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Economy, Geopolitics, Investment

A futuristic, sustainable city to house one million residents without cars, streets, or emissions and all built in a straight 170-kilometre line? It sounds like something out of a science fiction novel, but it’s part of Saudi Arabia’s plan to diversify its economy.

 

Saudi Crown Prince Mohammed bin Salman unveiled his most ambitious project, a 170-kilometer city called The Line, related to the proposed city Neom in January 2021 with a slick promotional video.

 

A diverse megacity with an emphasis on sustainability, contouring urban life to nature, and artificial intelligence-driven public services, the project is not short on ambition. But, international media and independent observers have noted the lack of details thus far.

 

Furthermore, critics question the feasibility of the project considering past Saudi projects to build cities in the desert including the incomplete King Abdullah Economic City.

 

The Line and Neom are also not being built on ‘virgin land’ as some consultants claim, with activists and tribal community members outraged as the Huwaitat tribe is forced off their land. Activist and Huwaitat tribal member Abdul-Rahim al-Howeiti was killed by Saudi police forces in April 2020.

 

So why build a $500 billion speculative city project on desert land partially occupied by tribal members? Is it part of MBS’s plan to modernize the Saudi economy and revolutionize Saudi society or is it a cash grab for Western firms as Saudi Arabia spends its petrodollars?

 

Forward Thinking or Petrodollar Problem?

 

During the Crown Prince’s tenure thus far, Saudi Arabia has aggressively emphasized economic diversification. Saudi’s Public Investment Fund has been routinely injecting cash into tourism projects and paying Western influencers to promote Saudi tourism to American and European travellers.

 

Since the inception of the petrodollar, OPEC nations and other oil-producing nations are paid for oil in US dollars, Saudi Arabia has been a frequent investor in American firms. In 2016, Uber received $3.5 billion from the Public Investment Fund.

 

But as concerns about Saudi Arabia’s dependency on oil grow, or if read more generously, growing worry about climate change and resulting ecological disaster, MBS and Saudi Arabia have looked to depart from their traditional petrodollar economy.

 

As the petrodollar became widely used in the 1970s, Saudi Arabia became awash in US dollars. Since it’s not easy to simply convert the massive amounts of US dollars into local currency, oil-rich nations had to turn to different spending measures.

 

During periods of peak oil prices, a phenomenon known as petrodollar recycling was employed. The Saudi Public Investment Fund was founded in 1971, giving the Saudi state the ability to spend this money abroad on foreign firms that could use American dollars.

 

This economic model has also led to a wide array of ambitious vanity projects as OPEC nations periodically are pumped with more petrodollars than they can efficiently spend in their domestic economy.

 

This economic structure has largely remained intact and the PIF has ratcheted up investments in foreign firms in recent years including a shrewd $7.7 billion purchase of blue-chip American stocks during the COVID-fuelled stock market downturn.

 

But recently, MBS has shown a preference to perhaps turn away from this oil-dependent petrodollar model. Saudi Arabia announced a plan called “Programme HQ” a project to lure multinationals away from Dubai and increase foreign investment in their country.

 

The plan highlights the Kingdom’s struggle to attract large foreign investment outside of the oil industry. Saudi Arabia has always been able to attract foreign companies to throw petrodollars at, but it has long been a one-way street.

 

Even under Programme HQ, Saudi Arabia is offering massive tax breaks, but due to political controversies, foreign money might elect to stay away from investing in Riyadh.

 

Neom and The Line are incredibly ambitious, but they are not completely unprecedented in Saudi or regional history. If it succeeds, the project would be a great shift in the economy of Saudi Arabia, and a potential way out of the petrodollar trap as it would greatly increase foreign investment.

 

However, this is dependent on turning the ambitious plans on paper into reality and convincing the international community that a line city in the middle of the desert is a desirable location to visit, do business in and move to.

 

Can it Succeed

 

As stated before, The Line is scant on details. A promotional video on the official Neom YouTube channel mentions “invisible technology” that will generate “carefree and open urban space” as an animated underground network called “The Spine” displays a metro and high-speed rail.

 

The project is also billed to be zero emissions and powered by “100% clean energy” while preserving 95% of the surrounding nature. Alongside the environmental promises, developers say The Line will create nearly 400,000 jobs and massively increase the country’s GDP.

 

The Line is part of the larger Neom project, a metropolis being built in Tabuk, Saudi Arabia in the northwest of the country.

 

Without getting too far into the weeds on the feasibility of the speculative city based on the limited public information, what we can investigate is what geopolitical ramifications such a project could have.

 

Neom and The Line are set to be built on the Gulf of Aqaba, an area of water that borders Jordan, Israel, and Egypt.

 

Saudi Arabia has been one of the leading Arab nations seeking rapprochement with Israel in recent years. Some of the more ambitious plans for Neom and The Line would require normalized diplomatic relations with Israel, a prospect that would anger Palestinians.

 

Riyadh has also shifted its diplomatic tone in recent months as it prepared for the new Biden Administration in Washington. President Biden said he would be much harsher on Saudi Arabia than his predecessor as the US and Saudi Arabia enjoyed close ties during President Trump’s four years in the Oval Office.

