‘Saudi Arabia can become a crucial part of the connected world’

Parag Khanna
Updated 23 April 2017
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‘Saudi Arabia can become a crucial part of the connected world’

I would love to chat about Saudi Arabia, says Parag Khanna.
It is an interesting use of the word “chat,” because conversations with Khanna are never teatime tittle-tattle. The 39-year-old author —born in India, educated in the UAE, Europe and America, currently living in Singapore, but really a citizen of the world, has weighty matters on his mind and is not afraid to approach profound and difficult subjects.
His latest book “Connectography,” published last year to much acclaim, is a sweeping review of the economic, social and technological forces that link the great trading centers of the world. In the tradition of the great “futurist” thinkers, like Alvin Toffler or Nassim Nicholas Taleb, it is an integrated theory of the world, no less than a roadmap for the future of mankind.
Saudi Arabia gets a mention, as a country under the influence of sudden wealth and technology, in a transition from the traditional to a more modern form. King Abdullah Economic City (KAEC), which Khanna visited in the course of researching the book, gets a significant section. But he does not drill down in depth into where Saudi Arabia stands in the “connectography” of the modern world.
An interview with Arab News is his opportunity. We have met previously, soon after the book was published, in the lobby of the Jumeirah Emirates Towers hotel in Dubai, where he described his worldview over coffee. But now, via e-mail and phone calls, I get the chance to find out where Saudi Arabia fits into that vision.
He believes that although Saudi Arabia is not yet a fully diversified economy, it is inextricably linked to the rest of the world, and especially the Middle East.
“Saudi (Arabia) is, of course, heavily connected to the world through energy markets. The recycling profits from energy, especially into Arab economies through foreign direct investment (FDI), and capital markets through investment in asset managers, are key roles. This has diminished lately as capital is repatriated because of lower oil prices and the economic strains they imposed. Then, of course, it is ‘connected’ to the world’s Muslims in strong ways, and certainly via the millions who come for Haj each year,” Khanna said.

In Saudi Arabia, there is a modernization movement going back a long time. It is an ongoing debate. Saudi Arabia is not North Korea. There is a discourse, a push and pull between different parts of society. Social media is part of that debate.

He believes in the power of economic policy and technology to lift countries out of dependency on one commodity — in the Saudi case, oil — and achieve a level of modernity that will allow them to participate fully in the “connected” world.


Globally connected societies
Can Saudi Arabia do this via the economic transformation program currently underway as part of the Vision 2030 strategy to reduce oil dependency?
“Most of the truly globally connected societies tend to have a bigger population than Saudi Arabia, which is relatively small compared to others globally and in the region. But countries like that can do it. I am thinking of a country like Malaysia, for example. It is an Islamic country that is investing in infrastructure in a big way. It is investing in education and inviting global companies to invest in it,” he said.
He continues: “I think countries that fail to modernize do so for one of two reasons — either they inflict problems upon themselves, or there are structural reasons. There are often geopolitical reasons for failure, outside their control.
“But Saudi Arabia practices a shrewd version of multi-alignments. They have good relations with Europe, Asia and the US. So, a thing like Saudi Aramco’s initial public offering (IPO), or the big sale of bonds we have seen recently, becomes a global event and links the country to the world,” he said.
But what if geopolitical factors — of which there are plenty in a volatile region like the Middle East — threaten to throw those plans off course?
“Saudi Arabia has partners in the world that can help it with problems like Iran, Syria and Yemen. The Gulf Cooperation Council (GCC) is a crucial bulwark of cooperation. The question of GCC monetary union is one of the critical issues that will have to be addressed at some stage. So I think that relatively small countries like Saudi Arabia can manage the transition to being a crucial part of the ‘connected’ world. I am cautiously optimistic Saudi Arabia can do it,” he said.

