44 Middle East & Africa The EconomistNovember 9th 2019
I
nside an ornate conference hall the
boss of a $100bn tech fund spoke to rows
of empty chairs. Then he briefly fell asleep.
Outside the hall Anthony Scaramucci, the
colourful financier who lasted ten days as
Donald Trump’s communications director,
dispensed questionable political analysis.
An American company hawked jetpacks. A
robot urged passers-by to tickle her head.
“It will make you feel better,” she said.
This was the third Future Investment
Initiative (fii), Saudi Arabia’s flagship
business conference. The event, which
wrapped up in Riyadh on October 31st, at-
tracted some 6,000 guests. That made Sau-
di officials feel better. The first fii, in 2017,
was a coming-out party for the economic-
reform programme of Muhammad bin Sal-
man, the crown prince (pictured). But the
second, last year, was overshadowed by the
murder of Jamal Khashoggi, a journalist, by
Saudi agents. Top executives stayed away.
They had no qualms about attending
this year’s event, where officials pushed a
narrative of progress. Many guests argued
that the kingdom had learned a lesson
from the furore over Khashoggi. It is true
that Saudi agents have not dismembered
any journalists in the past 12 months. But
this reflects conquest, not contrition: crit-
ics have been cowed into silence. On No-
vember 6th two employees of Twitter were
charged in America with using their access
to help Saudi Arabia spy on dissidents. De-
termined to stifle dissent at home and
whitewash its image abroad, the kingdom
has deprived itself of valuable input on a
bold but flawed reform agenda.
To be sure, there are positive signs.
Non-oil growth has ticked up and unem-
ployment down. Officials at the fiiwere
eager to talk about the kingdom’s jump in
the World Bank’s Ease of Doing Business In-
dex (it rose 30 places, to 62nd). Riyadh, the
dour capital, has loosened up in ways un-
thinkable five years ago. A cultural festival
hosted performances of the “Wizard of Oz”,
a remarkable sight in a place that long pros-
ecuted people for “witchcraft”. In Septem-
ber Saudi Arabia began issuing tourist visas
to citizens of dozens of countries.
Saudi Arabia signed $20bn of deals at
the fii. More than half of that, though,
came from a single $11.5bn joint venture to
build power plants and other infrastruc-
ture in the western city of Jizan. Such pro-
jects tend to create few jobs for Saudi na-
tionals. Though inward foreign directinvestment (fdi) more than doubled last
year, to $3.2bn, it is still far below the levels
of a decade ago (see chart). Many of the at-
tendees at the fiiwere keen not to invest
but to win state contracts.
After a contraction in 2017, the Saudi
economy is growing, with non-oil gdpup
by 2.9% in the second quarter of this year
(though weak oil revenue left overall
growth at 0.5%). So the finance ministry
says it will stop priming the pump and re-
duce spending by 3% in 2020. But it is hard
to say what is “non-oil” growth in a country
where even sectors such as construction
rely on oil-funded government spending.
On the kingdom’s most important pri-
ority, creating jobs for citizens, progress is
both visible and slow. Young Saudis wel-
come guests to hotels and brew lattes in ca-fés, unimaginable sights in most Gulf
countries. But unemployment among na-
tionals remains above 12%. Executives
grumble about ever-higher fees for em-
ploying foreign labour. In September the
cabinet waived such fees for five years in
the manufacturing sector, which employs
645,000 migrants, 10% of the total foreign
workforce. The concession was a sign that
many Saudi firms cannot turn a profit with
costlier local labour.
While inward fdiwas modest, more
than $21bn flowed out of Saudi Arabia last
year, much of it through the Public Invest-
ment Fund (pif), a sovereign-wealth vehi-
cle controlled by an ally of Prince Muham-
mad. The pifhopes to earn big returns
abroad and use them to bankroll diversifi-
cation at home. But it has made some bad
bets, particularly its $45bn investment in
SoftBank’s Vision Fund. On November 6th
the firm announced an $8.9bn quarterly
loss for the fund, much of it due to the trou-
bles of WeWork, an office-rental startup.
The pifmay soon receive a fresh infu-
sion of capital from the initial public offer-
ing (ipo) of Aramco, the state oil giant. On
November 3rd the Saudi market regulator
approved the offering. Saudi Arabia is keen
for local investors to buy a piece. It has en-
couraged banks to finance such purchases,
despite concerns this will tie up liquidity
and deter other lending.
Many Saudis are eager to buy shares,
seeing it as both a lucrative opportunity
and a patriotic duty. Yet this could turn
Aramco into a political problem for Prince
Muhammad. He believes it should be val-
ued at $2trn. Banks working on the ipo
think it is worth much less. There could be
a backlash if locals pile into an overpriced
offering and get burned. But few Saudis
dare raise such concerns in public. An
economist who questioned the ipowas
jailed last year. “You can’t do business here
if you’re not seen as loyal,” says a business-
man. “You can’t question the narrative.” 7RIYADH
The kingdom would do well to listen to critics of its reform programmeSaudi ArabiaThinking only positive thoughts
Down and outSource:OECDSaudiArabia,foreigndirectinvestment, $bn-100102030402005 07 09 11 13 15 18Inflows OutflowsInvest or else