A who’s who from the world of finance and technology are gathering in Saudi Arabia this week alongside heads of states and policymakers from across the globe as the kingdom kicks off the third edition of the Future Investment Initiative.
Global lenders, conglomerates and investment houses — all keen to be part of the transformation of the country's economy — will rub shoulders with Saudi oil and gas, petrochemicals and industrial giants during the third three-day event at the glitzy Ritz Carlton in Riyadh from Tuesday.
The Arab World's largest economy is undergoing an economic overhaul as Crown Prince Mohammed Bin Salman, who oversees the kingdom's economic policy, rolls out reforms to cut the country’s dependence on oil under the overarching Vision 2030 agenda. Measures include the partial privatisation of state-owned entities such as Saudi Aramco, the world’s top oil exporting company, as well as the opening up of the tourism and entertainment sectors and social changes granting greater freedoms for women. As a result, many global heavyweights want to be part of the transformation story by showing up at FII.
FII is a platform where big announcement have been showcased in the past and “I’m expecting more investments and [projects] announcements [this year]”, Mazen Al Sudairi, the head of research at the investment banking arm of Saudi lender Al Rajhi Bank, said.
Now in its third year, FII has become an annual investment showcase of ideas and investments opportunities since the inaugural event in 2017. Back then, the kingdom, Opec's biggest oil producer, courted global investors with Neom, a $500 billion (Dh1.83 trillion) futuristic economic zone. The second chapter last year kicked-off with 25 preliminary agreements for deals worth $50bn. This year, with 6,000 attendees and 300 speakers from about 30 countries, economists can expect more deals to be done during the 2019 edition.
“Look at it as a bigger club, to bring people together and to brainstorm ideas, which can actually result in some new projects [and investments]. This is an ideas forum, a strategy forum …. [to follow up on] economic agenda that is built during the whole year,” Mr Al Sudairi added.
This week Saudi Arabia's $320 billion sovereign wealth fund, the Public Investment Fund, will host top executives from Dow Chemicals, HSBC, Credit Suisse, Goldman Sachs Group, Societe Generale, Blackstone Group, global private equity investor BlackRock, Korea Investment Corporation and Russia’s sovereign Direct Investment Fund. The UAE’s Mubadala Investment Company, Bahrain’s Mumtalakat, Kuwait Investment Authority, Samsung, DP World, LuLu Group and India’s Reliance Industries will also attend.
Companies can look to forge potential future partnerships with the likes of Saudi Arabia Basic Industries Corporation (Sabic), the biggest petrochemicals producer in the Middle East; Aramco, state-owned carrier Saudi Arabian Airlines, The Red Sea Development Company, Saudi Telecommunications Company, and industrial giant Ma'aden.
On Tuesday, for example, Indian Prime Minister Narendra Modi, Jordan's King Abdullah and Jared Kushner, a senior adviser to the White House, are among the high-profile speakers.
Said Al Shaikh, an independent economist and a member of Saudi Arabia’s Shura Council says the idea behind the forum is to promote investments in the kingdom by inviting decision-makers from across the globe.
“It’s a sign of confidence [in the kingdom’s economy] … it is progressing, it is improving its framework and it has more predictable policies,” as Saudi Arabia continues to transform and strengthens its fiscal structure, he said adding that the kingdom wants to build on this optimism and attract more investments.
“This year it will be more of the same [as previous years] and maybe there will some major announcements similar to the ones we saw.”
Following the deal bonanza at the 2018 FII, Riyadh in January said it plans to spend 100bn riyals (Dh97.9bn) in 2019 and 2020 as part of a massive new industrial strategy aimed at weaning the kingdom’s economy off oil, creating 1.6 million jobs and attracting as much as 1.6 trillion riyals in investment by 2030. The National Industrial Development and Logistics Programme (NIDLP) covers 42 initiatives for creating local commercial activity in key sectors that include mining, logistics, and various other industries.
Until the end of 2015, oil and gas projects in the kingdom accounted for about 40 per cent of the total foreign direct investment. Combined with indirect projects related to the sector, it amounted to about 70 per cent of all foreign investments, Mr Al Sudairi noted, citing International Monetary Fund data.
This picture, however, is fast changing as the interest from global investors is ripe and FDI into the kingdom's non-oil economic sector is on the rise. Saudi Arabia is now ranked 62nd in the World Bank's ease of doing business report among 190 countries. It has leapt 30 places in this year's list, moving ahead of the larger economies like India and has instituted more economic reforms than China.
“The investments and trade procedures are on the right track. More investments apart from oil and gas since the last FII has been the biggest hallmark of the year,” Mr Al Sudairi noted.
With the rise in oil price volatility on the back of escalating geopolitical tensions in the region, Saudi Arabia’s oil economy has faced headwinds. The September 14 attacks on Saudi Aramco facilities hit at the heart of the Saudi energy landscape, targeting an oil processing facility — the world's largest — as well as an oilfield in the Eastern Province, temporarily disabling 5.7 million barrels per day or 5 per cent of global supply.
The kingdom, however, restored the output back to pre-attack levels within two weeks, which Mr Al Shaikh said reflects the “remarkable strength of the company”.
“That has helped the kingdom to be seen by the rest of the world as a trusted oil producer”, capable of maintaining production and delivery commitments, he added.
There has been change of guard at the kingdom’s energy ministry, which generates the bulk of the country’s revenue, as Prince Abdulaziz bin Salman took over the portfolio, replacing the long-time veteran of the industry, Khalid Al Falih. However, Opec’s biggest oil producer is unlikely to change the kingdom's energy policy, which has remained consistent whenever the government is reshuffled.
Prince Abdulaziz has served in the energy ministry for over a decade and is the brother of the Crown Prince.
However, the oil sector economy has weighed heavily on overall economic expansion, which the IMF projects will grow 0.2 per cent in 2019. The Fund assumes the average price of oil at $61.78 a barrel in 2019 and $57.94 a barrel in 2020.
The kingdom’s non-oil economy, however, is different story. The measures under the Vision 2030 economic reform agenda, such as opening up the country's entertainment and tourism sectors, are "yielding results" and, along with fiscal expansion, are leading to non-oil sector growth of 2.7 per cent”, according to the IMF.
Saudi Arabia welcomed 24,000 tourists to the kingdom within the first 10 days of the new visa system to encourage foreign visitors.
Riyadh is also fully committed to its privatisation agenda, and Aramco is edging closer to its much-awaited initial public offering. It has completed a $69bn takeover of Sabic as part of the kingdom’s plans to consolidate its oil interests earlier this year. It is expected to soon publish its IPO prospectus and await market conditions to improve before it launches the public float, which at a $2tn valuation could yield $100bn in proceeds.
While there is no let-up in the pace of economic transformation, the speed of social reforms have also been quick. Women in Saudi Arabia no longer need the permission of male guardians to travel or obtain a passport and can join the armed forces.
About 20 per cent of Saudi female workforce were unemployed in 2018, according to the latest figures from the World Bank. However, a royal decree says that all citizens in the country have the right to work without facing discrimination based on gender, disability or age.
“There’ always more work to be done …. But, to be honest, a lot of work has been done,” Mr Al Sudiri said.