Investing in Saudi Arabia’s NIDLP


With the widespread outrage following the Khashoggi case, the imprisonment of human rights activists in Saudi Arabia, and the raging Yemeni crisis each having contributed to the defamation of Saudi Crown Prince Mohammed bin Salman’s (MbS) image in Washington and other Western capitals, the young leader remains committed to Vision 2030, using it as a catalyst to continue branding himself as the Kingdom’s reformer. This grand reform agenda, which aims to diversify Saudi Arabia’s economy away from oil in line with largely neo-liberal prescriptions for prosperity, will require massive amounts of foreign investment. Yet as Saudi Arabia’s reputation in the West continues to suffer against the backdrop of countless issues that have resulted in strong criticism of MbS coming from North American and European statesmen and diplomats, it is important to question whether international backlash will impede Saudi leadership from attracting the foreign investment required to implement Vision 2030.

Looking to investors from all corners of the globe, as well as  from within the Kingdom itself,  Saudi officials are hopeful that the recently-inaugurated National Industrial Development and Logistics Program (NIDLP) will attract roughly USD 450 billion worth of investment to boost four domains of the Kingdom’s non-oil economy: energy, industry, mining, and logistics.[1] The key objective is to transform Saudi Arabia into a major industrial powerhouse and hub for regional and global trade while also creating 1.6 million jobs for Saudis in the Kingdom by 2030. This investment is to come from foreign and domestic firms and individuals.[2]

Urging foreign investors to support the NIDLP, Saudi Energy Minister Khalid al-Falih asserted that the program will increase the value of his country’s non-oil exports to over USD 260 billion. He declared, “We have a deep conviction that those who bet on Saudi Arabia will not lose.”

The NIDLP, seen as the “kick-start” for Vision 2030, will require the building and upgrading of airports, logistics and air cargo systems, as well as the creation of a rail link and maritime facilities.[3] As such, the Ministry of Transport, which oversees the country’s logistics sector, will have major responsibilities when it comes to the NIDLP. The Transport Minister Nabil bin Mohammed Al-Amoudi is focused on digitizing Saudi Arabia’s ports and logistics hubs to increase their efficiency. In his words, “Use your existing infrastructure as efficiently as you can through technology and a better implementation process.”

Saudi Arabia’s Deputy Minister of Energy, Industry, and Mineral Resources Aabed Abdullah Al-Saadoun recently announced that the government in Riyadh plans to spend USD 27 billion over the next two years on the new program.[4] The Kingdom’s 2019 budget allocates USD 8.7 billion over the four sectors that the NIDLP targets, which is more than a 300 percent increase from last year’s budget, demonstrating Riyadh’s determination to move forward in an ambitious manner.

To the Saudi leadership’s credit, Riyadh has effectively set forth a vision for successfully weening the Kingdom’s economy off oil and creating jobs for young Saudis outside of hydrocarbon sectors. Yet among the many challenges that Saudi Arabia must face when it comes to implementing this reform, or transformation, is the issue of unease among foreign investors in the West.

Unquestionably, 2018 was a difficult year for Riyadh’s relationship not only with Washington but also capitals across Europe. The Jamal Khashoggi case, the Saudi-Canadian diplomatic spat, global attention on the plight of imprisoned human rights activists in the Kingdom, all against the backdrop of lingering unease following the Prime Minister Saad Hariri saga and Ritz Carlton arrests of 2017 each serve to make some North American and European investors reassess their cost-benefit analyses of supporting Vision 2030.

