Running from the 22 January to the 25 January, the World Economic Forum (WEF) of Davos in Switzerland has surprisingly manifested a strong recovery in investors’ interest toward the Middle East, particularly Saudi Arabia.
Flanked by one of the largest business delegations sent from the Kingdom, Saudi officials attending Davos had dozens of meetings and drew a lot of attention from Western investors, who have been reluctant to involve themselves in the Kingdom since the murder of the journalist Jamal Khashoggi in early October 2018.
While the Future Investment Initiative of October 2018 and the Buenos Aires G20 meeting in late November 2018 were no successful platforms to attract European and North American investments, Davos has until now proved to be more fruitful in diluting hesitation on the part of such investors. In fact, the Swiss President Ueli Maurer said that his country “moved on” -from the Khashoggi case- and that it now wanted to build strong relations with Saudi Arabia, “a rich, oil-producing kingdom that is itself a major global investor”.
This way, the new consensus among business leaders is that, despite the horror surrounding Khashoggi’s murder and the need to bring those responsible to justice, business has to continue and even accelerate with Saudi Arabia. Mohammed El Kuwaiz, Chairman of the Saudi Capital Market Authority, said that the murder case had only pulled investors back “temporarily” and that investor confidence was increasing. For instance, 2018 saw a doubling of new foreign direct investment licences from 377 the previous year. Overall, the kingdom reached 2.3% economic growth in 2018 and managed to bring its budget deficit below 5% GDP for the first time in 4 years.
At a panel titled “Next Steps for Saudi Arabia” and chaired by Chatham House Director Robin Niblett, Western investors expressed their will to continue investing in Saudi Arabia as it would otherwise be unjust to hold a population hostage because of circumstances beyond their control. Patrick Pouyanne, Total’s Chairman, announced that his company would carry on with investments worth $5 billion in Saudi Arabia, particularly for refineries, petrochemicals and new ventures for petrol stations. Earlier this month, the Saudi Minister of Energy Khalid Al Falih announced 12 tenders for renewable energy projects in the Kingdom at the Abu Dhabi Sustainability Week. Similarly, the Finance Minister, Mohammed Al Jabaan announced that 5 new public-private-partnerships were planned in Saudi Arabia for the next 5 months.
Saudi officials on board at Davos reiterated their government’s intention to continue the all-encompassing reforms of Vision 2030. Mohammed Al Tuwaijri, the Minister of Economy and Planning, said that the Saudi government will have to consistently implement policy, build confidence by providing evidence of the country’s progress and finding creative solutions to common challenges. This institutional resilience is appreciated by Western investors. Morgan Stanley’s CEO, James Gorman said that international investors admired “the scope of vision and common sense of becoming a modern society” that is entailed in Vision 2030. The Australian CEO of the American bank based in the region for the last 40 years also called the reforms surrounding Vision 2030 “extraordinary”.
On another panel titled “Strategic Outlook on the Middle East”, Arab government officials and private sector executives echoed this positive outlook on Saudi Arabia. Following on Al Tuwaijri’s claims that the Saudi and Emirati states were trying to “establish a reference for others to follow”, the CEO of Majid Al Futtaim (a major Emirati retail, property and entertainment holding) Alain Bejani said that Vision 2021 of the UAE and Vision 2030 of Saudi Arabia brought a breath of fresh air for the private sector and that reforms in those countries were “moving at quite a rapid pace”.
According to the Edelman Trust Barometer, Saudi Arabia has the highest level of trust between the government and its people at 84% of popular satisfaction. This, certainly as a result of the recent streamlining of government services and the increasing use of E-Governance in the Kingdom. The country is also set to see major financial developments in the coming years as Saudi Arabia will soon be included on the FTSE Russell index, J.P.Morgan Emerging Market government bond index and MSCI Emerging Markets index.
A presence on those indices is poised to “change the -capital- market dynamic, increase the depth -of this market- and increase institutionalisation” in Saudi Arabia according to El Kuwaiz. Indeed, inclusion in these major global benchmarks is expected to bring tens of billions of dollars into the Kingdom’s debt and equity markets. Already this year, Saudi Arabia has successfully issued $7.5 billion of bonds, a bid that was largely oversubscribed by lenders. With the future sale of SABIC shares worth $70 billion to ARAMCO from the Public Investment Fund, Saudi Arabia is highly likely to be a hot place for capital market investors in the few next years.
On a more regional level, panelists recounted the various economic challenges faced by countries in the Middle East and North Africa. Youssef Chahed, Tunisia’s Prime Minister, said that the region must do more to bolster economic integration and better use complementary economic activities to drive economic growth forward. Hamad Al Khalifa, the CEO of Bahrain’s Economic Development Board said that countries in the region should be careful with soft infrastructure reforms, and make sure that they harmonise legal regimes instead of competing on those grounds. In fact, greater human and goods mobility was highly encouraged by the panelists.
A major challenge highlighted by speakers was education and the youth bulge in the MENA region. The latter is made of more than 200 million people below the age of 30, who have strong aspirations for the future but lack the entrepreneurial skills and environments that are key for their success. Rami Hamdallah, the Palestinian Authority’s Prime Minister specifically encouraged vocational training in the region whilst Alain Bejani warned countries exporting human capital such as Lebanon or Tunisia, that the next 5 years are going to be met with a wake up call as regional importers of talent such as GCC countries are currently looking to localise their workforces. Indeed, exporters of talent are likely to increasingly experience lower remittances and higher job pressures from their young populations. This is why investment and reforms in the educational sector is key to their future. As is traditional in WEF panels, the role of the private sector as the key driver of growth was highlighted and the easing of mindsets and regulations towards entrepreneurship encouraged.
Although Davos might have been a positive platform for Middle Eastern countries in search of foreign investments, the overall outlook of the WEF 2019 was more bleak, with several heads of state such as Donald Trump, Theresa May and Emmanuel Macron missing as a result of domestic turmoil. Those present sought to defend free trade and the establishment of a global architecture for the age of the Fourth Industrial Revolution, something called “Globalisation 4.0”.
CNBC, 23 January 2019, “Saudi Arabia’s inclusion in major global benchmarks ‘is going to change the market,’ regulator says”
Reuters, 24 January 2019, Dmitry Zhdannikov, Simon Robinson, Dominic Evans, “Saudis to Davos: Move on from Khashoggi, let’s do business”
The National Business, 24 January 2019, “World Economic Forum: Saudi Arabia to announce five more public-private projects in next four months, Finance Minister says”
World Economic Forum, 23 January 2019, “Strategic Outlook on the Middle East”
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