Economics in focus as Trump starts visit to Saudi Arabia

Economics in focus as Trump starts visit to Saudi Arabia

As President Donald Trump begins his first international tour since taking office with a visit to Saudi Arabia, it is logical to expect that issues such as counterterrorism and Iran will top the agenda at Saturday’s US-Saudi Summit. Nonetheless, the economic issues are equally important for both sides. President Trump, given his “America First” slogan, is looking to bring more jobs to US citizens, while Saudi Arabia is seeking to make its Vision 2030 diversification program a success.

From the Saudi perspective, maintaining good relations with the US remains the key foreign policy objective. The US is still seen as a global power and is the world’s largest economy; American companies play an important role locally, particularly in the energy sector, which is still the lifeblood of Saudi Arabian economy. This is in addition to the US still being the favorite destination for students from Saudi Arabia, with an estimated 80,000 studying there in 2016.

Important partner

Meanwhile, Washington sees the importance of Saudi Arabia through its membership of the G-20 club of the top world economies, and as the largest economy in the Middle East and North Africa (MENA). The Kingdom is also the world’s largest exporter of oil, at an estimated rate of 10.39 million barrels of crude per day, and the world’s fourth-largest holder of foreign-exchange reserves — behind China, Japan and Switzerland — according to the latest data from the International Monetary Fund (IMF).

Trade between both sides is also significant. Last year, the US was Saudi Arabia’s second biggest trade partner, and the fourth-largest export market — after China, Japan and India — according to the IMF.

For the US, Saudi Arabia was the largest trading partner among the Arab countries, and the second behind Israel in the MENA region. Saudi Arabia also remained among the 20 top markets for US exports in 2016. Importantly, the Kingdom is one of the biggest customers of American military hardware and is already America’s second-largest source of crude, behind only Canada, according to official US statistics.

Investment opportunities

American companies are big investors in the Kingdom, pumping in around $40 billion between 2003 and 2015, according to Arab Investment & Export Credit Guarantee Corporation. The Organization for International Investment estimates that the cumulative foreign direct investment in the US by Saudi Arabia reached over $11.5 billion in 2015.

With the ongoing economic transformation in the Kingdom, US investments are likely to increase in Saudi Arabia. Indeed, the Kingdom is planning to raise around $200 billion through its privatization programs in 16 sectors, ranging from energy to health care. Importantly, the ongoing reforms of the Saudi Stock Exchange (Tadawul) could also result in access to the MSCI Emerging Markets Index by 2018, which may lead to an increase in American capital flows into the Kingdom.

Perhaps the most important financial issue under discussion during the US president’s trip is Saudi Aramco’s preparations for the world’s largest initial public offering.

Dr. Naser Al-Tamimi

Perhaps the most important financial issue under discussion during President Trump’s visit to the Kingdom is Saudi Aramco’s preparations for the world’s largest initial public offering, which is expected to happen next year. A New York Stock Exchange (NYSE) delegation will visit Saudi Arabia in late May to try to lure a listing by Aramco, according to Reuters.

The Kingdom is also in the process of transforming the Public Investment Fund (PIF) into a $2 trillion investment giant, which could in turn boost Saudi investment in America. The US Secretary of State Rex Tillerson, addressing a US-Saudi business summit in Washington last month, underscored the importance of this development: “We understand that the government will aim to hold 50 percent of its non-Aramco assets abroad… Saudi Arabia will find many promising investment opportunities in the United States,” he said.

Importantly, during the visit of Saudi Deputy Crown Prince Mohammed bin Salman to Washington in March, President Trump offered his support for developing a new US-Saudi program in energy, industry, infrastructure, and technology worth potentially more than $200 billion in direct and indirect investments within the next four years, according to a White House statement.

Security and arms deals

Bilateral ties between the US and Saudi Arabia have also been bolstered recently, with major new arms sales, continued security training arrangements and enhanced counterterrorism cooperation.

Saudi Arabia’s huge military expenditure will create a highly profitable business environment for the American companies. However, Saudi Arabia is seeking technology transfer as Riyadh aims to localize over 50 percent of military equipment spending by 2030. As the Kingdom’s top supplier of arms, the US companies could play a key role in achieving that goal.

Against this backdrop, the Justice Against Sponsors of Terrorism Act (JASTA) has been a strain to US-Saudi relations, while Trump’s enthusiastic push for the US to maximize its oil production could have negative ramifications for oil prices and Saudi Arabia’s economy. And another potential issue is that some American companies may be reluctant to transfer sensitive technology or information overseas due to political and security concerns.

• Dr. Naser Al-Tamimi is a UK-based Middle East researcher, political analyst and commentator with interests in energy politics and Gulf-Asia relations. Al-Tamimi is author of the book “China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?” He can be reached on Twitter @nasertamimi and e-mail: [email protected]

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