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Economy, Geopolitics, Investment

It’s no secret that Saudi Arabia is making moves to diversify its economy away from a reliance on oil. Riyadh has heavily focused on tourism, but also hinted at ventures in sports, invested large sums in blue-chip Western firms, and is now turning its attention to luring large multinational firms to the nation’s capital.

 

Saudi Arabian Crown Prince Mohammed bin Salman is pushing for “Programme HQ”, a plan to draw in multinationals from the regional business hub of Dubai, UAE, according to the Financial Times.

 

The laundry list of incentives includes a 50-year tax holiday, scrapping the tough quotas to hire Saudi nationals for foreign firms, and protections against an array of future regulations. MBS is hoping to attract regional offices of companies like Google.

 

But the Saudis face stiff competition from Dubai, an established business hub with quick flight connections to Europe and a more Western education system for the children of foreign executives.

 

The ambitious project is part of the Kingdom’s even more ambitious Vision 2030, a program led by MBS to diversify and modernize Saudi Arabia’s economy and infrastructure.

 

With strong competition from the UAE and a damaged reputation abroad after the Jamal Khashoggi assassination, Saudi Arabia may face an uphill battle in its quest to meet its lofty goals by 2030.

 

Brewing Rivalry?

In recent regional geopolitical matters, the United Arab Emirates has been cast as a strong Saudi ally. Relations have not always been rosy in the past, but the two Gulf states have found cooperation against Iran as a fruitful venture.

 

The two were the most important players in the blockade of Qatar that spanned three and a half years and attempted to economically strangle their neighbour. The blockade, originally put in place due to the Saudi coalition’s concerns about the growing relationship between Qatar and Iran, was ended at the start of 2021. While the Saudis led the charge for reconciliation, some analysts say to appease the incoming Biden administration, the UAE expressed more reluctance.

 

The allies have also become deeply involved in the Yemeni Civil War, an ongoing conflict that has left Yemen in ruins, over 200,000 Yemenis dead, and over 3 million citizens displaced. The active role of the two states in the death and destruction has also led to concerns on the world stage that have already spilled over into other areas.

 

Both Italy and the United States recently blocked arms sales to Saudi Arabia and the UAE for their active role in Yemen.

 

After years of close relations and an expanding footprint in the region, the Saudi-UAE partnership is being put to the test by its worsening international standing. As Saudi Arabia continues its push for economic diversification it may need to tamper the ratcheting tensions with Iran, a game that might require more diversification in terms of allies and partners.

 

Not only Qatar, but even Israel is looking to benefit from improved relations with the Gulf states as a potential realignment in the Middle East takes place.

 

Biden

Arguably one of the biggest catalysts for Saudi Arabia’s geopolitical realignment in the last months has been the anticipation of the new Biden administration. While Biden’s Secretary of State seems keen on remaining hawkish on Iran, a public reversal on the Trump administration’s cosy relations with the Kingdom has already been established.

 

The Biden campaign team said the Trump administration “wrote Saudi Arabia a blank cheque,” and the Biden presidency is looking to focus more on human rights concerns in Saudi Arabia.

 

Much of the increase in the Saudi’s purchasing of arms sales began under the Obama administration, and the current pause on arms sales to Saudi Arabia was pitched by Secretary of State Antony Blinken as a routine reassessment of the country’s arms sales to Saudi Arabia and the UAE.

 

While President Biden was Vice President from 2008-2016, he and the administration were not known to have a particularly strong stance on Saudi Arabia.

 

Further than just arms sales, a hardened relationship with the United States could damage Saudi’s chances of attracting foreign business headquarters under their Programme HQ plans.

 

Some businesses like Google, Alibaba, and Western Union have announced increased office space and investment in Saudi Arabia, but Riyadh has yet to convince a major firm to move their regional headquarters to the country. And deals like Google’s cloud service made with Saudi oil company Aramco have led to public dismay among employees.

 

“The biggest challenge MBS has in remaking the Saudi economy is getting foreign companies to invest in Saudi Arabia… Despite all these enticements, it hasn’t happened,” MBS biographer Justin Scheck told The Daily Beast.

 

Before the Khashoggi assassination, Saudi Arabia was already struggling to attract foreign investment, and this already with the “blank cheque” from the Trump administration in full effect. The Kingdom’s most ambitious plans are still hampered by a poor image internationally, and with a new administration, MBS and Saudi Arabia have had to seek a new path internationally.

 

Whether the Kingdom will be able to pull foreign firms away from their allies in Dubai largely depends on how much Saudi Arabia can mend their reputation and how receptive foreign governments and businesses are to the public relations offensive.

 

While Saudi Arabia may struggle to find foreign firms to move to Riyadh, recent history has shown that foreign firms are eager to cover for the potential of heavy investment from the Public Investment Fund of Saudi Arabia. But now the task lies ahead for MBS to reverse the course and convince foreign firms to invest in his country.

 

 

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