Saudi Arabia's new economy at risk as Khashoggi killing worries investors

Saudi Arabia's young crown prince had a vision for his kingdom: a country with a diversified economy, a boom...

Posted: Nov 21, 2018 2:45 PM
Updated: Nov 21, 2018 2:45 PM

Saudi Arabia's young crown prince had a vision for his kingdom: a country with a diversified economy, a booming tourism and entertainment industry and a budding tech hub with some of the world's biggest names.

Now all that hangs in the balance. Foreign companies are reluctant to do new business with Crown Prince Mohammed bin Salman following the killing of journalist Jamal Khashoggi, and money is fleeing the kingdom.

Continents and regions

Middle East

Middle East and North Africa

Saudi Arabia

Jamal Khashoggi

Misc people

Business, economy and trade

Economy and economic indicators

Tourism

Travel and tourism

Banking, finance and investments

Financial markets and investing

Securities trading

Stock markets

Donald Trump

Political Figures - US

Business climate and conditions

Company activities and management

Business and industry sectors

Energy and utilities

Financing and stock offering

Foreign investment

Oil and gas industry

Trade and development

Trade and development finance

"Foreign investor sentiment has deteriorated," said Garbis Iradian, chief economist for the Middle East and North Africa at the Institute of International Finance.

"Some big names could continue to do business with the kingdom, but not enough to achieve the objective of diversifying the economy away from oil," he added.

President Donald Trump signaled Tuesday that he will not take strong action against Saudi Arabia or bin Salman for the murder and dismemberment of the Washington Post journalist. He cited the kingdom's influence on oil prices and US weapons sales in his statement.

'Maybe he did, maybe he didn't'

But he also left open the possibility that bin Salman may have been involved, as the CIA believes, and as Saudi Arabia strenuously denies.

"It could very well be that the Crown Prince had knowledge of this tragic event — maybe he did and maybe he didn't," Trump said in the statement.

Trump's remarks angered US lawmakers, including Senate Foreign Relations Chairman Bob Corker. He told CNN that Congress would respond with "additional pressure" on Saudi Arabia if the administration doesn't name the crown prince. It could use the Magnitsky Act, which allows for sanctions on human rights grounds, he added.

Investors, or the host of global chief executives who stayed away from bin Salman's showcase investment conference in Riyadh last month, are unlikely to be reassured.

Saudi Arabia's stock market was one of the hottest emerging markets earlier this year with money from overseas pouring in. In July, the main Tadawul had gained as much as 17% since the start of 2018.

Those gains have largely evaporated since — the index is now just 4% up for the year. It fell 2% on Sunday following media reports that cited a CIA assessment implicating bin Salman in Khashoggi's killing.

Foreign investment in the stock market has reversed over the past few months. According to MEFIC Capital in Riyadh, nearly $165 million of foreign money was pulled out of Saudi-listed companies in September before the Khashoggi killing.

And according to a United Nations report earlier this year, foreign direct investment in Saudi Arabia fell to $1.4 billion in 2017, its lowest level in 14 years.

Capital flight is accelerating

Saudi residents are also voting with their money. JP Morgan estimates that they'll move $90 billion out of the kingdom this year, up from $80 billion in 2017. The bank is projecting even bigger outflows in 2019, according to a research report published this month.

The outcry over the Khashoggi killing at the hands of Saudi agents saw dozens of high profile CEOs and international media pull out of "Davos in the desert" last month.

Softbank (SFTBF) CEO, Masayoshi Son, decided to skip the event despite being a close ally of the crown prince. Speaking after the event, Son said his company wouldn't sever its financial ties to Saudi Arabia but also wouldn't take any more Saudi cash until the truth about the murder was known.

Son also downplayed plans for a second mega fund in collaboration with Saudi Arabia, saying it was "too early."

Uber's CEO Dara Khosrowshahi also finds himself in a tough spot. His company took $3.5 billion from Saudi Arabia's Public Investment Fund in 2016. The fund's managing director, Yasir Al Rumayyan, sits on Uber's board.

Khosrowshahi said last week he's waiting for more information before taking any action over the Saudi government's significant investment in the startup.

The Saudi government has repeatedly changed its story about Khashoggi's death, initially denying any knowledge of it before claiming that a group of rogue Saudi operatives were responsible for the killing.

Bin Salman launched Vision 2030 more than two years ago. His plan includes a blueprint on what the economy should look like over the next decade, ending what he once called its "addiction" to oil.

Over the past year, the crown prince has allowed women to drive, opened cinemas and vowed to return the kingdom to a "moderate" form of Islam.

More partners needed

AMC (AMC) opened its first theater in Riyadh in April. That month, it signed an agreement to open at least 30 cinemas across the kingdom over the next five years. Six Flags (SIX) also has plans to open a theme park in 2022.

AMC and Six Flags did not respond to requests for comment.

Saudi Arabia has also announced several ambitious projects including Neom, a futuristic mega city of self-driving cars and passenger drones. Several foreign advisory board members have distanced themselves from the project following the death of Khashoggi.

Bin Salman will need more partners and investors to make his vision a reality. Many of them were already disappointed by a decision to delay indefinitely plans to sell part of state oil giant Saudi Aramco.