 

But President Biden has refused to sanction Saudi Arabia or the Crown Prince despite American intelligence linking MBS with the 2018 Jamal Khashoggi assassination.

 

The Khashoggi assassination continues to dog bin Salman’s public image, but the West’s reluctance to exact retribution exemplifies Saudi Arabia’s close ties with the West and the pivotal role it plays diplomatically in the region.

 

If Neom and The Line are to even get off the ground, MBS will likely have to regularly pull out the pocketbook and continue splashing the cash in foreign economies. Whether or not they will return the favour to Saudi Arabia is the massive bet the Crown Prince is making with Neom and The Line.

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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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Economy, Geopolitics, Investment

A Saudi-led consortium’s bid to purchase Newcastle United failed after months of controversy surrounding the planned takeover.

 

The biggest sticking point was the Premier League viewing the Saudi Public Investment Fund (PIF), the group behind the bid, as a proxy for the Saudi state.  Saudi Crown Prince Mohammed bin Salman is the chairman of the Saudi Public Investment Fund.

 

But the group cited “this difficult phase marked by the many real challenges facing us all from Covid-19,” as a chief reason for the deal falling apart.

 

The deal falling through was a surprise to many as the deal was in its final stages. Newcastle’s current owner Mike Ashley, CEO of Sports Direct, will keep the £17 million deposit put down by the Saudi-group. The final deal would have seen the club sold for £300 million.

 

The collapse of the deal is a major setback for Saudi’s sovereign wealth fund, as the purchase of a Premier League club could have been a huge public relations coup. Saudi Arabia has struggled in the public eye of the West after the murder of Jamal Khashoggi in a Saudi consulate in Turkey.

 

Some recent investments from the fund have also decreased massively in valuation. In May, Softbank announced its Vision Fund, in which the Saudi sovereign fund invested $45 billion, lost $17 billion in the last fiscal year after it wrote down the value of WeWork and Uber.

 

Despite the setbacks, the Saudi Public Investment Fund announced it was still keen to continue the takeover if the Premier League gave the deal the green light. Newcastle United fans have also petitioned the Premier League to provide more details as to why the takeover deal was abandoned after four months of negotiations.

 

While the deal might not be completely dead, the prolonged process and massive money put up shows the PIF and the Saudi state are still keen on further diversifying their economy and wealth. However, that process may come at a higher price due to strained diplomatic relations and poor public relations.

 

Economic Diversification

 

The Saudi state and the PIF have long been pushing for more diversification in order to lessen the country’s dependency on oil. The push has been spearheaded by Crown Prince bin Salman, who has deployed a charm offensive on Western companies and politicians.

 

But in the wake of Khashoggi’s murder, the business relations between foreign companies and the Saudi state have become more difficult.

 

Shortly after the incident in 2018, an array of businesses, media companies, politicians, and international organizations pulled out of business deals or refused to attend business forums in Riyadh.

 

The private ventures most supportive of the Saudi state also found themselves in hot water in the wake of the scandal. Uber, who received a $3.5 billion cash injection from the PIF in 2016, stepped into the scandal when its CEO Dara Khosrowshahi dismissed the murder as a “mistake”.

 

Not only has the push for economic diversification come with diplomatic headaches, but some of its most high-profile investments have resulted in massive losses that predate the coronavirus economic crisis. As of late 2019, the PIF had lost $1 billion due to its investment in Uber.

 

Spending Big in the Crisis

 

But big losses and the current economic crisis have not scared off the sovereign wealth fund. The PIF has been pouring money into many ventures as the worldwide economic impact was beginning to hit, attempting to snap up shares in deflating industries.

 

According to the Financial Times, Yasir al-Rumayyan, governor of Saudi Arabia’s sovereign wealth fund, said at a virtual investment conference in April, “you don’t want to waste a crisis . . . So, for us, definitely we are looking into any opportunities.”

 

The PIF invested in a wide range of industries including the hardest hit, acquiring a 5.7% in Live Nation, an American events promoter, and a 7.3% stake in Carnival, the American cruise line.

The Saudis have also been snapping up shares in blue-chip companies with household names like Disney, Facebook, BP, Boeing, and Citigroup.

 

But critics abroad and domestically are beginning to criticize the tactic of splashing cash in foreign companies as it simultaneously funds proxy wars and potentially ignores economic damage at home.

 

The Footprint of Saudi Wealth Domestically and Abroad

 

The PIF’s expanding international investments and its interest in purchasing an 80% stake in a top-flight English football club have drawn attention to the Saudi’s aggressive strategy during uncertain times.

 

The coronavirus crisis has been a devastating period for the Middle East, at first for economic reasons, and now due to a rise in infections for public health reasons. The world economy was brought to a standstill for several months, and it is still far from reaching its pre-pandemic levels.

 

Oil prices have picked up in recent days and weeks, but they are still far off of pre-pandemic levels.

 

And while oil prices were slowly recovering, the rate of coronavirus infections took off in Saudi Arabia. The number of cases is currently stabilizing at over 1,000 a day after peaks of over 4,000 daily confirmed coronavirus cases.

