INTERVIEW: Saudi Arabia is open for business despite the pandemic 

Illustration by Luis Grañena
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Updated 04 May 2020

INTERVIEW: Saudi Arabia is open for business despite the pandemic 

  • Deputy for Investor Services at Saudi Arabia’s Ministry of Investment says that Saudi Aramco IPO was ‘tip of the iceberg’ for opportunities
  • The Kingdom has embarked on a huge shake-up of its investment infrastructure

DUBAI: Attracting foreign investment into Saudi Arabia is one of the key components of the Vision 2030 strategy to move away from oil dependency and encourage the non-oil economy. But it has been a challenging task for a variety of reasons.

It is the job of Ibrahim Al-Suwail — Deputy for Investor Services at Saudi Arabia’s Ministry of Investment — to help change that reality in a world made even more uncertain by the coronavirus pandemic and all that means for global capital flows.

“The government sees the importance of foreign direct investment (FDI) as one of the main pillars of the strategy,” Al-Suwail told Arab News. “The coronavirus comes at a very challenging time for Saudi Arabia, but we have mobilized quickly to ‘future-proof’ the economy.”

In such a fast-changing global financial and economic scene it is difficult to see how any single economy can be entirely “future-proofed,” but that is a challenge policy makers across the world face not just in Saudi Arabia.

In some ways the Kingdom’s capacity to attract foreign investment had been enabled for the pandemic challenge, as far as anybody could be prepared for an event that could lead to the biggest global economic downturn in nearly a century.

In February, before the true implications of the pandemic had really hit home, the Kingdom embarked on a shake-up of its investment infrastructure. The role of the Saudi Arabian General Investment Authority (SAGIA) — the government agency in charge of attracting FDI — was enhanced with the creation of a new ministry-level body, the Ministry of Investment of Saudi Arabia, or MISA.

The government picked one of its best-known and internationally respected policymakers — Khalid Al-Falih, the former minister of energy and chairman of Saudi Aramco — to lead the body. Commentators at the time said that the appointment of such a heavy-hitter, well known in the global investment community, was a sign that attracting FDI had been prioritized on the government’s strategic agenda.


BIO


Education

  • MBA from INSEEC Business School, Paris
  • MBA from Al-Yamamah University, Riyadh 


Career

  • Joannou & Paraskevaides, Executive
  • Silki LA Silki National Telecommunication Co, Development and Logistics Executive
  • Saudi Telecom, Executive
  • Saudi Arabian General Investment Authority, Deputy Governor
  • Deputy for Investor Services at Saudi Arabia’s Ministry of Investment

“FDI is one of the main pillars towards achieving the Vision 2030 goal. Saudi Arabia has a lot of potential for direct investment in many sectors, like tourism, the giga-projects like the Red Sea Development, mining and minerals. The Kingdom can be a logistics hub connecting three continents — Asia, Africa and Europe, which is not so far away,” Al-Suwail said.
“It was a good sign, to build on the work of SAGIA in the past in terms of attracting the attention of the international investor community. We are responsible for governing and safeguarding the Kingdom’s entire investment ecosystem,” he said.

The extent of the challenge is shown by official figures from the UN’s Conference on Trade and Development. Just before the global financial crisis hit in 2008, Saudi Arabia was attracting FDI of around $40 billion per year, but since then it has struggled to get back to those levels. Last year it reached around $4.6 billion, which was an improvement on the previous two years.

SAGIA used a different metric to assess FDI, which showed some promising results. In 2019, there was a 54 percent increase in the number of foreign companies setting up in the Kingdom, with 1,131 international firms choosing Saudi Arabia as a place to do business, compared with 736 the previous year. It was a record year.

The figures for the first quarter of 2020 are being prepared. Al-Suwail said they will show a “solid uptick” over the final quarter of 2019, despite the fact that the serious economic effects of the pandemic kicked in during March.

The onset of the virus prompted a shift of gear at the new ministry. Its program of outward-reaching conferences, seminars and presentations, scheduled for the rest of the year in some of the world’s great financial centers, moved online with the creation of the MISA COVID-19 Response Center (MCRC) a few days after the sickness was declared a global pandemic by the World Health Organization.

“Many countries around the world, because of the global health crisis, are looking inward, but we want to continue to look outward to the rest of the world, as far as we can,” Al-Suwail said.

The MCRC has, in cooperation with other government agencies, acted as a central hub for information on the business effects of the crisis, telling investors of the initiatives and services available during the emergency, giving notice of curfew regulations and exemptions for essential businesses, and providing round the clock support for businesses.

