Saudi Arabia Is Open for Business, but Not Everybody’s Buying (JMD quoted in NYT)
RIYADH, Saudi Arabia — On a recent
trip to Saudi Arabia, Richard Branson, the British entrepreneur who created the
Virgin Group, was so inspired by the blue waters along the Red Sea coast that
he stripped down to his swimsuit before his helicopter even landed.
Since then, he has become one of
the Saudi government’s biggest international business allies as it seeks to
start three new megaprojects aimed at diversifying its oil-dependent economy.
The projects are staggering in
their ambition, if short on details. One is a business hub run on sustainable
energy and staffed by robots. Another is an entertainment city near the
capital, Riyadh. Mr. Branson is considering building inside one of those and is
consulting on the third, an eco-tourism complex on islands in the Red Sea.
Saudi Arabia is an absolute
monarchy historically known for its oil and its hyperconservative
version of Islam,
which requires women to wear full-length robes in public and gives them fewer
legal rights than men. That the kingdom is betting its future on solar power,
high tech and entertainment — realms in which it has virtually no background —
is a sign of how determined the leadership is to modernize.
But serious questions remain about
its ability to execute such complex plans, which rely heavily on international
interest and money. Investors could balk at putting substantial capital into an
often opaque system at a time of such major economic and social change,
including granting women the right to drive.
“My reading is that major
investors are teased by what is happening in Saudi but are not yet convinced
that they want to put their money where their mouth is,” said James M. Dorsey,
senior fellow at the S. Rajaratnam School of International Studies in
Singapore. “There is a lot of potential here. How realistic that potential is
remains to be seen.”
The three megaprojects are the
brainchildren of the 32-year-old crown prince, Mohammed bin
Salman, who has proposed
sweeping reforms aimed at diversifying the economy away from oil and opening up
Saudi society.
This week, he welcomed more than
3,500 international investors, bankers and corporate chieftains at a luxurious
conference in Riyadh to entice them to invest in the kingdom. In recent years, the kingdom’s
Public Investment Fund, the government investing arm that hosted the
conference, has put tens of billions into ventures with SoftBank, Blackstone
and a Russian government fund, as well as Uber.
While some of those beneficiaries
are now giving back, others have yet to make concrete investment commitments to
the kingdom. And some could merely be seeking to sell goods and services to
Saudi Arabia, making profits regardless of how the projects ultimately turn
out.
Photo
Potential investors viewing some
of the proposals that are part of Saudi Arabia’s ambitious effort to remake its
economy. Credit Tasneem Alsultan for The New York Times
“This is a place for dreamers that want to create
something new in the world,” Prince Mohammed said on Tuesday while unveiling
the proposed business and technology hub, NEOM. “We’ll have a lot of partners inside of this room
and outside of this room working with us to embody this idea.”
Among the project’s goals is
encouraging Saudis to spend more money at home, keeping it in the local economy
and creating jobs. But the developments will require large government spending
and extensive construction, neither of which will quickly increase the state’s
non-oil revenue nor create jobs that young Saudis are likely to take.
“If they had the luxury of waiting
for 15 or 20 years until this project generated Saudi jobs, then fine,” said
Steffen Hertog, an associate professor at the London School of Economics and
the author of a book on
the Saudi bureaucracy. But NEOM, he said, “is a speculative project, and
by itself it is not going to help with the problems they are going to have in
the next five to 10 years.”
Saudi Arabia’s record on
megaprojects has been mixed. It has succeeded in creating special zones that fostered
heavy industry. But other plans, like a network of “economic cities” and a
financial district in Riyadh, have fallen far short of their objectives.
Some say the difference this time
is that Prince Mohammed, who has centralized
state power under him, will push projects forward.
An investment conference in Saudi
Arabia this week was held to announce that the kingdom is open for business. Credit Tasneem Alsultan for The New York
Times
“What you’re experiencing is
something that I believe is not the regular way,” said Stephen Schwarzman, a
longtime visitor to Saudi Arabia and the chief executive of the private-equity
firm Blackstone. “It’s a byproduct of substantial change in the direction of
the country.”
This week his firm completed a $20
billion Saudi government investment in its planned United States infrastructure
fund. He declined to comment on whether Blackstone would invest in the
megaprojects.
