King Abdullah Financial District in Riyadh. Faisal Al Nasser/Reuters
King Abdullah Financial District in Riyadh. Faisal Al Nasser/Reuters

Economics 101: Does Saudi Arabia’s anti-corruption drive scare foreign investors?



Many commentators have claimed that Saudi Arabia’s anti-corruption drive, launched dramatically in early November, has had the unintended consequence of scaring away foreign investors just when the kingdom needs them.

Do those thinking of purchasing assets in Saudi Arabia have grounds for fearing arbitrary expropriation?

The short answer is “no”, and the view circulating from these commentators is a combination of strategic misinformation and ignorance. Let us explore why.

First of all, by way of background, all the Arabian Gulf countries, including Saudi Arabia, have an excellent track record when it comes to respecting property rights, especially of foreigners. This is to be contrasted with the performance of many Middle East republics, as well as lots of other emerging economies, where governments have succumbed to the temptation of seizing domestic, foreign-owned assets.

For example, as recently as 2012, Spain accused Argentina of expropriating its oil company, YPF, while the Gulf oil companies were all nationalised in a manner acceptable to the original owners. The is why countries like Bahrain and the UAE have been able to attract large amounts of foreign capital over the past 20 years.

However, it is fair to say that the actions of the Saudi government in early November were shocking and represented a seismic change in the way the country is run, necessitating a close examination by investors. When you search for what conclusions these investors have arrived at, ask yourself two questions.

First, does the person expressing the opinion have an incentive to deliver accurate information?

Second, does the person expressing the opinion have the knowledge required to deliver accurate information?

Let us start with the easiest corner in this matrix: people who know what they are talking about and have an incentive to tell the truth. The most salient occupant of this quadrant are international credit rating agencies - who dedicate their efforts to this task and whose livelihood depends upon it. None of the three major ones (Moody’s, S&P, Fitch) have changed Saudi Arabia’s rating. In fact, S&P issued an update in late November where they affirmed the A/A2 rating, with a stable outlook, and the focus of the report was fiscal consolidation. They even remarked that the reforms “could empower Saudi citizens and make Saudi Arabia more attractive to investors over the medium term”.

What about people who deliberately try to mislead the general public? In the case of Saudi investment, there are two types who fall into this category.

___________

Read more:

Economics 101: Contribution of Muslim economists needs greater acknowledgement

Economics 101: research studies are not easily swayed by conflict of interests

___________

First, actual investors. If you have discovered a good investment - especially one where the opportunity to invest will soon be available but isn’t yet officially open - then is it a good idea to tell everyone about this great investment? Actually, you want to do the precise opposite, to drive prices down. Once you have made your investment, you are happy for others to join on, but Aramco, Neom, and other projects are not yet open for business. So if a journalist contacts one of these experts, it’s absolutely in their incentive to talk negatively.

Naturally, there are experts who are prepared to professionally convey what credit agencies report, but they have little incentive to harry media outlets into interviewing them, and their basic “business as usual” view is unattractive to readers and viewers - and therefore to media editors.

Second, people who dislike Saudi Arabia. Geo-politically, the kingdom has as many friends as foes, so we can assume that they about cancel each other out. But normal journalists - who tend to lean left politically - dislike Saudi Arabia for three reasons: it’s a monarchy; clerics have historically had a strong role in government and society; and many (mistakenly) liken the kingdom’s oil wealth to an aristocrat’s “unearned” inheritance. It’s basically a dystopia for 18th century French politician Maximilien Robbespiere. Thus, such journalists’ default propensity is to write negatively about Saudi Arabia, and it’s not hard to see hyperbolic examples in the media on a daily basis. This is exacerbated by the general currents of Islamophobia and racism among readers and viewers that adversely affect the coverage of any Middle East country.

That leaves uninformed but well-intentioned reporters. They take their lead from the aforementioned experts or from their colleagues who express conviction, both of which tends to push them in the direction of negative coverage, too.

We shouldn’t be too dismissive of scepticism about investment in Saudi Arabia, however, as the global financial crisis of 2007 shows that credit rating agencies are capable of spectacular errors.

But you should remind yourself that successful investors do not get their ideas watching experts ruminate on satellite news channels: by the time they have reached the morning news, “hot tips” are typically useless. The stakes in investment are so high, and financial assets can be transferred so quickly, that mainstream media is a uniquely terrible source of information about the investment-worthiness of a particular stock, bond, or country.

Basic conflicts of interest mean that asking Warren Buffet to comment on the Aramco IPO will always be more precarious than asking Pele to comment on the future star of the Brazilian football team.

Omar Al-Ubaydli (@omareconomics) is a researcher at Derasat, Bahrain.

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Indoor Cricket World Cup Dubai 2017

Venue Insportz, Dubai; Admission Free

Day 1 fixtures (Saturday)

Men 1.45pm, Malaysia v Australia (Court 1); Singapore v India (Court 2); UAE v New Zealand (Court 3); South Africa v Sri Lanka (Court 4)

Women Noon, New Zealand v South Africa (Court 3); England v UAE (Court 4); 5.15pm, Australia v UAE (Court 3); England v New Zealand (Court 4)

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Name: Qyubic
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Founder: Namrata Raina
Based: Dubai
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Investment stage: Pre-seed
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Name: HyperSpace
 
Started: 2020
 
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
 
Based: Dubai, UAE
 
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if you go

The flights
Emirates flies to Delhi with fares starting from around Dh760 return, while Etihad fares cost about Dh783 return. From Delhi, there are connecting flights to Lucknow. 
Where to stay
It is advisable to stay in Lucknow and make a day trip to Kannauj. A stay at the Lebua Lucknow hotel, a traditional Lucknowi mansion, is recommended. Prices start from Dh300 per night (excluding taxes). 