 

$1 billion was pumped into Saudi businesses to keep them afloat during the crisis, but the near-term, as in many countries, still looks grim.

 

The economic developments may put a damper on some of Saudi Arabia and MBS’s more ambitious goals, including Neom, a $500 billion futuristic city planned to be built in the country’s barren northwest.

 

Saudi Arabia’s international engagements may also serve as a thorn in their side. While the Khashoggi murder has proven to be a much worse diplomatic hit, the Kingdom’s involvement in worsening the humanitarian crisis in Yemen through war still draws harsh criticism from many corners.

 

With an aggressive and risky strategy during an unprecedented economic standstill globally, the PIF and Saudi Arabia may pay for its bet against the house. But with growing economic sway in many Western institutions, MBS and Saudi Arabia could be playing a long game that will see them sheltered from their gravest sins.     

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The coronavirus pandemic and subsequent near worldwide shutdown of international travel has hit every economy, but those countries who rely on tourism dollars have been especially impacted. With the European Union wrestling the virus under control after a debilitating number of months, European countries are beginning to open up their borders to other countries with similar numbers of coronavirus cases.

 

The EU announced the first fifteen countries on June 30 that would be allowed access into the EU, and the list includes three North African countries that draw Europeans for tourism in the summer: Morocco, Algeria, and Tunisia. Airlines and the tourism industry will welcome the move, but some countries are still holding off for similar access to the countries, including Spain.

 

Spain is holding out for a reciprocity agreement with Morocco that would allow Spaniards to travel to Morocco. The European Union is also only provisionally open to China on the condition that EU citizens are allowed back into China.

 

Morocco has had one of the strictest responses to the coronavirus with an array of limitations including a complete ban of printing and distributing physical newspapers. Morocco began their lockdown on March 20 when it still had less than 100 cases.

 

An early lockdown prevented Morocco from getting hit with the hardest of the coronavirus and as of July 2, the country of 36 million people has had only 12,854 confirmed cases and 228 deaths. But the Moroccan government has played it very safe and only began lifting the lockdown on June 24, the same day they announced a record 563 coronavirus cases.

 

 

Open for Business?

 

The European Union may have deemed Morocco safe, but the Moroccan government did not immediately open up its borders to European travel. While Moroccans flocked to the beach to celebrate a reopening of public life, the government refused to reciprocate the opening of its border with Europe.

 

Morocco’s coronavirus success story has also come at a high cost with immense restrictions on civil liberty and economic fallout from a stalled economy. Human Rights Watch detailed the case of a woman who was jailed for posting a video online making that poked fun at a strict civil servant enforcing coronavirus rules.

 

The economic fallout from coronavirus has been shared across the globe, but Morocco’s economy comprises heavily on several sources of money that have been heavily impacted by the spread of the virus. Approximately 7% of the country’s GDP comes from remittances from citizens working abroad, a number which is expected to dip in 2020 due to the pandemic.

 

In 2019, the tourism sector accounted for 7% of Morocco’s GDP, and 750,000 people were employed in the industry. Tourism has been brought to a standstill, and the government has tried to encourage domestic tourism to mitigate a predicted $3.4 billion shortfall thanks to coronavirus.

 

The OECD detailed Morocco’s economic woes related to tourism as 2.5 indirect jobs are related to the country’s tourism industry. One industry indirectly related to tourism, gas stations, saw an 80% decrease in revenue in March at the beginning of the lockdown.

 

With an emphasis on domestic tourism, the Moroccan government is acknowledging its reliance on tourism while still remaining cautious about opening its border. While extreme caution has led to concerns in the business world, the Moroccan government’s strong response will help the country build its reputation with coronavirus-fearing travellers.

 

 

Eager to Open

 

One of Morocco’s neighbours reacted more swiftly when the EU began discussing opening up their borders to international travel. Tunisia, another sunny North African nation with a hearty tourism industry, opened its borders to international travel on June 27.

 

Tunisia’s tourism industry is familiar with shocks to its international reputation as it has had to recover from a terrorist attack that killed 38 European tourists in 2015. 2011 Arab Spring protests also reduced international travel from countries with richer tourists.

 

But Tunisia’s touristic draw has proven to be resilient, and the government has shown a greater eagerness to open its borders than Morocco. Tunisia also has a better control over the virus with single-digit case numbers trickling in every day.

 

Tunisia and tourism companies will likely advertise Tunisia’s low level of coronavirus cases and success in suppressing the virus to attract European tourists back to their shores.

 

Rising unemployment numbers have also caused civil unrest in Tunisia with protestors in southern Tunisia demonstrating against the lack of jobs provided by the government. Tunisian police fired tear gas at protestors to disperse a crowd in Tataouine.,

 

Civil unrest due to an economic downturn has not been restricted to Tunisia, Moroccan taxi drivers also demonstrated against coronavirus restrictions. Algeria, another North African country that gained access to the European Union has had sustained protests for over a year. The Algerian movement was able to kick out long-time president Abdelaziz Bouteflika, but they have been less active due to coronavirus restrictions.

 

 

Stability

 

Of Morocco, Algeria, and Tunisia, Morocco has been the most stable in recent years, and this confidence may lead them to the decision to hold off on European tourists until further safety precautions are in place.

