Saudi Crown Prince Mohammad bin Salman just capped off a three-week tour across the United States. He spent last week on the West Coast, meeting with tech moguls from Jeff Bezos to Richard Branson and working to clinch deals with Snap, Amazon, Google and Apple. His Vision 2030 goal is to diversify Saudi Arabia’s oil-based economy and transform the kingdom into a tech and logistics hub in the Middle East.
From the detention of princes in a five-star hotel, to plans for a grand tech city in the desert, it seems every bit of news that comes out of the kingdom lately has some business relevance. Much of it is splashy and designed for media attention, but behind the scenes, serious changes are under way to create a more friendly business environment for foreign investors and companies.
Saudi Arabia is not going to transform itself overnight into the new Silicon Valley, the Detroit of the 1950s or Wall Street. It simply does not have the manpower or enough citizens who will work for laborer wages. Hollywood and Silicon Valley investments may grab headlines today, but underneath, Saudi Arabia is pursuing diversification and expansion of private enterprise in industries in which it already has an advantage.
To reorient its economy, Saudi Arabia is taking advantage of its robust oil-production business and its veteran engineers and scientists and becoming a center of petrochemical and plastics manufacturing. Aramco, Saudi Arabia’s national oil company, has already partnered with leading chemical manufacturers, like DowDuPont and Total, on several petrochemical plants in the kingdom.
There is also an expectation that Baker Hughes, the GE subsidiary, is likely to join them and open a new chemical plant soon. In addition, Saudi Arabia is attracting the manufacturers who use these chemicals with free or subsidized access to utilities and proximity to chemicals production plants. In fact, a detergent manufacturer is already preparing to set up shop next to a Saudi petrochemical plant on the Persian Gulf.
Saudi Arabia is also using a government stimulus package to lure Amazon to open a data center in the kingdom. Saudi Arabia is an attractive choice for Amazon to expand its data services and cloud computing to the Middle East because its west coast is beside an existing cable running underneath the Red Sea. The kingdom can also offer attractive utility subsidies to keep electricity costs low for Amazon. Moreover, it can provide subsidized real estate. Saudi Arabia realizes that the Middle East is traditionally underserved by data centers, and the kingdom wants to take advantage.
Saudi Arabia has long been a major purchaser of U.S. weapons and military technology. It also buys weapons from Russia and Great Britain. With the billions of dollars Saudi Arabia spends on these products, the kingdom is looking to localize some of those dollars. Saudi Arabia is working on enticing its military vendors to build some of their products in Saudi Arabia. Lockheed Martin is not about to start building the F-16 in Saudi Arabia, but Rosoboronexport has signed a deal to manufacture Kalashnikovs in Saudi Arabia. That means jobs for Saudis.
Challenges lie ahead
One of the problems Saudi Arabia faces in bringing new business into the kingdom has been the opaque process of doing business. Saudis often complained that the best way to obtain a business license or win a government contract was to know the right member of the royal family. Saudis have called on their government to do something about corruption in the economy for years.
When the government detained many prominent Saudi businessmen, government ministers and royal family members at the Riyadh Ritz last year, headlines in the West called it a power grab by the crown price and a financial shakedown, but many Saudis — especially young, ambitious Saudis — saw it as a sign that the government might be addressing corruption seriously, finally. The ultimate purpose and outcome of the crackdown was unclear, but the sentiment in Saudi Arabia was not.
But behind the news headlines, it is incontrovertible that the government is working to create a friendlier environment for business, employment and entrepreneurship. It is cracking down on what has been called the “shadow economy” in which foreigners – who are not allowed to own businesses in Saudi Arabia — pay Saudis under the table to front their businesses. The government is also implementing new business standards to bring Saudi Arabia’s business laws up to global standards. For example, new bankruptcy laws were recently announced, and they will give entrepreneurs a bit of a safety net for the first time. Recent decrees are making it possible for women to apply for business licenses on their own. Even foreigners will be able to own businesses in some industries.
None of these new decrees, laws or regulations garner headlines like a royal visit to Hollywood. Nor does a petrochemical plant or a detergent factory grab attention like plans for a giant tech city. The change we don’t hear about comes from harnessing the advantages Saudi Arabia already has. These are the details that are making real change now, creating jobs in the kingdom and creating a better business environment and ultimately an opportunity for American enterprise too.
This article was first published in CNBC