Ensuring social stability
The economic measures being taken — like the Saudi Aramco share sale and the privatization program of Vision 2030 — have deep social ramifications if they are seen through. The more traditional parts of Saudi society are being asked to modernize rapidly, and that might cause some tensions, I suggest. Can these proposals succeed?
“The plan is more to modernize the economy than the society, as the latter will certainly be a slower process. Since the population is still not very large, I believe it is feasible to create employment in tradable and non-tradable areas such as infrastructure, health care, education, logistics and so forth, which will be critical to broaden employment and diminish dependency on state subsidies,” he said.
On the question of social stability, Khanna is also optimistic. “Saudi Arabia has a strong, vertically integrated power structure. There are internal tensions between progressives and conservatives, but that is true of many countries and it does not necessarily lead to failure. For example, China has many internal problems, but it has not led to collapse and I do not think it will. Saudi Arabia will remain stable because of the structure of the state,” he said.
Some analysts have pointed to the potentially destabilizing effects of modern social media on a society like Saudi Arabia’s. On the one hand, social media can be a unifying force because of the connectivity and dialogue it enables between government, civil society and citizens. But it can also be a source of instability. As a leading advocate of the “connected” world, what does he think?
“The relationship (between social media and social dissent) is ambiguous since social media is also a platform used by conservative/traditional forces to reach (out to) existing and new audiences. So social media does not itself necessarily represent one type of view, like the liberal. Clearly, we know of many examples of Saudi youth using social media to express liberal values, which both emboldens them while also inviting a reaction.
“In Saudi Arabia, there is a modernization movement going back a long time. It is an ongoing debate. Saudi Arabia is not North Korea. There is a discourse, a push and pull between different parts of society. Social media is part of that debate,” Khanna said.

Global cities
In his book, cities are the dynamos of global growth and connectivity. The great urban hubs of the world often have higher rates of growth than their respective countries, and they form networks that capture commerce and investment. Does he think Saudi Arabia’s two big cities, Riyadh and Jeddah, can become part of the global elite?
“A global city has a formal definition: A city that is in the top tier for the global flows of goods, services, capital, people and data. Dubai is the only ‘global city’ in the region and has first-mover advantage, if you will. Riyadh will, of course, remain a major regional political and economic center, and Jeddah a crucial gateway. What really matters is that the county is promoting its cities,” he said.
“Jeddah is hugely important and will become more so. It is playing a big regional role. KAEC is a positive step and gives important momentum to that part of the country. It is competing to capture trade flows across strategic lanes. I think it is very plausible to see KAEC as the Jebel Ali of the Red Sea. Oman too is trying to do this.”
I ask whether Saudi Arabia can compete with more extrovert countries within the GCC, like the UAE and Qatar.
“It depends on what they want to compete for. In some arenas they have similar objectives, for example the strategic role across the region, and in others they diverge. In truth, GCC economies are more commercially integrated than their own leaders or official statistics would admit, given the flows of business within the region.”
As evidence, he refers to a map he produced entitled “Pax Arabia,” which shows energy and water infrastructure in the Middle East, promoting resource-sharing between resource-rich and resource-poor countries, something that could transform the Arab world into a collection of urban oases better connected to Europe.
Khanna is soon to demonstrate connectivity in a very practical way, by undertaking — in the company of his young daughter Zara — the longest railway journey in the world: The 7,000-mile trip between Scotland and Singapore.
“I don’t anticipate much drama in Europe, but the ‘Indiana Jones’ experience will begin in Turkey, then across Central Asia and down into South East Asia. It will take three months,” he said.
This time, Saudi Arabia and the other cities of the Arabian Gulf will not figure on the itinerary. That will require greater connectivity — or a separate trip.