 

No country reliant on tourist dollars will fare well if an outbreak occurs due to tourism, but with rising unemployment, some governments will be more receptive to opening than others.

 

If countries like Morocco and Tunisia are able to keep coronavirus numbers down while opening up to tourists for the summer season, they will benefit from the harsh coronavirus regime. It may be the big payoff that many citizens are waiting for, a tourism-induced boost to the economy as a reward for patience and a tough suppression of the virus.

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With the world struggling to combat the spread of the coronavirus (COVID-19) pandemic, G20 countries met virtually to discuss the impacts on the global economy and health. Saudi Arabia is the current chair of the G20, and the country organized the virtual meeting at the end of March ahead of the planned G20 summit this November in Riyadh.

The world economy has been tossed upside down by the lethal spread of COVID-19 which has touched every major economy and brought many regions and industries to a standstill.

It has also thrown foreign diplomacy, with many politicians, ministers, and even world leaders testing positive for the virus. The airline industry is almost entirely shut for business with many countries closing borders or rejecting planes from coronavirus hotspots.

In the Middle East, Iran has been the biggest hotspot for confirmed coronavirus cases and deaths, but it has impacted all nations. According to Johns Hopkins University, Iran has nearly 50,000 cases with 3,000 deaths, Israel and Saudi Arabia also have 6,211 cases and 1,720 cases, respectively (as of 2 April).

In their virtual meeting, trade ministers from the G20 countries agreed to keep their markets open for essential goods and vowed to inject $5 trillion into the world economy.

In a joint press statement, G20 leaders said, “we reiterate our goal to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.”

However, with global economic uncertainty and an uneven response to the crisis around the world, many are still left with questions after G20 leaders’ assurances.

 

Will G20 Members Meet Face-to-Face?

Japan waited as long as they possibly could to postpone the 2020 Summer Olympics, and while the G20 does not create the same stream of tourists, it is still a massive event requiring international travel.

There is no consensus on what the world will look like in November, but many governments are already preparing their populations for COVID-19 to come back in the winter months even if the world manages to get it under control.

Cop26, a UN climate conference, was set to take place in November in Glasgow, but it has already been postponed until 2021 by organizers. The UK’s Secretary of State for Business, Energy and Industrial Strategy, Alok Sharma, said “the world is currently facing an unprecedented global challenge and countries are rightly focusing their efforts on saving lives and fighting COVID-19. That is why we have decided to reschedule Cop26.”

Thus far, only preliminary G20 meetings have moved online, and there has been no indication as to whether the November meeting in Riyadh will continue as planned.

Due to the 2012 MERS outbreak, Saudi Arabia was better positioned than many other countries to handle the wave of COVID-19. The Saudi government has put in stringent rules including suspending access to pilgrimage sites, but the region’s response has not gone as smoothly as South Korea, another country prepared due to recent outbreaks.

While Saudi Arabia may be able to take control of COVID-19 faster than Europe or North America, major economies are preparing for a sustained period of economic inactivity and social distancing. From where we sit now it’s hard to imagine many diplomatic meetings between foreign leaders will take place in-person for the rest of 2020.

 

Rippling Effect on Foreign Diplomacy

With governments scrambling to limit damage to public health and pump money into their national economies, much of coronavirus coverage has been focused on domestic politics. But the virus also has a clear and direct impact on foreign relations that extends to all geopolitical calculations.

In some cases countries look to, at least temporarily, mend strained relations to combat the spread of the virus, but others are hardening stances. The US-Iran relationship is perhaps the starkest example of the latter scenario.

The United States has doubled down on sanctions against Iran after calls for sanctions to be relaxed so Iran can respond to its devastating spread of coronavirus. In the midst of COVID-19 ravaging America, President Trump tweeted, “Upon information and belief, Iran or its proxies are planning a sneak attack on U.S. troops and/or assets in Iraq. If this happens, Iran will pay a very heavy price, indeed!”

The Saudi-Iranian proxy war ripping apart Yemen is also continuing unabated by the threat of coronavirus. While a ceasefire has been agreed to, conflicting reports detail continued airstrikes.

The United Nations also called for a complete nationwide ceasefire in Syria. Despite peace talks in the northeast of Syria, the UN is still worried and said, “the current arrangements are far from ideal for the front-line response demanded by the COVID-19 outbreak.”

G20 leaders have asserted that they are committed to fighting the pandemic and helping “especially the most vulnerable.” But, with diplomatic conflicts and war still raging, much more needs to be done to ensure that all people in the Middle East and the world are better protected.

Whatever form the G20 takes in November, whether it be held virtually, with smaller travelling parties or postponed altogether, its focus clearly will shift to coronavirus response. The choices individual leaders make can have a great impact, but more coordination is needed to achieve the best outcomes.

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Economy, Investment

In October 2017, the government-owned news outlet The Jordan Times reported that Minister of Planning and International Cooperation Imad Fakhoury had met with members of the U.S. administration to ask for additional assistance in carrying out economic development projects in the country. For Fakhoury and the government of Jordan, continual reliance on such assistance from the international community is an important component of their economic development strategy. As one of the few beacons of stability in the region, Jordan has positioned itself as a reliable partner and ally for many countries. Jordan also wants to be increasingly seen as a prime location for international business ventures amidst the crises of the broader Middle East. The government is trying to balance international support with ongoing reform measures to make progress with the Jordan 2025 plan as the guiding mechanism for change.