Perceptions of MbS being excessively brash, emotional, and impulsive in his decision-making unsettle some foreign investors who have concerns about a lack of rule-of-law in Saudi Arabia. A dearth of transparency for now in the Kingdom is another turn off to investors who are growing increasingly uneasy about the direction in which Saudi Arabia heading with a Crown Prince who has consolidated much power in hands at the expense of the Al Saud rulers’ tradition of consensus-building among a group of royals. At the same time, public outcry over the Khashoggi killing and the ongoing crisis in Yemen, which has left millions displaced and on the brink of starvation, adds new moral costs and reputational risks for certain investors who are sensitive to backlash from civil society organizations and human rights organizations in the West which are placing greater scrutiny on firms with links to the Kingdom.[5] The decision of leaders from some Western companies to skip the Future Investment Initiative (FII), often referred to as “Davos in the Desert”, last year exemplified how these new dynamics impacting MbS’ image in the West have potential to severely damage Saudi Arabia’s prospects for luring sufficient foreign investment.

That said, there were major Western firms that did participate in FII, including Halliburton, Total, and others which signed agreements with Saudi Aramco worth USD 34 billion. Trafigura, an Amsterdam-based commodity trader secured a deal for developing metals at a new Saudi complex.[6] Therefore, while the Khashoggi saga prompted some prominent Western companies to boycott FII, that was clearly not the case for all American and European firms. For numerous major corporations in the States which have deep-rooted ties in the Kingdom that date back decades, their relations with Saudi Arabia involve extremely large sums of money and somewhat institutionalized partnerships that may well prove capable of absorbing political shocks such as growing outrage in the US Congress over Yemen’s humanitarian disasters and the Khashoggi case.[7]

If Vision 2030 fails to attract enough investment from Western companies and individuals, the Saudis will undoubtedly further turn their focus to the East, looking more to China and other Asian countries that have achieved astonishing economic growth throughout the 21st century to invest in the NIDLP and other pillars of the Kingdom’s ambitious transformation program.

However, officials in Riyadh must be careful not to falsely conclude that the Kingdom does not need foreign investment from the West based on Asian countries’ interest in Vision 2030. Questions about the sustainability of Chinese investment should leave Saudi Arabia’s leadership concerned about implications of potential escalation against MbS and others in the Riyadh regime on the part of the Democratic-controlled House of Representatives. Such measures against Saudi Arabia would follow last year’s Magnitsky sanctions that may further threaten Vision 2030’s ability to attract more investment from American entities given the new political climate in Washington where MbS has lost much of the goodwill that he previously invested in heavily during his tours of DC, Wall Street, and Silicon Valley.

As the Kingdom’s leadership moves forward with Vision 2030, Saudi Arabia must continue diversifying its economic partnerships across the globe to increase the number of global economies with higher stakes in the reform agenda’s ultimate success. From the Saudi point of view, Riyadh is succeeding in efforts to carve out and capitalize on new opportunities presented by the NIDLP to advance Saudi Arabia’s plans to become a global investment powerhouse located between strategically-prized waterways that serves as an epicenter of international trade linking Africa, Asia, and Europe.

Nonetheless, Saudi officials would be wise to take seriously concerns that some major Western investors have about the Kingdom’s current transformation in order to ensure that the US and Europe help Riyadh achieve its long-term strategic goals by investing large sums of money into Saudi Arabia during the upcoming years.

 

Giorgio Cafiero (@GiorgioCafiero) is the CEO of Gulf State Analytics (@GulfStateAnalyt), a Washington, DC-based geopolitical risk consultancy.

 

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.

References:

[1] Frank Kane, Hala Tashkandi. “Saudi industrial plan aims to drive $450bn in investments”. Arab News. January 28, 2019

[2] Marwa Rashad, Stephen Kalin. “Saudi signs $54.4 bln of deals, offers manufacturing incentives”. Reuters. January 29, 2019

[3] Frank Kane “Saudi transport minister: Development plan is ‘enabler to kick-start industries’”. Arab News. January 29, 2019

[4] “Saudi government to spend 100 billion riyals on industry plan”. Euro News. January 28, 2019

[5] “Candidate Briefing: What an Elizabeth Warren 2020 Run Could Mean for the Gulf”. Gulf International Forum. December 31, 2018

[6] “Saudi summit begins amid boycott”. BBC. October 23, 2018

[7] “The Jamal Khashoggi Affair Part 2: Congress Responding to President Trump”. Gulf International Forum. November 21, 2018


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