Mohammed bin Salman is seeking to reduce the Kingdom's dependence on oil by focusing on tourism, technology, green energy and retail. Photo: Bandar Al-Jaloud/AFP
Chiefs of the world's largest banks and wealthiest investment funds flew to Riyadh on Monday for a conference called Davos in the Desert, Saudi Arabia's annual future investment initiative.
Goldman Sachs CEO David Soloman. This year's meeting will feature BlackRock founder Larry Fink and JPMorgan Chase's Jamie Dimon.
The theme of the event is “The New Compass,” which is “designed to help investors rethink how their companies are moving forward.” and development.” world economy”. It also aims to showcase Saudi Arabia to investors.
The event, first held in 2017, is part of Crown Prince Mohammed bin Salman's efforts to open Saudi Arabia to outside investment as part of his $1 trillion (£820 billion) Vision 2030 project aimed at diversifying the Kingdom's economy away from oil.
Speaking to a conference room full of politicians and business leaders on Monday, British Deputy Prime Minister Oliver Dowden praised Saudi Arabia's ambitions, saying: “The pace of change in the Kingdom is dizzying.”
However, the backdrop means that this year's conference may well turn out to be little more than a debate.
“Davos in the Desert” is part Mohammad bin Salman's efforts to open Saudi Arabia to outside investment. Photo: Saudi Press Agency/Reuters
The war between Israel and Hamas has shaken confidence not only in the region, but also in the global economy as a whole.
< p>“There's no question that if these issues aren't addressed, it probably means more global terrorism, which means more instability, which means society will be scared… and… we're seeing a downturn in our economy,” BlackRock CEO Larry Fink participants in Riyadh were told.
The war has raised fears of growing conflict in the region, which could undermine security in the Middle East.
“There is great concern about the possibility of the conflict expanding to a second front if Hezbollah and other pro-Iranian groups challenge Israel in the north,” says Gerald Firestein, a former diplomat and director of Arabian Peninsula affairs at the Middle East Institute.
“This could have repercussions in the Gulf region, and it will certainly affect people's perceptions of security in Saudi Arabia.”
This threatens to undermine Mohammed's efforts. bin Salman, known as MBS, will bring a new era of peace to the Middle East and usher in a wave of investment in his kingdom.
The main goal of MBS's Vision 2030 plan is to reduce the Kingdom's dependence on oil by pivoting to tourism, technology, green energy and retail.
More than half of government revenue comes from hydrocarbons, a situation that is becoming increasingly unsustainable as major economies move toward net zero. Global demand for fossil fuels is expected to peak by the end of this decade, the International Energy Agency said this week.
In response, MBS plans to build glitzy new desert cities and coastal tourist destinations to attract tourism to the region. startups and vacationers. Saudi Arabia is spending lavishly on sports to raise the country's profile internationally.
Central to the plans are efforts to increase foreign investment. Since 2017, foreign investment has accounted for about 1% of Saudi Arabia's GDP, but MBS hopes to increase this to around 6%.
Davos in the desert allows the crown prince to showcase projects such as Neom, a $500 billion futuristic city in the desert. On Tuesday, the Kingdom launched the Neom Investment Fund, which plans to “develop joint ventures and partnerships with large multinationals, institutional investors and innovators.” Majid Mufti, the fund's chief executive, said the tool would help “reduce risks.”
So far, efforts to attract foreign investment into Saudi Arabia have been unsuccessful.
“Are they getting it?” the amount of foreign direct investment they need? No, that’s not true,” says Cyril Widdershoven, founder of Verocy, a risk consultancy in the Middle East and North Africa.
“They are behind even the UAE. The Emirates are home to 6 million people, while Saudi Arabia is home to 36 million.”
Foreign investment in Saudi Arabia was $1.7 billion between April and June, down a fifth from the same period in 2015.< /p>
“It was surprisingly low,” says James Swanston, a Middle East expert at Capital Economics. “They're really struggling to attract foreign investors.”
Swanston says: “[Saudi Arabia] has grand plans to do all this, but the funding needs are so huge that they haven't attracted foreign investors.” direct investment to implement these projects, which is why we are seeing an increase in capital expenditure by the government and public investment funds.”
Oil revenues still account for 57% of Saudi Arabia's public finances. The kingdom and its ally Russia cut production over the summer in an attempt to raise prices. The policy has been largely successful, with the Brent price rising from a low of $71 a barrel in June to just above $88 a barrel on Tuesday.
“You can connect the dots and say that [the Saudi government] covered the costs themselves when [foreign investors] didn’t want to,” Swanston says. “The question is, in a couple of years, if, for example, oil prices fall back to $60 or so, will they be able to afford to continue to finance all these projects?”
In 2003, the late King Abdullah announced plans to build six new cities to diversify the economy away from oil. Since the financial crisis, only one has been built – the King Abdullah Economic City north of Jeddah. Falling oil prices have cut costs on the project
“They said it would have a population of a million people and would compete with Dubai as a port,” Swanston says. “Today it is hardly used as a port, and about 7,000 people live there.”
“When such large expenditures are needed, does Saudi Arabia, even with its enormous wealth, have the ability to finance it in the next decade ?
Investment concerns aside, Israel's war against Hamas threatens to derail MBS's so-called 'mega-deal' Saudi Arabia has been drawing up plans to recognize Israeli statehood as part of a historic agreement aimed at ushering in a new era of peace in the Middle East. Negotiations continued for several months but are now believed to have been suspended.
In recent weeks, the Kingdom has condemned violence against civilians in Gaza and reaffirmed its support for the Palestinian cause.
JP Morgan CEO Jamie Dimon told attendees at the Future Investment Initiative conference on Tuesday: “Despite what happened in Israel, I encourage you all to continue these efforts. This is the only way for the people of the Middle East to achieve this with some Saudi leadership.”
Meanwhile, the conflict is also likely to deal a devastating blow to Saudi Arabia's hopes of attracting the international community. tourists. Vacationers will be much more cautious about visiting the Middle East.
MBS is not deterred. Plans to create desert megacities, of which Neom is one, continue.
“Although today's world seems uncertain, we continue to fulfill our mission to inspire,” Yasser al-Rumayyan, governor of Saudi Arabia's sovereign Public Service. The investment fund said at a conference this week. He promised to “prepare our societies for the future and create a more stable and sustainable world order.”
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