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Profile

Company: Justmop.com

Date started: December 2015

Founders: Kerem Kuyucu and Cagatay Ozcan

Sector: Technology and home services

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Size: 55 employees and 100,000 cleaning requests a month

Funding:  The company’s investors include Collective Spark, Faith Capital Holding, Oak Capital, VentureFriends, and 500 Startups. 

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Date started: Okadoc, 2018

Founder/CEO: Fodhil Benturquia

Based: Dubai, UAE

Sector: Healthcare

Size: (employees/revenue) 40 staff; undisclosed revenues recording “double-digit” monthly growth

Funding stage: Series B fundraising round to conclude in February

Investors: Undisclosed

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Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
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Name: ARDH Collective
Based: Dubai
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Sector: Sustainability
Total funding: Self funded
Number of employees: 4
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Cricket World Cup League 2

UAE squad

Rahul Chopra (captain), Aayan Afzal Khan, Ali Naseer, Aryansh Sharma, Basil Hameed, Dhruv Parashar, Junaid Siddique, Muhammad Farooq, Muhammad Jawadullah, Muhammad Waseem, Omid Rahman, Rahul Bhatia, Tanish Suri, Vishnu Sukumaran, Vriitya Aravind

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Friday, November 1 – Oman v UAE
Sunday, November 3 – UAE v Netherlands
Thursday, November 7 – UAE v Oman
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Scores

Bournemouth 0-4 Liverpool
Arsenal 1-0 Huddersfield Town
Burnley 1-0 Brighton
Manchester United 4-1 Fulham
West Ham 3-2 Crystal Palace

Saturday fixtures:
Chelsea v Manchester City, 9.30pm (UAE)
Leicester City v Tottenham Hotspur, 11.45pm (UAE)

In numbers

Number of Chinese tourists coming to UAE in 2017 was... 1.3m

Alibaba’s new ‘Tech Town’  in Dubai is worth... $600m

China’s investment in the MIddle East in 2016 was... $29.5bn

The world’s most valuable start-up in 2018, TikTok, is valued at... $75bn

Boost to the UAE economy of 5G connectivity will be... $269bn 

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Director: Shawn Levy

Rating: 3/5

UAE currency: the story behind the money in your pockets
Building boom turning to bust as Turkey's economy slows

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The ambitious development has been hit by regional turmoil as well as the slump in the Turkish construction industry - a key sector - as the country's economy heads towards what could be a hard landing in an intensifying downturn.

After a long period of solid growth, Turkey's economy contracted 1.1 per cent in the third quarter, and many economists expect it will enter into recession this year.

The country has been hit by high inflation and a currency crisis in August. The lira lost 28 per cent of its value against the dollar in 2018 and markets are still unconvinced by the readiness of the government under President Recep Tayyip Erdogan to tackle underlying economic issues.

The villas close to the town centre of Mudurnu in the Bolu region are intended to resemble European architecture and are part of the Sarot Group's Burj Al Babas project.

But the development of 732 villas and a shopping centre - which began in 2014 - is now in limbo as Sarot Group has sought bankruptcy protection.

It is one of hundreds of Turkish companies that have done so as they seek cover from creditors and to restructure their debts.

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Director: Simon Curtis

 

Cast: Hugh Bonneville, Elizabeth McGovern, Maggie Smith, Michelle Dockery, Laura Carmichael, Jim Carter and Phyllis Logan

 

Rating: 4/5

 
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Colours: Blue, purple, space grey, starlight

In the box: iPad mini, USB-C cable, 20W USB-C power adapter

Price: From Dh2,099

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The specs

Engine: 1.5-litre turbo

Power: 181hp

Torque: 230Nm

Transmission: 6-speed automatic

Starting price: Dh79,000

On sale: Now

SCORES IN BRIEF

Lahore Qalandars 186 for 4 in 19.4 overs
(Sohail 100,Phil Salt 37 not out, Bilal Irshad 30, Josh Poysden 2-26)
bt Yorkshire Vikings 184 for 5 in 20 overs
(Jonathan Tattersall 36, Harry Brook 37, Gary Ballance 33, Adam Lyth 32, Shaheen Afridi 2-36).

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The biog

Name: Samar Frost

Born: Abu Dhabi

Hobbies: Singing, music and socialising with friends

Favourite singer: Adele

COMPANY PROFILE

Company: Bidzi

● Started: 2024

● Founders: Akshay Dosaj and Asif Rashid

● Based: Dubai, UAE

● Industry: M&A

● Funding size: Bootstrapped

● No of employees: Nine

Draw:

Group A: Egypt, DR Congo, Uganda, Zimbabwe

Group B: Nigeria, Guinea, Madagascar, Burundi

Group C: Senegal, Algeria, Kenya, Tanzania

Group D: Morocco, Ivory Coast, South Africa, Namibia

Group E: Tunisia, Mali, Mauritania, Angola

Group F: Cameroon, Ghana, Benin, Guinea-Bissau