Some analysts expect investment will eventually recover, as the lure of a young and wealthy population proves too hard for foreign businesses to resist.

"Vision 2030 is a more holistic long-term transformation across all sectors of the economy," said Rabia Yasmeen, senior analyst at Euromonitor International.

"We see big regional and global names entering the Saudi market over the [next five years], with lucrative opportunities in retail, hospitality and tourism, real estate, healthcare and digitization," she added.

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 455783

Reported Deaths: 6166
CountyCasesDeaths
Hennepin945441502
Ramsey40698749
Dakota33623354
Anoka31398368
Washington20579237
Stearns18111190
St. Louis14006251
Scott1221199
Wright11811107
Olmsted1083075
Sherburne831270
Carver705639
Clay660684
Rice624774
Kandiyohi558772
Blue Earth549533
Crow Wing490678
Otter Tail464968
Chisago460438
Benton423788
Winona394948
Douglas379766
Nobles374847
Mower374429
Goodhue358163
Polk330760
McLeod328647
Beltrami316148
Morrison314645
Lyon306139
Becker289439
Itasca287843
Isanti286143
Carlton284443
Steele279510
Pine270515
Freeborn254723
Todd233730
Nicollet230538
Brown218634
Mille Lacs215745
Le Sueur214416
Cass210824
Meeker201533
Waseca193316
Wabasha17483
Martin172026
Roseau166517
Hubbard151138
Redwood141327
Houston140314
Dodge13974
Renville138540
Chippewa133232
Cottonwood129118
Fillmore12778
Wadena120818
Rock112012
Aitkin111533
Faribault110116
Sibley11017
Watonwan10698
Pennington101016
Kanabec99818
Pipestone97223
Yellow Medicine95016
Murray9137
Jackson87310
Swift84718
Pope7485
Stevens7078
Marshall70415
Clearwater68814
Lake66415
Lac qui Parle66116
Wilkin63510
Koochiching60810
Lincoln4912
Big Stone4703
Unassigned43968
Grant4388
Norman4268
Mahnomen4167
Kittson37420
Red Lake3204
Traverse2623
Lake of the Woods1981
Cook1160

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 312194

Reported Deaths: 4433
CountyCasesDeaths
Polk46975465
Linn18114279
Scott15900172
Black Hawk14123243
Woodbury13145181
Johnson1231752
Dubuque11651159
Pottawattamie9182115
Dallas910872
Story883538
Cerro Gordo474372
Webster473377
Warren461539
Sioux460457
Clinton459168
Marshall432262
Buena Vista397230
Muscatine396578
Des Moines395543
Plymouth353670
Wapello351798
Jasper333359
Lee326932
Marion310853
Jones275250
Henry269131
Carroll258934
Bremer250448
Crawford235824
Washington224133
Boone223517
Benton213950
Mahaska198637
Jackson195332
Tama190959
Dickinson189229
Kossuth180944
Delaware176536
Clay173021
Wright167624
Fayette166324
Hamilton162530
Buchanan162324
Winneshiek161020
Harrison158762
Hardin157831
Cedar155819
Clayton153949
Butler152324
Page148115
Floyd141936
Cherokee140327
Mills138517
Lyon137933
Poweshiek135424
Hancock132424
Allamakee131530
Iowa128022
Madison124210
Calhoun12379
Grundy122828
Jefferson122425
Winnebago122329
Mitchell117137
Louisa116430
Cass115343
Chickasaw113812
Appanoose113040
Sac112815
Union111723
Emmet111332
Humboldt107819
Shelby106427
Guthrie104624
Franklin103618
Unassigned10210
Palo Alto92611
Montgomery89224
Keokuk86426
Howard85919
Monroe82620
Clarke8199
Pocahontas78711
Ida76430
Davis70421
Adair69720
Greene6977
Monona68418
Lucas66910
Osceola65011
Worth6224
Taylor6009
Fremont5276
Van Buren50515
Decatur4994
Ringgold45511
Audubon4258
Wayne42021
Adams3023
Rochester/St. Mary'S
Partly Cloudy
12° wxIcon
Hi: 18° Lo: 9°
Feels Like: 12°
Mason City
Partly Cloudy
11° wxIcon
Hi: 20° Lo: 9°
Feels Like: -1°
Albert Lea
Partly Cloudy
10° wxIcon
Hi: 16° Lo: 9°
Feels Like: 0°
Austin
Partly Cloudy
12° wxIcon
Hi: 16° Lo: 10°
Feels Like: 3°
Charles City
Cloudy
12° wxIcon
Hi: 20° Lo: 10°
Feels Like: 0°
Cold and dry through Friday
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Gov. Walz unveils state budget proposal

Image

St. Charles starts season strong

Image

The threat of cyber-crime remains powerful

Image

Tuesday's local highlights and scores

Image

Just for Kix's "virtual" Winter recital

Image

New grant available for Iowa bars and restaurants

Image

Is hydrogen the future of fuel in Minnesota?

Image

Gov. Walz unveils two-year state budget proposal

Image

Pandemic impact on youth suicide

Image

Bernie Sanders Mittens

Community Events