Is investing in Saudi Arabia worth the risk?

Unveiled in April 2016, Vision 2030 is Saudi Arabia’s neo-liberal reform agenda aimed at reducing the kingdom’s economic dependence on oil. The plan is for Saudi Arabia’s non-oil sectors (logistics, health, education, infrastructure, entertainment, clean energy, defence, tourism, mining, etc.) to grow substantially by 2030, enabling the Saudis to achieve long-term sustainable prosperity throughout the post-oil era.

This dramatic overhaul of the Saudi economy will inevitably require the kingdom to lure foreign investment. Without question, enabling Saudi Arabia’s private sector to become an economic powerhouse in the Middle East will heavily depend on both foreign capital, technology, and expertise. Since 2017, the perceived risks of investing in Saudi Arabia have increased, causing more foreign investors to become increasingly uneasy when considering their own capital going into the kingdom.

This month at the Milken Institute’s MENA Summit in Abu Dhabi, Egyptian billionaire Naguib Sawiris explained his reasons for not investing in Saudi Arabia.

“Personally, I can invest anywhere in the world. Why would I go somewhere where I’m not convinced that there’s rule of law and order, you know, and that there’s a real democracy and people are free? Political stability and economic stability go together. You need to go somewhere where you feel comfortable.”

Sawiris’s response was reflective of a host of concerns over Saudi Arabia that have left investors nervous about investing in the kingdom. The Jamal Khashoggi murder case, the Saudi-Canadian diplomatic spat in 2018, the Ritz Carlton wave of arrests and Lebanese Prime Minister Saad Hariri’s saga in 2017 against the backdrop of growing outcry over Saudi Arabia’s human rights violations, not only on its own soil but especially in Yemen, have all hurt the kingdom’s foreign investment climate.

Shortly after Saudi officials unveiled Vision 2030, there was a sense of optimism that Saudi Crown Prince Mohammed bin Salman (MBS) would implement reforms to open the kingdom to more foreign investment and create new opportunities for investors. Nonetheless, events inside Saudi Arabia and recent foreign policy actions taken by Riyadh have contributed to foreign investors’ growing perceptions of MBS as unhinged, unpredictable, impulsive, and unstable. As foreign investors naturally have concerns about weak rule-of-law in any country, with MBS at the helm in Riyadh, the Saudi state has prioritised stability and its consolidation of power above efforts to strengthen the rule of law while also establishing institutions to achieve this end.

Such unease among foreign investors bodes poorly for the kingdom’s Vision 2030 reform agenda. Put simply, if the kingdom fails to attract massive amounts of investment from abroad for the ambitious reform agenda to enjoy any chance of success. That JPMorgan CEO Jamie Dimon, Ford Motor Co. Chairman Bill Ford, Uber CEO Dara Khosrowshahi and other prominent Western companies’ leaders chose to skip the Future Investment Initiative (FII)—held in Saudi Arabia in October and also known as “Davos in the Desert”—underscores how such concern over the risks of doing business in the kingdom will heavily impact the prospects for Vision 2030’s success.

Last month, Saudi Arabia’s Energy Minister Khalid al-Falih spoke to investors about Vision 2030’s National Industrial Development and Logistics Program (NIDLP). He asserted, “We have a deep conviction that those who bet on Saudi Arabia will not lose.” Unfortunate for Riyadh, however, is that such words are unlikely to eliminate foreign investors’ doubts about the wisdom of taking risks by investing in Saudi Arabia.

As the kingdom ranks 92 out 190 countries according to the World Bank’s ease of doing business index, which looks at factors such as the enforceability of contracts, and MbS locked up Saudi billionaires, royal family members, and other elites during his anti-corruption probe, there is a cloud over Saudi Arabia’s foreign investment climate. The Ritz Carlton arrests in 2017 caused foreign investors to question whether their assets in Saudi Arabia were safe from seizure. Additionally, as Stephen Grand wrote, “In the absence of a commercial legal environment undergirded by the rule of law, many [foreign investors] worry that they, too, could find themselves in similar difficulties with the authorities.”

This year, as Saudi Arabia’s leadership seeks to advance the country’s economic diversification inline with Vision 2030, it will be crucial for officials in Riyadh to address the problems that have resulted in some foreign investors losing faith in the kingdom as a destination for business while increasingly viewing the country as a less than ideal place to make major investments.

Simply put, there is a mismatch between the needs of foreign investors and Saudi Arabia’s current business climate. Without taking actions to restore greater confidence among foreign investors, the Saudis may find themselves in a dire situation whereby Vision 2030 fails to attract enough investment from abroad if more non-Saudi investors join Sawiris in calculating that the risks of investing in Vision 2030 are too high.

Such circumstances could one day create an economic crash in Saudi Arabia given that the oil-based economic model which has kept Saudi Arabia relatively stable for decades is unsustainable. While keen to constantly point his finger at Iran, Qatar, and Houthi rebels as the gravest threats to Saudi Arabia’s future, MbS would be wise to revisit his own style of governance that has severely tarnished his image abroad as a reformer. The Crown Prince’s failure to do so may itself become the most dangerous menace to the kingdom’s future.