The cumulative stock of foreign direct investment in Saudi Arabia has reached around 1.1 trillion riyals, according to Investment Minister Fahad Al-Saif at the World Petroleum Congress in Riyadh. But perhaps the most striking figure in his remarks was not the size of the investments, but his statement that the investment environment had shifted its focus from “quantity” to “quality.”

This raises an important economic question:

Does every riyal of foreign investment have the same impact on the economy?

The answer: not necessarily.

First, what does 1.1 trillion riyals actually mean?

Before analyzing the figure, it is important to understand what it measures.

The 1.1 trillion riyals is a cumulative stock of foreign direct investment, not an amount that entered the Kingdom in a single year.

The difference is significant.

Stock is the value of foreign direct investments that are in place and accumulated in the economy at a given point in time.

A flow, by contrast, is the amount of investment entering or leaving over a specific period, such as a quarter or a year.

Put simply: if your bank account contains 100,000 riyals, that is your stock. If you deposit 5,000 riyals this month, that is the flow.

That is why it would be incorrect to say that Saudi Arabia “attracted 1.1 trillion riyals this year.”

The General Authority for Statistics clearly distinguishes between stocks and flows of foreign direct investment. It defines direct investment as investment that reflects a long-term relationship, typically requiring the foreign investor to own 10% or more of the voting rights in a business, giving them the ability to influence its decisions.

Why is it called “direct investment”?

Not every foreign investment in a market counts as foreign direct investment.

For example, a foreign investor buying a limited number of shares in a listed company may be classified as a portfolio investment.

Foreign direct investment, by contrast, is usually associated with a deeper relationship: establishing a factory, acquiring a significant stake in a company, financing a subsidiary, or reinvesting profits.

That is why economists pay attention to it: it is generally more closely linked to long-term productive activity than to short-term movements in financial capital.

But even within direct investment, the economic impacts can vary greatly.

This is where the story of “quality” begins

Imagine two foreign investments, each worth one billion riyals.

The first funds an activity with few links to the local economy, relies heavily on imported inputs, and needs only a limited number of employees.

The second builds a factory, buys from local suppliers, trains engineers, transfers new technology, and exports its products.

The financial value is the same: one billion riyals.

But the potential economic value is not necessarily the same.

This explains the shift from measuring investment by asking how many riyals came in to asking:

What does each riyal do once it comes in?

How do we measure investment “quality”?

The Organisation for Economic Co-operation and Development (OECD) has developed a dedicated framework called FDI Qualities.

The framework does not simply measure the amount of money invested. It also looks at the effects of investment in areas such as:

Productivity and innovation, job quality and skills, knowledge and technology transfer, and sustainability.

A foreign investor can contribute capital alone.

Or, in addition to capital, it can contribute knowledge, technology, new markets, and a network of local suppliers.

That is a significant difference.

Why do links between investors and local companies matter?

One of the most important ways the benefits of foreign investment can spread is through links between global companies and local suppliers.

When a foreign company asks a Saudi factory to meet higher production standards, trains it to use new technology, or connects it to a global supply chain, the benefits may extend beyond the investor and its direct contractor.

The local business itself may become more productive and better able to compete and export.

The OECD notes that links between multinational enterprises and local companies, particularly small and medium-sized businesses, can transfer knowledge and technology and help local businesses enter global value chains—provided the local environment can absorb that knowledge.

Economists call this the spillover effect.

In other words, the benefits of an investment do not stop at the project itself; they can spread to other parts of the economy.

Are jobs alone enough?

Even the number of jobs needs to be examined more closely.

An investment that creates a thousand low-skilled jobs is not necessarily equivalent to one that creates the same number of jobs while also providing specialized training, higher wages, and knowledge transfer.

That is why investment-quality frameworks focus on the types of jobs and skills, not just the number of jobs.

The question becomes:

Does the investment create jobs, and nothing more?

Or does it also increase workers’ value and productivity, and enable them to work in more advanced sectors?

A factory is more than just a building

Foreign investment can also be important if it helps the economy build new productive capacity.

A project producing a good that was previously imported in its entirety can reshape the supply chain.

A project that uses the Kingdom as an export base can bring in revenue from abroad.

An investment in a research center may generate knowledge that is entirely different from an investment in an existing real estate asset.

This does not mean that one type is “good” and all others are “bad.” It means that the economic impact varies depending on the nature of the investment.

That is why the overall figure alone cannot tell us the whole story.

So what does the 1.1 trillion riyal figure tell us?

It tells us that a large stock of foreign direct investment has accumulated in the Saudi economy.

But on its own, it does not answer questions such as:

How much of it goes to highly productive sectors?

How many quality jobs has it created?

How much has it helped develop local suppliers?

How much technology has been transferred to the Kingdom?

How many projects have become export platforms?

These questions require additional data.

That is why the Investment Minister’s remark about moving from “quantity” to “quality” matters.

After a stage in which attracting capital itself is an important goal, the next stage becomes more complex:

Attracting the capital that adds the greatest possible value to the economy.

The same riyal, but a different impact

So perhaps the more useful question when we hear foreign investment figures is not:

How much came in?

But:

What did it leave behind?

A factory?

Technology?

Skills?

Stronger local suppliers?

A new product?

Or greater export capacity?

In investment, as with many economic figures, scale matters.

But scale does not tell us everything.

And asking what kind of “riyal” it is may matter more economically than simply counting the riyals.