Economy

Saudi forum to attract U.S. business leaders despite tensions

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© Stocksak. FILEPHOTO: A general view of Saudi Aramco’s Ras Tanura Oil Refinery and Oil Terminal in Saudi Arabia May 21, 2018, 2018. REUTERS/Ahmed Jadallah//File Photograph

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By Rachna Uppal & Yousef Saba

DUBAI (Stocksak) – A public spat between the United States and Saudi Arabia will not deter top Wall Street executives and U.S. business leaders from a flagship investment event starting on Tuesday where the kingdom will seek deals to reduce its economy’s reliance on oil.

President Joe Biden has vowed “consequences” for U.S.-Saudi ties in the wake of an OPEC+ decision to reduce oil output targets this month, which Riyadh defended by serving market stability.

This dispute was the latest to cast doubt over the annual Future Investment Initiative. It was affected by a Western boycott over the 2018 killing of Jamal Khashoggi, a Saudi journalist, and by the pandemic in 2019. It is far from the 2017 inaugural event that Riyadh billed “Davos in the Desert”.

After the chaos over Khashoggi’s murder by Saudi agents, FII was able to recover in 2019. It attracted big names from the financial, defense and energy industries with strategic interests in the top oil exporter in the world, but received relatively low foreign inflows.

Richard Attias (CEO of the FII Institute), said that more than 400 U.S. delegates were expected to attend this week’s conference. He also stated that this was the largest representation of a foreign nation.

This year’s edition will be held Oct. 25-27. JPMorgan (NYSE.) boss Jamie Dimon, Pimco Vice Chair John Studzinski, and a BNY Mellon executive (NYSE.) are the speakers. Stocksak was told by spokespeople from the companies that they plan to attend.

The agenda includes top executives from Goldman Sachs, Blackstone (NYSE;), Bridgewater Associates and Boeing (NYSE.:) Goldman Sachs declined to comment, while the rest of the participants did not respond.

According to Refinitiv data, JPMorgan (Goldman Sachs) and $42 million each in Saudi Arabian investment bank fees in Saudi Arabia in 2017 were nearly $77 and $42 million, respectively. JPMorgan remains at the top with more than $39 million in league fees so far.

Adel Hamaizia is the managing director of Highbridge Advisory, and a visiting fellow from Harvard University.

Hamaizia stated that the U.S. companies would be an important partner in Saudi’s investment and growth plans. This will include traditional sectors as well as ‘newer’ areas such as tourism, entertainment, technology, and a new local defense industry.

The FII showcases Crown Prince Mohammed bin Salman’s Vision 2030 plan to get rid of oil and create new industries that will also provide jobs for millions in Saudi Arabia and attract foreign capital.

FDI FLAT

Although foreign direct investment is still behind its targets, there has been some movement in new sectors as the Kingdom opens up. Fedex announced a $400m 10-year investment plan for the country, which is the largest economy in the Arab world, after Boeing won a $80 million defense contract.

At 15.3 Billion Rial ($4.07 Billion), the inward foreign direct investment for the first half was just a fifth the $19.3B secured in 2021. This included a $12.4B investment for Aramco (TADAWUL)’s pipeline infrastructure.

It is far below the 2030 target of $100 Billion per year under a national strategy that aims for foreign direct investments equal to almost 6% of GDP by 2030.

Uncertainty still lingers over the regulatory and tax environment, as well as high operating costs and a lack of skilled local workforce. This is despite Riyadh giving companies an ultimatum to locate regional headquarters within the kingdom by 2024. Or they will lose lucrative government contracts.

Justin Alexander, director of Khalij Economics as well as a Gulf analyst at GlobalSource Partners, said that FDI flows “have remained stubbornly flattened and low, below 1 % of GDP and some of the notable name who have invested have only had modest successes, even with government backing.”

This has led to the Saudi government and Public Investment Fund trying to fulfill the crown prince’s diversification promises. They have been assisted by a petrodollar windfall.

The government is facing increasing pressure to pursue Vision 2030 due to a worsening global economic outlook, oil market volatility, and a $500 billion project to create a high-tech economic zone along the Red Sea called NEOM. This area will eventually house nine million people.

“The government cannot afford not to drive economic growth indefinitely, but for the moment there is no real option as domestic businesses are unable to play that role and FDI continues its decline,” said Neil Quilliam (associate fellow at Chatham House).

($1 = 3.7575 riyals)

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Stocksak Editorial

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