BIOGRAPHY

BORN:
Kanpur, India 1977
EDUCATION:
Abu Dhabi, UAE; New York City; Germany; Washington DC (Georgetown University); London School of Economics
PUBLICATIONS:
Connectography: Mapping the Future of Global Civilization (2016)
Hybrid Reality: Thriving in the Emerging Human-Technology Civilization (2012, co-authored with his wife Ayesha)
How to Run the World: Charting a Course to the Next Renaissance (2011)
The Second World: Empires and Influence in the New Global Order (2008)
CAREER:
He is a regular attendee at the World Economic Forum, TED talks, and has had several academic tenures across the world. He advises governments and private corporations on strategic matters.
In 2008 he was named one of the “75 Most Influential People of the 21st Century” by Esquire magazine.


All-American banker heads back to the Kingdom

Updated 21 April 2018
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All-American banker heads back to the Kingdom

  • "The implementation and execution of Vision 2030 will produce global companies for Saudi Arabia, and we can help in that process," said Citigroup CEO
  • "The government has a lot on its plate and privatization takes a long time to set up. Privatization is one of those things that you only want to do once,”

If anybody deserves the description “all-American”, it is surely Mike Corbat, chief executive officer of Citigroup.

New England origins, a Harvard education, Ivy League American footballer and a Wall Street career are all evidence of the fact he was very definitely “born in the USA”, as is the in-bank nickname of “Clark Kent” — the alter-ego of Superman — due to his athletic physique and spectacles.

But last week Corbat was turning his mind away from the USA and toward Saudi Arabia, as the bank formally ended a 14-year self-imposed exile from the Kingdom with a ceremony at its new offices in Riyadh, symbolizing its return to the lucrative markets it first entered in the 1950s, among the first American banks to do business in the region.

Corbat took some time out of the day’s celebrations — a formal ribbon-cutting alongside Ibrahim Al Omar, governor of the Saudi Arabian General Investment Authority, and an elite dinner in the ballroom of the Four Seasons Hotel in Kingdom Tower — to talk exclusively to Arab News about Citi’s plans for the Saudi business at a time of rapid transformation in the Kingdom and the region.

“I am absolutely positive about the economic prospects for this region. We are in 13 countries here, with 2,500 employees, focusing on trade and business, with some consumer presence. The implementation and execution of Vision 2030 will produce global companies for Saudi Arabia, and we can help in that process. Citi can service some of their needs as they expand globally,” he said.

Citi withdrew from Saudi Arabia in 2004 in the aftermath of the 9/11 terrorist attacks in the USA, in a decision later described by executives as “a mistake.” Even before the enormous opportunities of Vision 2030 persuaded the bank it had to have a formal presence again in the Kingdom, and a license from the Capital Markets Authority (CMA) to pursue investment banking and other business there, the bank was back on the scene.

In 2015 it helped Saudi Aramco to raise multi-billion dollar loans, and advised the oil giant on Asian deals. The following year, which saw the formal unveiling of Vision 2030, Citi was involved in the groundbreaking $17.5 billion bond issue that marked the Kingdom’s debut on global capital markets.

Citi was back, but needed a CMA license to win more lucrative business in the big domestic economic transformation under way. That was finally granted in April of last year, and Carmen Haddad, a long serving Citi executive with extensive experience of the Middle East, was made head of the new Saudi operation.

“We’ve been at the front and center of the sovereign bonds drive Saudi has been doing for the past couple of years, and also with syndicated loans. But with the CMA license we can really show our worth. We can help with all future debt and equity transactions,” Corbat said.

Vision 2030 aims to reduce the Kingdom’s dependence on oil, but also to increase the contribution of the private sector to the national economy, and this is one area where Citi feels it can use its global experience. The bank has advised governments around the world on privatization strategies, and Saudi has a privatization schedule that ranks among the largest in history.

The timing and scale of the program is still unclear. Last year minsters put a value of $200bn on the program, but officials in Riyadh last week were talking more in the $60bn to $70bn range. And investors are still waiting for the first big sell-off of a state company. But Corbat insisted Citi would be ready to get involved when the time is right.

“Privatization is obviously a top priority of the Vision 2030 strategy, and we can bring our expertise to bear in this. I think it is right to take your time over something as significant as the privatization program. The government has a lot on its plate and privatization takes a long time to set up. Privatization is one of those things that you only want to do once,” he said.