In fiscal year 2017, the U.S. government reported it provided $1.28 billion in economic aid primarily through macroeconomic growth initiatives via the Department of State and USAID, making Jordan one of the largest recipients for aid.  That was under the Obama administration. Under President Trump, foreign assistance is just one area among several under consideration for deep cuts. As of now, only a little under $400 million is planned for economic assistance to Jordan. Such conversations for the government come at a time when Jordan is leading an ambitious national project to fundamentally revamp many aspects of the country. Launched by King Abdullah II in May 2015, the aforementioned Jordan 2025 plan aims to implement reforms focused on improving the private sector, expanding civil society, and increasing democratic institutionalization. Fakhoury noted, “the main objectives of the blueprint are to address the challenges of rising living costs, poverty and unemployment and to lead the community to a more prosperous level in the coming 10 years.Jordan is just one many countries in the region undertaking ambitious long-term economic plans in this manner. But as the GCC-Qatar rift persists and oil prices continue to fall, Jordan’s path toward diversification puts it further ahead than the Gulf countries.

One way in which these changes are happening on the economic front is through partnerships with other countries and international organizations. The International Monetary Fund (IMF) worked with Jordan to develop an economic development reform package in 2016 to complement the strategy of the Jordan 2015 plan. As part of the reform, an initial assessment of the situation was in order. While Jordan experienced economic progress from 2010 to 2014, stunted growth caused by an influx in Syrian refugees as a result of the Syrian civil war, rising debt and deficits, as well as disruptions in trade caused by regional crises has affected the country since 2015. Though the country is in the process of impleme. These are expected to continue for some time in order to get the country back on track.

Despite these harsh realities, Jordan’s reforms steps are steady. The World Bank recently noted in its 2018 “Doing Business” report that Jordan has improved its ranking to 103 which is not far behind most of the GCC and better than the regional average of 126. “Divided into subnational and regional level analyses, the report covered 11 indicator sets including starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.” Major contributors to this improvement over the last few years included how much easier it is to get credit and streamlining the customs processes at ports.

So what is in store for Jordan? Despite not having a wealth of natural resources like their neighbors in the Gulf and Iraq, Jordan plans to use their strategic geographic location in the region and political stability as a launchpad to the Middle East and Asia for international businesses. As noted in the Jordan 2025 plan, the Hashemite Kingdom wants to become a “regional hub for architectural and engineering services” as well as for transport and logistics. They also plan to further develop several other sectors like tourism, health care, digital business, and financial services. Jordan’s rather liberal society, openness to investment, and stability provide a fertile investment climate for would-be investors.

The major reforms and changes taking place in the country are directed at reducing trade barriers and clarifying and implementing procedures more in-line with international standards. Tariffs and other taxes are still applied to most imports and some items require licenses to import (like pharmaceuticals), but the environment is becoming more friendly to investors and this is a priority for the government. As Jordan moves forward with its reforms, international businesses can look forward to new opportunities in a country in the center of a rapidly changing region.

 

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Economy, Investment

In July 2017 the Central Bank of Egypt announced that they would not issue legislation allowing the trading of cryptocurrencies. The result is that Bitcoin and others are not legal money until they are regulated. Earlier in the summer, Bitcoin Egypt had announced it would go live in August 2017. It was, in fact, this announcement made by Bitcoin that promted the response seen above from the Central Bank of Egypt denying it. Currently the actual launch date is yet to be announced, and there will likely be many more hurdles before Bitcoin and others are able to get the regulation they seek. Cryptocurrency is one of many contentious issues affecting the future of cash in the Middle East.

While there are stark differences in terms of economic development between the oil-rich countries of the Arabian Gulf and the countries of North Africa still reeling from the aftermath of the Arab Spring protests of 2010-2011, there are commonalities. According to Finextra Research, cash is still the preferred method of payment in the Middle East. Most of the region uses smartphones and debit cards, but economic and technological infrastructure is lacking in much of the region. Do a quick Google search on “debit cards in the Middle East” and you will come across endless forums full of would-be travelers asking about the use of debit and credit cards at famous tourist destinations in the region. Unsurprisingly, seasoned tourists recommend they bring the cash and keep the debit card in case they need to use an ATM. While the use of debit cards is on the rise (particularly in the GCC countries), many merchants are not able to handle debit and credit card transactions.

This fact is affecting e-commerce businesses as well. Careem–a ride-sharing competitor of Uber–is currently valued at $1.2 billion and outpaces Uber in the region. One interesting difference: riders can pay in cash. Careem’s success is not felt across sectors. Souq.com, an online shopping platform, was the region’s primary destination for online goods since 2005. In the spring of 2017, Amazon acquired Souq.com in an attempt to expand its reach further into the region after a decline in sales. But much like their earlier venture into e-commerce in the Middle East, a problem remains: how to get customers to pay online?