Prince Mohammed’s unveiling of
NEOM, the high-tech business hub, was the conference’s headline event. To be
built on a barren parcel of land along the Gulf of Aqaba, it is depicted as an
eventual haven for sophisticated white collar jobs in biotech, alternative
energy and digital services. To help draw labor and capital, it will be
exempted from Saudi regulations and very likely offer visa-free travel and
other incentives.
Over time, its service economy
will be staffed by robots, according to promotional materials. To signal the
new direction, a robot named Sophia was given
Saudi citizenship on
Wednesday.
The project will be overseen by
Klaus Kleinfeld, a German-born executive who ran the industrial conglomerate
Siemens and the aluminum company Alcoa.
Guests arriving at the convention
center on the grounds of the Ritz Carlton in Riyadh to attend an investment
conference. Credit Tasneem Alsultan for The New York Times
In 2012, under his direction,
Alcoa opened a smelter on Saudi’s eastern coast that was hailed as a model of
low-cost manufacturing. Four years later, Alcoa’s mining and smelting business
was spun off, leaving Mr. Kleinfeld in charge of its parts business, Arconic.
Mr. Kleinfeld was ousted from that
job this year after making veiled threats to an activist investor who was
pressing for changes to the company. After that, he slipped largely out of
public sight before resurfacing at the Riyadh conference.
Even in its inception, NEOM has
involved a number of two-way investments. SoftBank, the Japanese tech giant, recently
opened an investment
vehicle, the SoftBank Vision Fund, with a
$45 billion contribution from Saudi Arabia. The fund is
considering buying a stake in the Saudi Electricity Company, and this past
week announced plans to help the utility develop solar energy next year.
Mr. Branson’s space
companies will receive at least $1 billion from Saudi Arabia. He, in turn, is contemplating
building “one or two” hotels in the new cities, he said during an interview in
Riyadh.
And Kirill Dimitriev, the chief
executive of the Russian Direct Investment Fund, said Thursday that the fund
would put “billions” into bringing sophisticated Russian companies into NEOM.
His country received a $10 billion investment as well as its first monarchical
visit from the kingdom, when King Salman,
Prince Mohammed’s father, went to Moscow this month.
Photo
A proposed new business and
economic hub in Saudi Arabia would run on sustainable energy and be staffed by
robots. Credit Tasneem Alsultan for The New York Times
“We are very impressed and amazed
by the energy that we see in Saudi Arabia by him getting all of the right
partners, and we know that many top technology companies are here, willing to
invest in this project,” Mr. Dimitriev said.
If NEOM is imagined as Silicon Valley in the Middle
East, Qiddiya, the entertainment city, could be its Walt Disney World. A
conference exhibition showcasing Qiddiya featured a lion hologram as well as
simulated racecar drives and roller coaster rides. Mr. Branson’s Virgin has created
renderings of a possible space-tourism site, for which his Galactic
space-travel unit would be a potential consultant. Six Flags
said last year that it was
contemplating construction of a theme park near Riyadh; its current thinking is
unclear.
“Right now there’s a great deal of money that
leaves the country and goes to different areas,” said Ariel Emanuel, a founder
of the talent agency the Endeavor Company, based in Beverly Hills, Calif.,
which handles sports, television, fashion and other entertainment businesses.
Six months ago, he met with Prince Mohammed in Jidda to discuss the kingdom’s
vision for the new city.
“I think we could play a pretty important role kind
of in bringing entertainment in many different forms,” said Mr. Emanuel. Hs
company is also angling for an investment from the Saudi government fund.
“We’re having conversations,” he said.
Mr. Branson’s quick dip happened near the site of
the third project, The Red Sea, a location for luxury hotels and ecotourism.
Mr. Branson, who owns and lives on Necker Island in the Caribbean, said he was
astonished by the animal life during his visit to the Saudi islands, including
manta rays and sea turtles laying eggs. He is on the project’s board and is
contemplating investing there.
“One of the advantages I suppose you could say of
Saudi being sort of not open — not open at all, really, since 1979 — has been
that these pristine places have been preserved,” he said. “I want to help give
my advice as to how to develop it so that in 50 years’ time, people can go and
see it as virgin and beautiful.”
A
version of this article appears in print on October 28, 2017, on Page B1 of the
New York edition with the headline: As Saudis Open Up, Investors Tiptoe In. Order Reprints| Today's
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