materials is well-timed and targeted, especially with supply chains in disarray and emissions-related regulatory pressures rising. China’s vital, yet tenuous, role in the global economy has forced companies to look for alternatives. Where will they find their ex-China source? Across the world, shortages of critical minerals loom and investment in technologies that will bolster or accelerate production has been slow. Meanwhile, large industrial undertakings that are key for the energy transition, like solar plants, electrolytic hydrogen facilities, EV batteries and carbon capture and storage, require heaps of metals. Despite policies like the US Inflation Reduction Act that are attempting to reconfigure American manufacturing and have set off a factory-building boom, securing resources hasn’t attracted actual, hard dollars yet. 

So, while Crown Prince Mohammed bin Salman, or MBS, is on to what stands to be the biggest necessity — and opportunity — for the world for decades to come, it won’t be easy to execute. This isn’t the usual skepticism around a lofty vision; it’s more about jaded corporate executives and their risk-taking ability.

And here’s the rub: No matter how deep-pocketed or well-endowed the kingdom is, it will need foreign investors and capital to help with technology transfers, business strategy and productivity. While they’re watching and talking, no one is hitting the ground in a big way, for now. 

Bringing in foreign direct investment could be Saudi Arabia’s greatest challenge. MBS’s Vision 2030 economic blueprint is hoping to increase the FDI contribution to gross domestic product from the current 0.7% to 5.7%. Foreign capital into Saudi Arabia grew sharply in 2021, largely because of a $12.4 billion pipeline deal by the state-oil company Saudi Arabian Oil Co., or Aramco. But big undertakings that take years to translate into returns haven’t been announced yet. Multinational corporations are hovering, signing memorandums of understanding and visiting, but money isn’t hitting the ground(1).

Policymakers and companies must ponder the risks of piling into a region flush with wealth, but sitting at the crossroads of geopolitical and economic tensions. In emerging markets, capital intensive FDI comes with years of contractual cash commitments and borrowings, adding layers of costs and complexities. Can the returns on investment in Saudi Arabia make up for the risks businesses are taking? And could the rules change before they reap the upside? Multi-billion-dollar mining projects require stakeholder approvals and are harder to commit to; public shareholders don’t necessarily want to wait for long-term returns and are less enthusiastic about big spending. At its peak over a decade ago, expenditure in the sector totaled almost $150 billion, but it’s expected to fall by $11 billion this year globally. 

Attracting FDI eventually becomes a self-fulfilling cycle: once a country or province hits a critical mass, it’s easier to bring in more. Preferential policies like tax incentives and free trade zones help — for both domestic and foreign firms. Economies of scale kick in and efficiencies rise. Getting to that level of investment, though, is a requisite.

Even as the world’s top miners and companies flocked to Riyadh, few talked about breaking ground on huge projects that mining requires. Barrick Gold Corp. and Saudi Arabian Mining Co. — known as Maaden — announced they were setting up two exploration JVs. Maaden will initially contribute $7.6 million. The kingdom’s miner also announced a $126 million deal with Ivanhoe Electric Inc. Meanwhile, the UK didn’t go much beyond a loose commitment, with its secretary for business, energy and industrial strategy, Grant Shapps, noting that it can never be too reliant on any one nation and why it needs partners like Saudi Arabia.

China’s experience with attracting FDI shows that domestic-focused investment is largely driven by the size and growth of the economy. Other important factors like labor costs and infrastructure are also crucial determinants. The country remains one of the biggest recipients despite questions around governance structures and legal frameworks. However, it had built itself out as the factory floor of the world and had its deep manufacturing prowess on offer.

For Saudi Arabia, opening up is a big step as are welcoming invitations to foreign businesses, but it will have to figure out whether it can give foreign investors a large enough opportunity. That math is worth doing.

More From Bloomberg Opinion:

• What a “Saudi First” Policy Means for Oil and Power: Javier Blas

• Saudi Arabia’s EV Battery Bets Are a Warning: Anjani Trivedi

• The US Defense of Saudi Arabia Is No Liability: David Fickling

(1) Based on latest data available on FDI inflows.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist. She covers industrials including policies and firms in the machinery, automobile, electric vehicle and battery sectors across Asia Pacific. Previously, she was a columnist for the Wall Street Journal’s Heard on the Street and a finance & markets reporter for the paper. Prior to that, she was an investment banker in New York and London

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