One idea that has been suggested is the use of Bitcoins, or generally, cryptocurrency. The huge advantage being that a user would not need a bank account, only an internet connection and an e-wallet. With this in mind, it is not surprising that a few Bitcoin companies have emerged in the region. ShuBitcoin touts the benefits, “The Middle East, unfortunately, ranks among the lowest in terms of access to financial services. However it also has one of the highest mobile penetration rates in the world, and Bitcoin has the potential to bring financial services to anyone with a phone.” Not only can this be helpful for the average person wishing to make transactions online, it also provides access to international markets for businesses which has been particularly helpful for startups in the Gulf.

Unfortunately cryptocurrencies have been abused and globally there have been many reports that terrorist groups have used Bitcoin transactions to fund their activities, undetected in the secure blockchain records. For governments that have difficulty monitoring financial activity and without strong institutional capacity to handle corruption, Bitcoin poses a problem. If Bitcoin is attractive because one does not need a bank account and because the transactions are secure, governments are more likely to have an issue.

Whatever the issues are for Bitcoin and other e-commerce activities, it cannot be denied that the use of internet for financial transactions is popular in the region. With a large youth population and high internet penetration and mobile phone usage, it is inevitable that the Middle East will become better integrated into trends of digital transactions and commerce.

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Geopolitics, Investment
For a long time China had viewed the Middle East as a US influence zone. But, as a reflection of its growing power and ambitions, it is now becoming a more visible actor in the Middle East. Beijing’s involvement in the region is primarily motivated by its economic interests. Qatar is China’s top gas provider and Saudi Arabia is its second largest oil supplier. The United Arab Emirates (UAE) serves as a distribution centre for China as most Chinese exports to the Gulf Cooperation Council, West Asia, Africa, and Europe go through the UAE. As demonstrated in the table below, its trade relations with the region have also grown tremendously and are likely to grow further. In fact, it has recently signed a major deal with Saudi Arabia that worth nearly $65 billion and agreed to increase bilateral trade with Iran to $600 billion in the next ten years.

 

China’s trade volume with S. Arabia, Iran, Egypt, Turkey, and UAE in 2005 vs. 2015

 

 

Saudi Arabia

Iran

Egypt

Turkey

UAE

Year

Export

Import

Exports

Imports

Exports

Imports

Exports

Imports

Exports

Imports

2005

3,824

12,246

3,297

6,787

1,934

211

4,254

622

8,730

2,046

2015

21,684

30,151

17,831

16,035

11,963

916

18,63

2,961

37,069

11,532

Note: Total Import / Export Value in millions of US Dollars – current value.

Source: Compiled from the World Integrated Trade Solution database (World Bank), which is available at http://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/2005/TradeFlow/EXPIMP/Partner/ARE/Product/all-groups

China’s interest in the Middle East is also related to its ambitious “Belt and Road Initiative” (BRI). In 2014 Beijing launched this $40 billion project that aims to revive the Silk Road, its ancient trade network, to connect China to Central Asia, the Middle East, Africa and Europe through roads, railways, ports, and oil and gas pipelines. There are already noteworthy achievements. For example, in 2016, a freight train made the journey from China to Iran in just 14 days, significantly shortening the regular 45 days delivery time via sea route. Beijing is also currently negotiating a free trade agreement with the Gulf Cooperation Council (GCC) and working with Israel on a railway proposal to connect the Red Sea to the Mediterranean that bypasses the Suez Canal. Once completed, the BRI will significantly boost China’s trade and economic relations globally.

There are also political motives that might explain the recent momentum in China-Middle East relations. Beijing’s most important foreign policy conflict involves the South China Sea (SCS), which is one of the most strategic commercial shipping routes in the world and also contains significant natural resource reserves. Beijing claims sovereignty for nearly the entire SCS. However, the United States doesn’t recognise Beijing’s claim, viewing it as a violation of international law and maintains a strong military presence in the region to challenge China. As a rising power, China first needs to secure control of its neighbourhood. Its greater involvement in the Middle East may help China in this regard by diverting US attention away from the SCC to the Middle East. In fact Beijing announced its first “Arab Policy Paper” in 2016, recently opened its first overseas naval base in Djibouti and started the construction of an arms factory in Saudi Arabia to manufacture armed. Others had previously refused as China has grasped the opportunity.

Beijing also actively promotes the Shanghai Cooperation Organisation (SCO) in the Middle East, a security organisation jointly led by China and Russia. Iran applied for SCO membership in 2008 and Turkish President Erdogan mentioned in 2016 that Turkey could also seek SCO membership. India and Pakistan have recently become full members, and China’s Deputy Foreign Minister Li Hailai stated that Beijing “welcomes and supports Iran’s wish to become a formal member of the SCO” and would also consider Turkey’s membership if it files an application. China’s Ankara ambassador also stated in May 2017 that Beijing “is ready for Turkey’s membership.”.