It has also organized a series of international webinars for current and potential investors in order to keep the FDI momentum going during the pandemic. The most recent took place last week with participation from US companies and institutions.

The webinar series will continue over the next few months, and will be both geography and sector-specific. “We are in touch with investors to seek their current needs, and to let them know of the various stimulus packages the government is offering during the pandemic,” he said.

So which sectors are potential foreign investors in Saudi Arabia looking at most enthusiastically? “There is no one single sector. Our message is that Saudi Arabia is open for business, and that we have increased the number of investment opportunities,” Al-Suwail said.

“It is no longer just about oil. There has been big diversification since 2017, and the country is full of other resources and opportunities.”

The mega projects launched as part of the Vision 2030 reform plan are obvious targets for FDI and, before the pandemic crisis, authorities were involved in talks with potential investors in construction, infrastructure, utilities, hospitality and other areas the big projects will need.

Al-Suwail highlighted new opportunities in the Saudi healthcare sector, where a recent change of laws has allowed full ownership by non-Saudi companies. He also sees big opportunities in information technology, tourism and leisure, with the new tourist visa facilitating visits to the Kingdom at an unprecedented level.

Traditionally, trade and investment from the US has been the dominant feature of the Saudi economic scene, but that is changing with the rise of the fast growing economies in Asia. Al-Suwail said the forthcoming figures for the first quarter of 2020 would show big investment from China and India, as well as other partners in more traditional places like the UK and Europe.

One core aspect of the FDI initiative was the privatization program of initial public offerings (IPOs) and trade sales that Saudi policymakers have promoted to attract foreign investors, but this has been slow to get off the ground. The biggest IPO in history, the listing of shares in Saudi Aramco at the end of last year, turned into an event largely focused at Saudi and other Gulf Cooperation Council investors, rather than the rest of the world.

“Privatisation is at the heart of Vision 2030, and we have made remarkable progress. There will be more IPOs, I am sure. We will see that Aramco was just the tip of the iceberg,” Al-Suwail said.

When the new ministry was launched, some commentators were confused as to the relationship between it and the Public Investment Fund, the Kingdom’s big sovereign wealth fund. Since the fall in global asset values brought on by the economic slowdown as a result of the pandemic, the PIF has been actively seeking what it regards as under-valued opportunities in the global cruise industry, leisure and entertainment, and in Western oil companies.

MISA’s focus is on investment into the Kingdom, rather than outward, and, as Al-Suwail explained, it is not itself an investor. “MISA is a facilitator for investment, rather than an investor itself. We manage inward investment end-to-end in the Kingdom. But of course we talk to PIF all the time and work closely with them,” he said.
The overarching aim of the Vision 2030 strategy is to increase the role and importance of the private sector in the Kingdom’s economy, and that chimes well with Al-Suwail’s approach. “I come from the private sector, and the idea there was to achieve the targets set by the company. Now my target is also the country’s target,” he said.
 


The Musk Method: Learn from partners then go it alone

Updated 18 September 2020

The Musk Method: Learn from partners then go it alone

  • Entrepreneur building a digital version of Ford Motor’s iron-ore-to-Model-A production system of the 1920s

Elon Musk is hailed as an innovator and disruptor who went from knowing next to nothing about building cars to running the world’s most valuable automaker in the space of 16 years.

But his record shows he is more of a fast learner who forged alliances with firms that had technology Tesla lacked, hired some of their most talented people, and then powered through the boundaries that limited more risk-averse partners.

Now, Musk and his team are preparing to outline new steps in Tesla’s drive to become a more self-sufficient company less reliant on suppliers at its “Battery Day” event on Sept. 22.

Musk has been dropping hints for months that significant advances in technology will be announced as Tesla strives to produce the low-cost, long-lasting batteries that could put its electric cars on a more equal footing with cheaper gasoline vehicles.

New battery cell designs, chemistries and manufacturing processes are just some of the developments that would allow Tesla to reduce its reliance on its long-time battery partner, Japan’s Panasonic, people familiar with the situation said.

“Elon doesn’t want any part of his business to be dependent on someone else,” said one former senior executive at Tesla who declined to be named. “And for better or worse — sometimes better, sometimes worse — he thinks he can do it better, faster and cheaper.”

Tesla has battery production partnerships with Panasonic, South Korea’s LG Chem and China’s Contemporary Amperex Technology Co. Ltd. (CATL) that are expected to continue.

