‘Today’s Man Doing Tomorrow’s Job’

He has been hailed as a marketing genius. His job is to sell Saudi Arabia Inc. to the world — especially to foreign investors — and if he has his way then the Kingdom will attract a staggering $650 billion in foreign direct investment (FDI) over the next two decades. Amr Al-Dabbagh is today’s man doing tomorrow’s job.

As governor of the Saudi Arabian General Investment Authority (SAGIA), the Kingdom’s one-stop shop for FDI, he has shaken up the investment regime and introduced a new-found sense of urgency which perhaps was lacking in the past. Al-Dabbagh is said to have the ear of Custodian of the Two Holy Mosques King Abdullah who has elevated his position to that of the rank of a Cabinet minister.

Not surprisingly, he is seen in the chairmen’s offices of major international corporations and is courted by presidents and prime ministers. His ambition is to make the Kingdom “one of the Top 10 foreign investment locations in the world by 2010.” To achieve this, SAGIA is cooperating with the World Bank in an evaluation of the investment environment in the Kingdom.

A report published earlier this year by the International Finance Corporation titled “Doing Business in 2006” rated the Kingdom as the best investment locations in the Arab world and 38th out of 155 locations worldwide.

“SAGIA has made impressive achievements in the last 18 months in facilitating FDI into the Kingdom. The government bureaucracy regarding company registrations and the issuing of business visas have been expedited beyond recognition. We would like to see more reforms in the Kingdom, especially the streamlining of the government agencies,” explains Nabilah Tunisi, acting head of projects at Saudi Aramco and a great supporter of Al-Dabbagh.

Saudi Arabia, despite high oil prices, high liquidity and budget surpluses, will always be in need of substantial inward FDI flows because of the very nature of its economy, still dominated by oil, gas and petrochemicals production and exports. They are technology-intensive industries and, as such, capital-intensive.

In recent years, however, the private sector has been encouraged through various incentives to play a bigger role in their contribution to the Kingdom’s GDP.

Another spur to encouraging FDI is the changing demography of Saudi Arabia. The Kingdom has a population of 23.9 million, of which some 65.4 percent are under 25 years of age. That gives rise to the employment challenge. Unemployment — both male and female — in the Kingdom is high, which can have social, even political concerns. As such, Saudi Arabia (like the other GCC countries) needs huge amounts of FDI to upgrade its infrastructure and to meet the future needs of its growing population.

The Kingdom, according to Dr. Fawaz Al-Alamy, the country’s chief negotiator at World Trade Organization (WTO), has earmarked a staggering $1 trillion projects over the next few decades, including $180 billion for infrastructure, $140 billion for power generation; $112 billion for petrochemical expansion; and $100 billion for water desalination. This ambitious spend is underpinned by the five fundamentals of the Saudi economic reform and restructuring strategy: Streamlining the decision-making process; diversification of the economic base; strengthening the role of the private sector; creating a favorable investment climate; and the integration of the Saudi economy into the world economy.

Analysts agree that when it comes to economic reform, the Kingdom has displayed a “remarkable political will” in the last six years. They have seen the cutting of corporate taxes from 45 percent to 20 percent, the reduction of import duties to around five percent, the creation of the 19th biggest capital markets in the world and the repayment of 60 percent of Saudi national debt.

During this period, the Kingdom has also established seven regulatory authorities in the spheres of investment, telecoms, electricity and water, securities and exchanges, industrial cities and technology parks, food and drugs and capital markets. Some 47 new laws and regulations have been introduced on intellectual property rights, investment and real estate, capital markets and trade secrets (insider dealing), insurance, subsidies and accredited laboratories.

Saudi Arabia also has the largest market access at 81 percent in the Gulf Cooperation Council (GCC), which has been further enhanced by the Kingdom’s accession to the WTO.

John Sfakianakis, chief economist at SABB, projected the Kingdom’s foreign assets to rise to $221 billion by end of the year (at the end July 2006 they were $194 billion). Not surprisingly, the Saudi Arabian Monetary Agency (SAMA) is keen at investing the assets outside the Kingdom.

The reality, however, is that in the overall international FDI league, the Kingdom is well into the lower echelons of the table. This remains the biggest challenge for Al-Dabbagh and SAGIA. Despite the attraction of having “the best collateral in the world” (its proven oil reserves), Saudi Arabia can be, according to some foreign companies, a frustratingly difficult investment environment to work in.

The GCC region, according to latest United Nations Conference on Trade and Development (UNCTAD) figures, attracts a mere three percent of all FDI flows in the world. In 2005, the entire GCC, for instance, attracted $35.8 billion of FDI. China, on the other hand, attracted $170.72 billion for the first six months in 2006. The stock of FDI inflows into Saudi Arabia, according to SABB, totaled $20 billion by the end of April 2006.

Sfakianakis agrees that the figures are relatively low. “But if you compare them with previous years, they have grown significantly, especially in the hydrocarbons sector. However, the Gulf states are competing with each other — especially Saudi Arabia, the UAE and Qatar, whose North Fields Gas project has the second largest reserves after Russia,” he explains.

In terms of capital investment, Saudi Arabia attracted $16.46 billion for the first eight months of 2006 for 43 projects. This compares with $3.58 billion for the whole of 2005 and only $783 million in 2003. The US is by far the largest investor in the Kingdom, followed by the UAE, the UK, India and Japan.

Competition between the GCC states should be seen as an advantage by Saudi Arabia because it acts as a driver for reform in the Kingdom itself. “Saudi Arabia then tends to reform faster because of the competition. If the Kingdom were the only country adopting reforms, then the process would be much slower,” he stresses. He believes that the security situation is being managed, but worries whether the mind-boggling figures are actually deliverable.

The notorious negative list, which bars foreign investors from participating in certain sectors or industrial activities, should not be an impediment to investing in the Kingdom, say some analysts. This list is regularly reviewed every three months by the government and SAGIA and is shrinking all the time. Foreign companies, however, would like to see its abolition altogether.

Clearly the huge liquidity in the region due to high oil prices needs spending and investment outlets. If the price of oil averages at $50 a barrel for the next two decades then, according to Brad Bourland, chief economist at Samba Financial Group, the revenues of Saudi Arabia alone during that period could top $42 trillion.

Choice of investment location in the Gulf is dictated by various factors — the industry, the market, the partner, the incentives, employment laws, skilled personnel, living conditions, security, political stability and leisure facilities.

“Each investment location is unique,” explains Ali O. Al-Ghannam, head of International Real Estate Department at Kuwait Finance House (KFH), one the largest banks in the region. “It depends on the services and opportunities. If you want a regional headquarters or a warehousing hub, then it is Dubai. If you want offshore banking, then it is Bahrain. If you are interested in oil and gas, then it is Saudi Arabia, Kuwait, Abu Dhabi and Qatar. We hope to see increasing cooperation between the cities to integrate the investment strategies rather than competing with each other.”

Bankers such as Al-Ghannam are keen that regulators keep pace with investors, both local and foreign. They concede that GCC states such as the UAE and Saudi Arabia have been very active in some areas of reforms but slow in others.

Saudi Arabia is undoubtedly the major investment location in the region. But it differs in terms of incentives and especially social and political mores. Saudi Arabia has SAGIA which caters for all the needs of foreign investors, although the getting of business visas is still problematic with the result many executives prefer to arrange business meetings in Dubai, with its much more relaxed and accessible business culture.

Dubai also has a certain location gravitas which Saudi Arabia lacks. “We’re not good at promoting ourselves. We have more land, natural resources, capital and people, and yet people just talk about Dubai,” stresses Nabilah Tunisi.