By far the biggest element of the drive toward a more private sector-focused economy is the plan to sell shares in the Kingdom’s “jewel in the crown”, Saudi Aramco. Citi is among a small group of top global banks vying for business in the Aramco sell-off.

Originally planned as a big international initial public offering (IPO) by the end of this year, valuing the company at $2 trillion, doubts have begin to creep in over the valuation figure, and over the venue for what promises to be the biggest IPO in history. One suggestion is that Aramco will go only for a listing on the Tadawul exchange in Riyadh.

“I don’t know the timing of the IPO. Maybe they [the Saudi authorities] will want to start locally, in which case they have to be sure the capacity and liquidity are there,” Corbat said.

He believes that recent improvements to the market infrastructure in Saudi Arabia — which look set to see the country included in index provider MSCI’s widely-tracked Emerging Markets index from as early as next year — could make an “exclusive” IPO on Tadawul more attractive.

“The MSCI upgrade to emerging markets status will create more liquidity, and foreign investors will have to play their role,” he said.

“All the big reforms that have taken place on the Riyadh market recently have certainly made it a friendlier place for foreign investors. The CMA has been through more change than ever, and it’s a better place for that. The CMA over the past two years has proven to be progressive and consultative,” he added.

Citi found itself indirectly involved in the big anti-corruption campaign of last year, when their long-term partner and shareholder, Price Alwaleed Bin Talal, was among the businessmen detained in the Ritz Carlton hotel in Riyadh.

Corbat is reluctant to comment on the Kingdom’s internal affairs, though he did say that foreign direct investment would not be hit by the anti-graft drive. “I don’t think FDI has been or will be affected negatively by the anti-corruption campaign. Saudi Arabia is already the biggest economy in the region with only limited foreign investment. Imagine how far it could go with more,” he said.

On Alwaleed, he said: “He has been a shareholder since the early 1990s, and he has been a great shareholder, a loyal voice of support and reassurance. We’ve been fortunate to be able to count him as one of our shareholders. In all our dealings with him I’ve found him to be straightforward and transparent.”

Corbat was one of the top American executives who met with Saudi officials on the recent royal visit to the USA, intended in part to counter any adverse investor sentiment from the anti-corruption arrests, and was impressed by what he saw.

“The visit to the USA by the Crown Prince was extremely well received. The whole Saudi delegation impressed us with their drive and commitment to the transformation process. It was a very successful exercise for Saudi Arabia,” he said.

With 35 years at Citi under his belt, including responsibly for unwinding Citi’s “toxic” assets after the financial crisis, and wide ranging experience of the bank’s international operations, he is well placed to gauge global geo-politcal risk.

He sees some threat to the world financial system from the end of quantitative easing, which he called a “renormalization of the global economy”, and a more limited challenge to world economies from possible “trade wars” between the USA and China.

“I think it’s fair to say that if we did have a serious trade war, it would have an effect. But it would not be the end of trade. I think it’s more likely to redraw the trade lines of the world. Trade flows would move away from the big blocks and go through other areas, like Africa and other places for example,” he said.

On regional risks, always a factor in business and financial decisions in the Middle East, he said: “I think they are within acceptable limits and I don’t think they will go beyond that. The region is the leading center for oil and gas so what happens here has global implications,” he said, though with the caveat that the effects of a prolonged trade was on the “bookend” economies of the USA and China could have a negative impact on global commodity prices.

All-American Corbat may be, but Citi’s return to the Kingdom will just not be an exercise in stuffing US executives into the top jobs in Riyadh. The firm is committed to achieving 85 percent Saudi employment levels at its new office, and is already well on the way to achieving that.

“The market for talent in Saudi Arabia is extremely competitive, but we think we have a very strong appeal for candidates. We are very proud of our ability to invest in and train, and to improve home grown talent,” Corbat said.