Daily Management Review

Investor Worries Over Khashoggi Murder Puts Saudi Arabia's New Economy At Threat


Investor Worries Over Khashoggi Murder Puts Saudi Arabia's New Economy At Threat
The economic dream of the Saudi Arabian Crown Prince Mohammed bin Salman for the kingdom of a diversified economy that is not dependent on oil and some of the largest of companies coming to the country to set up businesses is under threat because of the killing of journalist Jamal Khashoggi.
Money is fast flying away from the kingdom.
"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.
While not announcing any strong action against Saudi Arabia and about its crown prince by saying 'Maybe he did, maybe he didn't', United States president Donald Trump however has also left open the possibility that bin Salman may have been involved.
"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.
Such s statement from Trump is likely not to be reassuring for those investors and the global chief executives who stayed away from bin Salman's showcase investment conference in Riyadh last month.
Till earlier this year, the stocks of Saudi Arabia had been in demand and there was a lot of overseas investment in its financial market. And since the beginning of the current year till July, there was as much as 17 per cent gain in the main Tadawul.
But since then those gains have faded away and the gain is left at just 4 per cent for the entire year so far. There was a drop of 2 per cent in the index after media reports claimed that CIA assessment had clearly named bin Salman to be responsible in the murder of Khashoggi.
In the last few months, foreign investment has been leaving the country. In September before the Khashoggi killing, about $165 million of foreign investments were withdrawn from Saudi-listed companies according to data from the MEFIC Capital in Riyadh.
Foreign direct investment Saudi Arabia touched a 14 year low in 2017 $1.4 billion, according to a report by the United Nations which was published earlier this year.
And Saudi residents too are reportedly shifting their money out of the country. According to the estimates of lender JP Morgan, this year, Saudi national would shift about $90 billion out of the kingdom to other countries. To put things in perspective, in 2017, that number was at $80 billion. And according to a research report published this month, JP Morgan is projecting an even higher outflow for next year.
The global outcry over the killing of Khashoggi while inside the Suadi consulate in Istanbul, allegedly by Saudi henchmen, forced a number of top global bsuines leaders ot stay away from an event in Riyadh organized by Bin Salman called the "Davos in the desert" last month. The notable names included the Softbank CEO, Masayoshi Son and Uber's CEO Dara Khosrowshahi
Uber has recently invested in the kingdom and lat week was forced to say that it was awaiting more concrete details to emerge before taking a call on any action over Saudi investment in the company.
A number of ambitious projects including Neom, a futuristic mega city of self-driving cars and passenger drones have also been announced by Saudi Arabia. But after the murder of Khashoggi, a number of foreign advisory board members have stayed away from the project.
The dream of 2030 vision of bin Salman will require more partners to be successful. And a number of such partners have already been disillusioned by the indefinite postponement of the proposed listing of a part of the state controlled oil giant Saudi Aramco.
According to some analysts however, the attraction of a market that is young and wealthy would prove to be too hard to resists and hence foreign investments in Saudi Arabia would eventually come back.
"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.