China is now a more active player in the Middle East, not only in economic but also in political terms. China’s active engagement in the Middle East may actually contribute to stability in the region. A stable Middle East serves China’s interests better as conflicts within the Middle East such as the Qatar crisis pose a threat to its energy supplies, free-trade negotiations, BRI project, and regional trade prospects. Beijing emphasises sovereignty, territorial integrity, and the principle of non-intervention and avoids taking a clear side in political conflicts in the area. It maintains good relations with both Iran and Saudi Arabia and has no major enemy in the region. Beijing appears to be an honest and impartial broker in Middle East conflicts and may soon play a greater role in mediating disputes, which may further strengthen its standing in the region in future.

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Investment

In March 2015, Egyptian President Abdel Fatah El-Sisi announced at the Egypt Economic Development Conference the intent of the government to build a new capital for the country. Dubbed the New Capital Cairo Project, the conference convened to encourage international investment in an ailing economy. According to the project’s website, “Cairo Capital is a momentous endeavour to build national spirit, foster consensus, provide for long-term sustainable growth and address various issues faced by Egypt through a new city, which will create more places to live, work and visit.”[1] The Egyptian government looks to the booming cities of the Gulf for inspiration in their desire to build smart cities fueled by renewable energy and controlled traffic congestion while reflecting Egypt’s unique geographical and geostrategic location. But Egypt is plagued by corruption and, despite the goals of the Arab Spring protests, an authoritarian government. International investors have taken to the project, seeing Egypt’s re-emerging role in the region as a boon for business. But only time will tell if this mega-project will have the intended effect of changing perceptions and situations for all Egyptians.

In late 2016, the Egyptian government announced new details on the project. The new capital will be located 28 miles (45 kilometers) to the east of Cairo and will occupy about 170,000 acres of land.  The first stage should be completed within two years and will include the construction of the buildings of the ministries and legislative bodies, embassies, universities, “smart” villages, and a central park, “the largest in the Middle East.”[2] The new capital is expected to house about 250,000 people downtown and about 5 million throughout the city. With this comes a need to address Egypt’s notorious traffic congestion issue. According to Youm7 news, the streets of the capital are expected to span about 124 meters over 6 lanes compared to Egypt’s maximum 90 meters across.[3]

While the government claims it will be built 100% by Egyptians, there has been much interest from international investors, particularly from China. Despite hiccups with Dubai-based and Chinese investors earlier in the year, the project is now moving forward with China Fortune Land Development (CFLD). “The company is developing similar projects for China’s own planned new central government district in Xiongan as well as other locations in China, Indonesia, Vietnam and India. The Egypt project would be its first in Africa.”[4] This is an important step for China, as it builds its influence in the region. While China’s competitors in the region–the United States and Russia–are embroiled in the conflicts in Syria and Iraq, the Middle Kingdom is looking towards a future beyond conflict. In 2016, China released strategy on engaging the Middle East.[5] China’s focus on developing the “Silk Road Initiative,” which aims to develop the economic capacity of China and 60 other nations into an economic zone, extends to Egypt. “Although most of the mutual trade between China and Egypt is represented in Chinese exports to the most populous Arab country, China imports of Egyptian commodities in the first two months of 2017 have reached 159 million dollars, with a 326.25 percent year-on-year growth.”[6]

The development of a new capital with modernised amenities seems like a dream for would-be Cairenes who grow weary of the grit and gridlock, but Egypt’s recent history of taking on mega projects without ample planning and forecasting may work against them. In the past two decades, the government constructed satellite cities around Cairo in hopes of encouraging people to move into less densely populated areas. Apartment complexes and shopping centers sprung up, but the move by city dwellers has been slow.[7] Not only is there a lack of available public transportation to downtown Cairo other than the city’s populous “microbus” system, but housing and entertainment amenities are expensive.

While this project may appear to be the solution to Cairo’s problems, there are other issues that must be addressed to ensure that the new capital does not end up like the last one. Chief among them is financial mismanagement. The Egyptian pound’s value has been decreasing since the 2011 revolution and the government has struggled to secure loans to fund various economic reforms such as cutting subsidies. Corruption is another challenge. According to the U.S Department of Commerce, “Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.”[8] Corruption runs deep and is one of the triggering factors of the Arab Spring protests. Unless these issues are addressed, Egypt’s grand new capital may flounder before it gets off the ground.

 

[1] http://thecapitalcairo.com/about.html

[2] http://www.youm7.com/story/2016/11/7/العاصمةالإداريةالجديدةمشروعقومىبأيادمصرية-100-تستوعب-6/2956949

[3] http://english.alarabiya.net/en/business/economy/2017/07/29/Egypt-s-new-capital-among-world-s-top-urban-mega-projects-.html

[4] https://asia.nikkei.com/Business/Companies/Chinese-project-to-build-new-Egyptian-capital-revived

[5] http://news.xinhuanet.com/english/china/2016-01/13/c_135006619.htm

[6] http://www.globaltimes.cn/content/1045999.shtml

[7] http://www.cnn.com/2016/10/09/africa/egypt-new-capital/index.html

[8] https://www.export.gov/article?id=Egypt-Corruption

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Geopolitics, Investment
In June 2017, Saudi Arabia, Bahrain, the United Arab Emirates (UAE), and Egypt cut political and economic ties with Qatar over an accusation that it supports terrorism in the region. Qatar, a small Gulf country that tries to pursue an “independent” foreign policy, has been under intense pressure by the Saudi camp. Saudi Arabia, Bahrain and UAE accused Qatar of sponsoring terrorism in the region several times in the past and even withdrew their diplomatic missions in 2014 for eight months. But this time the Saudi Camp has more support in the region and appears to be more aggressive. Qatar’s policymakers are now in a difficult position. Their domestic legitimacy and international standing will significantly weaken if they submit to the Saudi camp, but will face a political and economic isolation if they don’t.

