Saudi Arabia has been undertaking a charm offensive in recent months to woo foreign investors and businesses deterred by the kingdom’s poor human rights record. Its investment minister held a road show in the United States, the Kingdom is bankrolling a high-profile international golf tournament, and in October it unveiled plans to lure more than $100 billion of foreign investment a year by 2030.
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Now, with U.S. President Joe Biden due to visit Saudi Arabia next month, Riyadh stands to score the biggest public relations coup of all.
On the campaign trail in 2020, Biden vowed to turn the kingdom into a “pariah” and relations between the two countries have been frosty since he entered the White House. The president has said that during his visit he won’t be holding any one-on-one meetings with Crown Prince Mohammed bin Salman, the power behind King Salman’s throne and the man blamed for a host of outrageous acts, most notably the brutal murder of journalist Jamal Khashoggi.
Nevertheless, it is likely the visit itself will be understood by many, including investors and businesses, as a sign that U.S.-Saudi relations have been “normalized” again.
“The Khashoggi incident was certainly a dealbreaker for some international investors considering taking a deep dive into the Saudi market. Of course, other issues, such as the war in Yemen and the country’s human rights record gave investors additional pause,” says Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington.
“A Biden visit is absolutely not going to hurt when it comes to foreign investment – especially from American firms – in Saudi Arabia, but it’s also not going to lead to a waterfall of foreign direct investment. The objective behind Biden’s trip isn’t to change the stoplight confronting hesitant investors from red to green,” he says.
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The Biden visit – and the hope that it will remove the remaining stigma the kingdom still suffers in the wake of Khashoggi killing – comes at a critical time for the kingdom. The crown prince is determined to wean the economy off its reliance on oil exports and turn it into a center for high-technology, tourism and finance, creating jobs and replacing the oil wealth that is due to decline over the next decades.
Saudi oil wealth alone can’t finance the transition, nor does the country have the technology and other skills to draw from. The goal of $100 billion-plus of foreign investment, set out last October as part of the kingdom’s National Investment Strategy, reflects the need for a major foreign role as the crown prince embarks on his Vision 2030 strategy.
So far, however, Saudi Arabia’s efforts to attract anything close to that level of foreign investment have fallen flat. In its peak year, in 2008, the kingdom drew $39.5 billion of overseas capital. The figure shrank to just $1.4 billion in 2017, a year after Vision 2030 was unveiled. Over the next three years, it crept higher, but even after it was boosted by a single big pipeline deal worth $12.4 billion, foreign investment amounted to just $19.3 billion in 2021.
Investors may have some doubts about many of Mohammed’s most ambitious plans – such as the giant high-tech city NEOM, slated to arise out of the desert waste on Saudi Arabia’s Red Sea coast – but the kingdom’s notorious human rights record has contributed to their hesitancy as well.
The Khashoggi killing in October 2018 drew unusually strong worldwide condemnation. When Saudi Arabia a short time later held its annual Future Investment Initiative conference – a lavish affair known as “Davos in the Desert” and attended by many of the world’s leading business celebrities and political leaders – many of the participants hid the ID badges with a tie. Others canceled at the last minute.
Khashoggi's death is perhaps the highest-profile offense linked to the crown prince, but there are others – the deadly war Saudi Arabia is waging in Yemen, Mohammed’s brief detention of Lebanese President Saad Hariri in order to force him to resign, and more recently a boycott against Lebanon and an angry diplomatic dispute with Qatar. Mogielnicki says businesses look askance at frequent and unexpected diplomatic dust-ups like these because it increases political risk.
Even when the crown prince has undertaken reforms lauded in the West, they often fall flat. When Mohammed granted women the right to drive, it was undercut by his arrest of women activists who had campaigned for the change.
In a move that was particularly damaging for the kingdom’s reputation as a place to do business, the crown price detained many of the country’s leading businesspeople in what was widely perceived as a shakedown. As human rights violations go, it was relatively minor – the billionaires were imprisoned at the five-star Riyadh Ritz-Carlton Hotel – but it aroused concerns about his commitment to the rule of law, a key concern of Western business executives.
To counter their negative image, the Saudis have highlighted state-of-the-art green development projects. They hope to associate the kingdom in the popular mind with glamorous sporting events rather than religious strictures and brutal killings by sponsoring a new worldwide tournament called LIV Golf, prompting critics to accuse it of “sport-washing.”
However, the crown prince’s image campaign and the social reforms he has undertaken, which include an easing of religious restrictions, will have a limited scope so long as they aren’t accompanied by more political freedoms and greater transparency – none of which appear to be part of the crown prince’s Vision 2030.
Gerald Feierstein, senior vice president and a distinguished senior fellow on U.S. diplomacy at the Middle East Institute in Washington, doubts that Khashoggi and other human rights issues are a big factor in corporate decision-making.
The business world shunned the kingdom in the immediate aftermath of the affair. “After that, [the effect] wore off pretty quickly, and right now there isn’t much of an overhang,” he says. “To the extent Saudi Arabia is having difficulty in getting corporate engagement, it has more to do with the investment climate – whether it is a good place to invest – more than Khashoggi.”
Although Saudi authorities have taken measures to make their country more investor-friendly, analysts say rules and regulations are often opaque, economic targets subject to frequent and sudden changes, and projects are often more ambitious than viable. While Saudi green-tech initiatives have attracted overseas interest, says Feierstein, NEOM appears to have stalled.
No matter; with a $700 billion GDP (the world’s 20th largest), its huge oil resources and its location next to Iran, Saudi Arabia is too strategically important and too big economically for Washington or Western businesses to ignore. Since Russia’s invasion of Ukraine began, setting off a world energy crisis, the kingdom has become the lynchpin of Western efforts to find substitutes for Russian oil.
Feierstein says that apart from cold-shouldering the crown prince, it was mostly business-as-usual with Riyadh for the Biden administration
“During an election campaign, people tend to say things they won’t necessarily carry out later,” says Prof. Joshua Teitelbaum, who teaches Middle Eastern Studies at Israel’s Bar-Ilan University.
“It was put out there as Biden’s stand after the murder of Jamal Khashoggi. But it was basically an untenable long-term position because Saudi Arabia is such an important country for oil, arms sales and coordination against Iran. We knew it would happen eventually. There are countries with worse human rights records than Saudi Arabia,” he says.
In any event, Biden and his successors at the White House will have to learn to live with Crown Prince Mohammed. Although not everyone in the royal family is happy about his rise to power, according to observers of the Saudi scene, it seems all but inevitable that the crown prince will assume formal rule sooner rather than later from his father, King Salman (who is 86 and not in good health) and could rule the kingdom for decades to come (the crown prince is 36 years old).
Nor should the U.S. expect any change in Mohammed’s brash leadership style, even if at times it upsets Western leaders and human rights activists.
“We haven’t seen the repeat of the wholesale arrests of wealthy Saudis,” says Feierstein, a former U.S. ambassador to Yemen. “But I think that it’s true to a certain extent that MBS is a reflection of a global trend of a more authoritarian leadership.”