Saudi forum set to draw U.S. business leaders despite tensions

By Rachna Uppal and Yousef Saba

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

President Joe Biden has vowed “consequences” for US-Saudi Arabia ties over an OPEC+ decision this month to lower oil production targets, which Riyadh defended as subservient to market stability.

The dispute was the final shadow cast over the annual Future Investment Initiative (FII), which was hit by a Western boycott over the 2018 murder of Saudi journalist Jamal Khashoggi and the 2020 pandemic, which left it far removed from the 2017 inaugural event that labeled Riyadh as “Davos in the Desert”.

FII rebounded in 2019 after the uproar over Khashoggi’s assassination by Saudi agents, which attracted big-name financial, defense and energy firms with strategic interests in the world’s largest oil exporter, but amassed a relatively meager foreign influx.

More than 400 US delegates are expected this week, FII Institute CEO Richard Attias told Reuters, adding that this was the largest representation from a foreign country.

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This year’s edition, which will run from Oct. 25-27, will include JP Morgan boss Jamie Dimon, Pimco Vice Chairman John Studzinski and a BNY Mellon executive as speakers, and they still plan to go, spokespersons said. of the companies against Reuters.

Top executives from Goldman Sachs, Blackstone, Bridgewater Associates, Boeing and Franklin Templeton are on the agenda. Goldman Sachs declined to comment, while the rest did not respond.

JPMorgan and Goldman Sachs earned nearly $77 million and $42 million respectively in investment banking fees in Saudi Arabia last year, data from Refinitiv shows. JPM continues to top the rankings in 2022 with over $39 million to date.

“For the most part, I don’t see US companies actively shunning Saudi Arabia because of recent political tensions,” said Adel Hamaizia, director of Highbridge Advisory and a visiting fellow at Harvard University.

“US companies will be an important partner in Saudi Arabia’s investment and growth plans, in traditional sectors as well as in ‘newer’ areas, including tourism, entertainment, EV manufacturing, technology and a burgeoning local defense industry,” said Hamaizia.

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The FII is a showcase for Crown Prince Mohammed bin Salman’s Vision 2030 development plan to de-oil the economy by creating new industries that also generate jobs for millions of Saudis, and to attract foreign capital and talent.

FDI FLAT

Foreign direct investment still falls short of targets, although there is movement in new sectors as the kingdom opens up. When Boeing landed an $80 million defense contract last year, Fedex announced a 10-year $400 million investment plan in the country, the Arab world’s largest economy.

At 15.3 billion riyals ($4.07 billion), inward foreign direct investment in the first half of the year was about a fifth of the $19.3 billion secured in 2021, including an investment of $12.4 billion for Aramco’s oil pipeline infrastructure.

It is well short of the 2030 target of $100 billion a year under a national strategy targeting foreign direct investment equivalent to nearly 6% of GDP by 2030.

Uncertainty remains surrounding the regulatory and fiscal environment, as well as high operating costs and lack of skilled local labor, even after Riyadh issued an ultimatum to companies to establish regional headquarters in the kingdom by 2024 or miss out on lucrative government contracts. walk.

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“FDI flows have remained stubbornly flat and low, below 1% of GDP, and some of the notable names that have invested have had only modest success, even with government support,” said Justin Alexander, director of Khalij Economics and Gulf Analyst at GlobalSource. Partners.

This has prompted the Saudi government and the Public Investment Fund to try to deliver on the crown prince’s diversification promises, aided by a petrodollar windfall.

The deteriorating global economic outlook and oil market volatility have increased the government’s commitment to pursuing Vision 2030, which includes a $500 billion project to build a massive, high-tech economic zone on the Red Sea, NEOM. called, which is ultimately intended to house nine million people.

“The government cannot afford to boost economic development indefinitely, but for now there is no real alternative, as domestic companies are not fit to play that role, and FDI continues to disappoint,” said Neil Quilliam, associate fellow at Chatham House.

($1 = 3.7575 riyals)

(Reporting by Rachna Uppal and Yousef Saba, editing by William Maclean)

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