You are here

Saudi crown prince faces battle royal in wooing US investors to the kingdom

Prince Mohammed is striving to attract foreign investment and know-how to Saudi Arabia.


SAUDI Crown Prince Mohammed bin Salman arrives in the United States next week to kick off a tour of the pillars of the US economy - including meetings with Silicon Valley technology leaders, Los Angeles entertainment executives, oil industry figures in Houston and captains of finance in New York.

Prince Mohammed, who will see US President Donald Trump on Tuesday, is striving to woo foreign investment and know-how to Saudi Arabia to create jobs there and diversify an economy that relies almost entirely on exports of oil. Those initiatives are key parts of his reformist Vision 2030.

Yet, selling American investors on Saudi Arabia is a tough business. During a visit to the Saudi capital, Riyadh, last May, Mr Trump touted what he described as nearly US$200 billion of commercial and military agreements with the kingdom. They included sales of equipment and investment going in both directions. Yet, nine months later, only a tiny number of the vaunted deals have come to fruition.

Market voices on:

Investors may be even more skittish because of a recent crackdown on Saudi Arabia's business elite orchestrated by the crown prince. Though Prince Mohammed has portrayed the crackdown as an attack on corruption, Western investors are concerned about whether it demonstrates weakness in the rule of law. The Saudi government extracted billions of dollars and in some cases entire enterprises in exchange for the business executives' release from detention in Riyadh's Ritz Carlton hotel.

"The crown prince needs to do some reassuring of the international business and financial communities in the wake of the Ritz Carlton detentions of last year," said Gregory Gause, a professor of international affairs at Texas A&M University. "He needs international investment to achieve his Vision 2030 goals, and the opaque way he dealt with the businesspeople and others he detained raised questions about security of investment in the kingdom."

Other people familiar with Saudi Arabia expect that episode to fade away. "Countries go through defaults, and within six months, if things have gone back to the mean, foreign investors start to trickle back in," said Ali Shihabi, founder of the Arabia Foundation, a think-tank. "Sure it's a shocking event. It will give people pause. But after that pause they will start coming in."

Maybe. Even before the crackdown, the World Bank ranked Saudi Arabia 92nd in the world for the ease of doing business. Permits and paperwork are burdensome. Personal ties help. Cross-border trade is practically impossible. And the kingdom lacks a clear bankruptcy law, making it hard to recover money if a weak local partner goes out of business.

Seeking advice and influence in the United States, the kingdom over the years has signed up a raft of lobbyists, lawyers and consulting firms, including Akin Gump, the Podesta Group, BGR Group, the Hohlt Group, Squire Patton Boggs, Qorvis, Hogan Lovells and King & Spalding. But many of those lobbyists privately express frustration at the challenges of working with Saudi officials.

Restrictions on films could dampen Hollywood's appetite for engagement. Hotel chains might be intimidated by the difficulty of doing business in the kingdom.

Mr Trump's list of US-Saudi transactions included US$110 billion of commercial deals and US$80 billion of military sales, according to a spreadsheet that a White House official provided to The Washington Post at the time. But some of those were not solid deals to begin with; the list included memorandums of understanding and letters of intent. Some were first floated during the Obama administration.

"There seems to have been very little progress on implementing specific deals," Prof Gause said. "There was a formal announcement to Congress of a US$500 million deal earlier this year, but that is a small percentage of the amount announced during the visit."

The biggest deal was US$28 billion for integrated air and missile defence, combat ship, tactical aircraft and rotary wing technologies and programmes from Lockheed Martin. So far, nothing has been delivered, and the agreements "are currently working their way through the approval processes in both governments", said Maureen Schumann, a spokeswoman at Lockheed Martin.

At the time of Mr Trump's visit to the kingdom, General Electric also announced US$15 billion in "new agreements" with Saudi Arabia. The projects spanned the kingdom's power, health care, energy and mining sectors, as well as skills training and digital analytics running on Predix, GE's software platform for the "industrial Internet". The package also was to include a partnership with Saudi Aramco, the national oil and gas company, to generate US$4 billion in efficiency savings by digitising its operations.

But few of GE's agreements have gelled. One exception: In June 2017, the company signed a joint venture agreement worth US$270 million with the Saudi firm Dussur to move some turbine repair operations to the kingdom.

When asked about the status of the other accords, a GE representative said that the company "has been engaged in constructive dialogue with the relevant Saudi government entities."

Companies focusing on the energy industry have been waiting for the construction of a King Salman "energy park". Schlumberger, one of the world's leading oil-field services companies, said that it would become a "key anchor tenant" in the development. The company said that it would manufacture products for land drilling rigs. It said the first phase of the project was planned to be completed by the end of the month.

But the biggest items on the Trump administration's list of "deals" were, in fact, investment funds looking at projects in the United States and other parts of the world. The funds had been in the works since before Mr Trump took office. WP