February 7, 2023

How Macroeconomics Impact Early-Stage Investing In Saudi Arabia

How Macroeconomics Impact Early-Stage Investing In Saudi Arabia :

When we say macroeconomics, it implies studying an overall economy – how the markets, businesses, consumers, and governments behave. Macroeconomics seeks to measure how well an economy performs, understand what drives the economy, and project how performance can improve.

As one of the fast-paced developing economies in the world, investments in technology and businesses are one factor that makes Saudi Arabia remain relevant. By encouraging start-ups through early-stage investments, the kingdom is expanding its frontiers to be a developed economy.

However, the prevailing macroeconomic factors in the world can impact how much investments can be directed toward early-stage companies. Phenomenon like inflation, gross domestic product, unemployment, and foreign exchange rates have far-reaching effects on every economy.

Saudi Arabia and Early stage investing

Early-stage investing is a system that seeks to build a new business by investing funds to help develop the projects, typically when such a project is still in market research and development. Saudi Arabia has one of the Middle East’s largest early-stage investing schemes.

To show its dedication to supporting start-ups, the kingdom, through the Saudi Venture Capital Co., has invested in over 30 funds that have backed about 570 start-ups. This shows the priority Saudi Arabia places on early-stage investments to foster growth.

The impact of macroeconomics on early-stage investing in Saudi Arabia

Although Saudi Arabia seeks to contribute a significant quota to supporting the growth of new businesses, macroeconomics determines how early-stage investing is impacted. Some ways macroeconomics impacts early-stage investing in Saudi Arabia span the following ways.

1. Inflation:

Inflation is simply growth in the price of goods and services. During an inflation crisis, the purchasing power of individuals reduces. In Saudi Arabia, inflation rose to 3.1% in September. Inflation, if not contained and managed, can significantly impact purchasing power for early-stage investing.

2. Foreign exchange rates:

Saudi Arabia’s currency is pegged to the U.S. Dollar, and in line with the U.S. Federal Reserve, the country has also raised its rates. In addition, Saudi’s government has projected a significant rise in budgetary spending to keep growth on track. An increase in budget spending can encourage early-stage investors to invest.

3. Debt Financing:

Paying off debt is another macroeconomic factor impacting early-stage investing. Thankfully, Saudi Arabia has a sustainable debt strategy that allows its public debt to GDP to go from 32.5%, which it was in 2019, to 25.4% in 2024.

How macroeconomics impacts early-stage investing is not necessarily negative. For instance, foreign exchange rates impact early-stage investing by encouraging increased budget spending.

Bottom line

The kingdom of Saudi Arabia has come a long way from being an oil-producing country to being one of the hottest spots for innovative technologies. Although macroeconomic factors play a role in influencing how much is invested in early-stage businesses, the country can still rise above it.

With suitable structures in place, especially in policy and regulation, Saudi Arabia can maintain its standard of large-scale early-stage investing in the Middle East.

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