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As a strategic partner to the FII Institute, GFH participated in the seventh edition of the Future Investment Initiative (FII7) in Riyadh, Saudi Arabia last month, meeting partners, connecting investors with opportunities, and taking part in conversations on the future of investment.

The conference featured several data-driven discussions lead by global public and private sector leaders, academics and investors around critical trends that are shaping our collective future such as in global business, investment, geopolitics, sustainability, education, technology and more.

Here we look back at FII7 and pick out our five top observations from this year’s edition.

1. Saudi Arabia is undergoing a significant economic transformation; investors are following the trends

As Saudi Arabia diversifies and restructures its economy to be more diversified and less reliant on oil, there are a vast number of opportunities emerging in the Kingdom. Projects such as Dereyya, Neom and the Red Sea Development represent entire new ecosystems that will stimulate multiple sectors, including various facets of real estate, education and healthcare verticals amongst many others.

During a panel discussion on “The New Markets Dictating Tomorrow’s Returns”, FII heard how GFH is focusing on Saudi Arabia in terms of its regional operations, while focusing on debt and opportunistic investing on a more global basis.

Market fundamentals in the GCC are strong, hence GFH has accelerated expansion of its local investment platforms with a focus on certain sectors. Thematically, GFH is focused on education, healthcare and logistics where it has identified Saudi Arabia’s secondary cities as underserved verticals, ripe for investment. The Riyadh, Jeddah and Eastern Provinces tend to be better served and more mature. Similarly, in the logistics segment, the market is poised for growth amid the Belt and Road Initiative, with the GCC and Saudi Arabia in particular set to be a key part of the chain.

“The New Markets Dictating Tomorrow’s Returns” Panel Discussion, FII7

Focusing on its secondary cities strategy for investments in Saudi Arabia, GFH announced during FII7 the acquisition of a major healthcare facility in the south of Saudi Arabia worth SAR 1.3 billion (US$346 million). Similarly, in the logistics sector, GFH also announced during FII7 that it has signed to acquire a leading food services and logistics company in Saudi Arabia.

These initiatives highlight the notion that macro trends – even economic shocks – are there to be emphasized upon. They can be leveraged for long-term while investing in safer, lower-risk investments that can adapt with the challenges and opportunities.

GFH’s move towards emerging opportunities in the GCC reflects a broader shift in its global strategy to focus on debt and opportunistic investing. Today, GFH is evolving its strategy from a preference for US-based emphasized assets to preferred equities, premium lending, and private credit, which can offer c. 14-18% IRR.

2. Technology strengthens – education and cross sector fundamentals

The edtech boom did not herald the end of schools as we know them. Instead, schools have had to adapt to new technologies and harness them to improve learning outcomes. Ultimately, schools have become stronger, safer assets because of edtech’s growth.

While the pandemic showed that many educators around the world did not have the technological skills needed to pivot, hybrid learning is now considered a powerful tool to enhance education delivery and results. The MENA region in particular is poised to benefit from new school and teaching models.

The MENA region has one of the world’s youngest populations, while government investments in digital infrastructure has led to near 100% mobile usage and Internet penetration in the GCC. Consequently, edtech startups and schools in the region are positioned as defensive, long-term investment opportunities.

Fatema Kamal speaking during the “What Will It Take to Achieve Universal Human Capital?" panel, hosted by UNICEF

During a panel discussion hosted by UNICEF on “What Will It Take to Achieve Universal Human Capital?”, Fatema Kamal, CEO of Britus Education, stressed that while technology has transformed education delivery particularly for developing markets, it is crucial that the public and private sectors collaborate to create new educational paradigms and to ensure these technologies are made accessible to all.

She also emphasized the crucial role the private sector has in education by empowering the academic and competency development of students, and the importance of mentorship as a tool to bridge the gap between foundation skills and future jobs. This is a role that Britus Education is focused on through its commitment to take an active leading role in education transformation in the region.

Similarly, technology transformations are responsible for positive changes and impact across sectors including healthcare and life sciences. As an example, technology has been critical in advancing the capabilities of multi-speciality healthcare providers across the value chain, which have become an increasingly important part of the region’s health ecosystem.

3. Global real estate still has well performing sectors

Commercial real estate, mainly the offices segment, remains under pressure. The challenges brought on by the surge in remote working during COVID-19 look set to continue, with older offices suffering from high vacancy. Occupancy rates in vintage offices are estimated to be between 20-40% on average, though, occupancy in newer buildings tends to be higher.