Turkish President Erdogan harshly criticised the Saudi-led sanctions, immediately started delivering food supplies to the country and quickly ratified a previously signed military agreement to deploy troops to a Turkish military base in Qatar.

Turkey and Qatar already had strong ties before the crisis. Their foreign policies have been in alignment in most critical issues threatening the region. Both Turkey and Qatar have opposed the military coup in Egypt that carried Abdel Fattah el-Sisi to power, refused to recognise Hamas and the Muslim Brotherhood as terrorist organisations, and provided support for the rebel groups that fight against the Assad regime in Syria. Moreover, to the dismay of Saudi Arabia, which views Iran as a major security threat to its livelihood and thus aims to isolate it, Turkey and Qatar refuse to distance themselves from Iran.

Thus, what brings Turkey and Qatar closer is their similar foreign policy orientations in the region. The Erdogan administration doesn’t have many allies left in the region with a similar foreign policy outlook and is likely to face further political isolation in if it loses Qatar.

There are also additional reasons that might explain why Turkey backs Qatar in the conflict. On 18 December 2016, during one of their frequent meetings, Qatari Emir Al Thani signed an arms trade deal with Erdogan, agreeing to buy $2 billion worth of arms from Turkey. Qatar’s strong reserves serve as a foreign policy tool for the country. Such deals, whilst helping Qatar to diversify its arms suppliers, are particularly important for Erdogan as his administration which has been heavily investing in domestic arms production with a declared aim to change Turkey from being an ‘arms importer’ to an ‘exporter.’ The arms deal with Qatar in this regard sends a signal to Erdogan’s conservative supporters that the country is on the right track.

Qatar also serves as an emergency energy supplier for Turkey, which is located in an unstable political neighbourhood and has to rely on Russia and Iran for its energy needs. But this means that Turkey’s energy security is always at risk. Qatar provided liquefied gas to Turkey when its gas supplies were threatened after it shot down a Russian warplane in November 2015, demonstrating how important it is for Turkey to have a reliable energy supplier at the times of crisis.

Qatar also provides an investment platform for Turkish companies that have lost their market shares in Libya, Egypt, Russia, Iraq, and Syria. This is especially important for the Turkish construction industry, which is one of the most prominent sectors in Turkey and dominated by contractors with close ties to Erdogan. The Turkish construction industry has already set its sights on the $170 billion investment budget that Qatar has allocated for its hosting of the 2022 World Cup. In fact, Turkish Deputy Prime Minister Mehmet Simsek recently said: “Turkish contractors have undertaken projects worth $13.7 billion in Qatar. Qatar is according positive discrimination to Turkey not only in words but also in deeds, giving strong support to Turkish companies doing business there… I’d like to also underline that we are ready to provide any contribution to our Qatari friends in the 2022 World Cup organization.” (http://www.atimes.com/article/qatari-money-rise-turkey/)

It should be noted that Turkey’s support to Qatar is primarily motivated by political concerns, not by economic ones. In fact, Saudi Arabia and the UAE have always been a more important economic partner for Turkey and the Erdogan administration has been trying to further improve Turkey’s economic relations with them. According to the World Bank trade data, Turkey’s exports to the UAE totalled $4.7 billion and to Saudi Arabia $3.5 billion in 2015, while the same figure for Qatar was only $423 million. (http://wits.worldbank.org/CountryProfile/en/Country/TUR/Year/2015/TradeFlow/EXPIMP/Partner/SAU/Product/all-groups) But there are now social media campaigns in Saudi Arabia and the UAE that call people to boycott Turkish products. (http://www.birgun.net/haber-detay/calls-from-saudi-arabia-and-uae-to-boycott-products-of-turkey-amid-qatar-crisis-163961.html). There are also reports that the Al-Sisi government in Egypt has asked the Saudi-led coalition to apply economic sanctions against Turkey. (https://www.middleeastobserver.org/2017/06/16/37406/)

Because Turkey’s foreign policy orientation is similar to that of Qatar, it delivers a great blow to Turkey’s international legitimacy and standing if Qatar submits to the Saudi camp. But Turkey has also no intention of upsetting its relations with Saudi Arabia and its allies like the UAE. Having said this Ankara cannot assume a mediator role in the crisis because of its involvement in Qatar. This is why Erdogan’s July 23-24 visit to Gulf countries may be interpreted as a damage control attempt by Erdogan to show that Turkey’s involvement in Qatar is not an anti-Saudi move and his administration would like to maintain good relations with the Saudi camp. The problem lies in the fact that Turkey has already become a party to the conflict. At the moment, the Erdogan administration can only hope that the mediation efforts undertaken by Kuwait and the United States will resolve the crisis on favourable terms to Turkey.
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