HIGHLIGHTS

  • Investors awaiting ‘Battery Day’ announcements on Sept. 22.
  • Musk has hinted at significant new battery developments.
  • Partners and acquisitions have helped give Tesla an edge.

But at the same time, Tesla is moving to control production of cells — the basic component of electric vehicle battery packs — at highly automated factories, including one being built near Berlin, Germany and another in Fremont, California where Tesla is hiring dozens of experts in battery cell engineering and manufacturing.

“There has been no change in our relationship with Tesla,” Panasonic said in a statement provided by a company spokeswoman.

“Our relationship, both past and present has been sound. Panasonic is not a supplier to Tesla; we are partners. There’s no doubt our partnership will continue to innovate and contribute to the betterment of society.” Tesla did not respond immediately to a request for comment.

Since he took over the fledgling company in 2004, Musk’s goal has been to learn enough — from partnerships, acquisitions and talent recruitment — to bring key technologies under Tesla’s control, people familiar with Tesla’s
strategy said.

They said the aim was to build a heavily vertically integrated company, or a digital version of Ford Motor Co’s iron-ore-to-Model-A production system of the late 1920s. 

“Elon thought he could improve on everything the suppliers did — everything,” said former Tesla supply chain executive Tom Wessner, who is now head of industry consultancy Imprint Advisers. “He wanted to make everything.”

Batteries, a big chunk of the cost of an electric car, are central to the Musk method. While subordinates have argued for years against developing proprietary Tesla battery cells, Musk continues to drive toward that goal. “Tell him ‘No,’ and then he really wants to do it,” said a third former Tesla veteran.

The changes in battery design, chemistry and production processes Tesla expects to reveal next week are aimed at reworking the math that until now has made electric cars more expensive than carbon-emitting vehicles with combustion engines.

Tesla is planning to unveil low-cost batteries designed to last for a million miles. 

Tesla is also working to secure direct supplies of key battery materials, such as nickel, while developing cell chemistries that would no longer need expensive cobalt as well as highly automated manufacturing processes to speed up production.

Panasonic is partnered with Tesla at the $5 billion Nevada “Gigafactory,” while CATL and LG Chem supply cells to Tesla’s Shanghai factory, where battery modules and packs are assembled for its Model 3 sedan.

Panasonic recently said it is planning to expand its production lines in Nevada, which supply the cells that then go into the battery modules assembled next door by Tesla.

But the Nevada Gigafactory partnership almost didn’t happen, according to two former Tesla executives. Musk ordered a team to study battery manufacturing in 2011, according to one former executive, but eventually partnered with Panasonic in 2013.

Now, Tesla is testing a battery cell pilot manufacturing line in Fremont and is building its own vast automated cell manufacturing facility in Gruenheide in Germany.

The roller-coaster relationship with Panasonic mirrors other Tesla alliances.

During its development alliance with Germany’s Daimler, which was an early investor in Tesla, Musk became interested in sensors that would help to keep cars within traffic lanes.

Until then the Tesla Model S, which Mercedes-Benz engineers helped to refine, lacked cameras or sophisticated driver assistance sensors and software such as those used in the Mercedes S-Class.

“He learned about that and took it a step further. We asked our engineers to shoot for the moon. He went straight for Mars,” said a senior Daimler engineer said.

Meanwhile, an association with Japan’s Toyota, another early investor, taught him about quality management.

Eventually, executives from Daimler and Toyota joined Tesla in key roles, along with talent from Alphabet Inc’s Google, Apple, Amazon, Microsoft, as well as rival carmakers Ford, BMW and Audi.

Some relationships did not end well, however.

Tesla hooked up with Israeli sensor maker Mobileye in 2014, in part to learn how to design a self-driving system that evolved into Tesla’s Autopilot.

“Mobileye was the driving force behind the original Autopilot,” said a former Mobileye executive, who declined to be named.

Mobileye, which is now owned by Intel, also recognized the risk of sharing technology with a fast-moving startup like Tesla, which was on the brink of collapse at the end of 2008 and now has a market value of $420 billion.

US tech firm Nvidia followed Mobileye as a supplier for Autopilot, but it too was ultimately sidelined.

In addition to partnerships, Musk went on an acquisition spree four years ago, buying a handful of little-known companies — Grohmann, Perbix, Riviera, Compass, Hibar Systems — to rapidly advance Tesla’s expertise in automation. Maxwell and SilLion further boosted Tesla’s ability in battery technology.