Meanwhile, certain sectors within real estate are performing well despite the high interest rate economic environment and warnings of a potential recession in 2024. For instance, student housing, particularly in the US is benefiting from very high occupancy rates due to severe demand supply imbalances that show no signs of dampening.

Similarly, logistical real estate globally has continued to show strong underlying fundamentals and perform well. A recent US report from Savills highlighted record highs in demand in the last two years, with more than 400 million sq. feet of new demand in 2022 alone. This is coupled with record low vacancy rates of 4.3% in Q1 2023.

4. Green infrastructure is a key focus for GCC investors

GCC investors are driving the energy transition both in the region and beyond. As economies in the Gulf transition from hydrocarbons, they are increasingly working alongside both emerging and developed markets in Asia and Africa, which are considered major hubs for the future supply of hydrogen, solar and wind energy.

On the eve of FII, Saudi Arabia signed 46 deals with South Korea, including in the energy and technology sectors. Together, the investments are worth $30 billion. As well as an ammonia production project, the countries also created the Hydrogen Oasis Initiative to foster cooperation in green and clean hydrogen.

“According to the International Renewable Energy Agency (IRENA), the world must triple its renewable energy capacity annually by 2030 to meet its 2050 net zero targets.” 

Fossil fuels comprise 80% of energy sources today, and according to the International Renewable Energy Agency (IRENA) the world must triple its renewable energy capacity annually by 2030 to meet its 2050 net zero targets.

Much of the investment needed to meet these targets is likely to fall in Africa, which, despite having an estimated 40% of the world’s renewable energy resources receives just 2% of renewable energy investments.

This presents significant opportunities for investors, especially those who act early and understand the long-term nature of investments in this space.

5. Stability remains critical to long-term investment confidence

Investor-friendly policies and powerful public-private-partnerships across the GCC have made it easier for businesses to establish a presence. As countries in the region continue to pursue consistent policies, the GCC is fuelling confidence among investors and presenting itself as a home for those seeking to capitalise on its economic potential.

Political and economic stability in Saudi Arabia plays a pivotal role in promoting confidence among investors and encouraging longer-term investments. The Kingdom’s commitment to stability in a world of volatility has become increasingly evident in recent years, driven by ambitious economic reforms and a renewed focus on diversifying the economy away from oil dependence.

“Saudi Arabia [is] the fastest growing G20 economy in 2022, reporting overall growth of 8.7 percent, reflecting both strong oil production and non-oil GDP growth driven by private consumption and investment.” 

Political stability in any country creates a predictable and supportive environment for investors. Vision 2030 has sent a clear signal of commitment to the kind of reform and development that drive long-term growth. In fact, Vision 2030 has already starting paying some dividends with Saudi Arabia being the fastest growing G20 economy in 2022, reporting overall growth of 8.7 percent, reflecting both strong oil production and non-oil GDP growth driven by private consumption and investment.

As an example, in the real estate sector, stability translates into attractive prospects. Saudi Arabia’s mega-projects are physical embodiments of the long-term investment environment, promising stable returns for decades to come.

How Saudi Vision 2030 is opening new opportunities

Saudi’s Vision 2030 is transforming various economic sectors into investment magnets that, crucially, are underpinned by strong fundamentals. For instance, Saudi Arabia’s energy transition targets a national energy mix of 50% renewables by 2030 and is being driven by around $270 billion worth of government expenditure.

Saudi Arabia is among several countries in the region pushing its hydrogen agenda. In fact, it aims to become the largest producer of low-carbon hydrogen, targeting around 4 million tonnes of hydrogen production by 2030, under the Saudi Green Initiative. The country currently has around 13 renewable energy projects under development, representing a capacity of 11.3 GW. As net zero strategies gather pace around the GCC, the energy sector is poised to offer some of the most stable returns.

Tourism is another burgeoning sector, expected to attract around $800 billion of investment over the next decade, more than doubling its contribution to national GDP to Saudi Arabia’s 10%. The introduction of major sporting events, including the Formula 1 Grand Prix demonstrate the Kingdom’s emergence as a hub for sports, culture and tourism, with investments set to follow.

Saudi Arabia’s commitment to the technology sector is also favouring investors in sectors such as fintech. Fintech Saudi was launched in 2018 to help realise the Kingdom’s goal of hosting more than 500 fintech companies by 2030. Already valued at around $40 billion, Saudi’s digital sector – fuelled by the SADAF initiative – is projected to attract a further $24.7 billion of investment by 2025. That’s one of the highest government expenditure on technology in the world.