Saudi French deal-making with a backdrop of soft and hard power
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The recent official visit of Crown Prince Mohammad bin Salman to Paris and his meeting with France’s youthful leader, Emmanuel Macron, seems to have sealed that “new partnership” both countries were seeking. Have they found new strategic partners in each other? The French combination of soft and hard power appeals to the Saudis and 14 billion euros-worth of deals, to begin with, means the business community is on board.
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“Saudi Arabia’s ties with France go back nearly a century as diplomatic relations were first established in 1926. And matters that impact France are likely to impact Saudi Arabia and vice-versa. And you will find among the Saudis a great deal of respect for French companies, their brands and their products.”
Khalid Al Falih, Saudi Arabia’s minister of energy, industry and mineral resources - and former CEO of Aramco, the national oil company - set the tone for Saudi-French relations and trade ties while addressing a gathering of government officials and businessmen from both countries organised by the French foreign affairs ministry in Paris.
The business deals were signed during Crown Prince Mohammad bin Salman’s three-day stopover in France. They were in sectors ranging from water to entertainment, health, tourism, petrochemicals and transport.
The largest was a seven-billion-euro project to build a petrochemical complex in Jubail which is expected to create 8,000 local direct and indirect jobs. There were other deals that were ready to be signed by French companies and authorities during that visit but Saudi Arabia and other parties were not ready to move ahead. Among the delayed deals was a 12 billion euros investment over 12 years between RATP-Dev and Arriyadh Development Authority for the Riyadh metro.
Compared to the 764 million euros of Saudi arms orders to France in 2016 (the latest figures available), French arms sales don’t appear to constitute the bulk of trade between Saudi Arabia and France. That’s a terrain largely occupied by the United States.
The new Saudi Arabia that Mohammad Bin Salman - who is also referred to as MBS intends to build with his Vision 2030 needs substantial foreign investment. And jobs for a young population; half of the 20 million Saudis are under the age of 25 with unemployment hovering between 12 and 15 percent.
“We are aiming to double our GDP, create six million jobs by 2030 and have four trillion dollarsinvestment in non-oil sectors”, explains Raedah Abunayan, a member of the Majlis Al Shura consultative council which advises the King on policies and legal matters.
France, a new strategic partner
The French government responded with great enthusiasm to the Saudi plans for economic transformation.
Vision 2030 wants to steer the country away from its heavy reliance on oil as a main source of revenue. After Brexit, France is likely to become the kingdom’s first partner in Europe. At least, it is the ambition of President Emmanuel Macron to ensure France takes a lead in Europe when dealing with Middle East matters (whether its European partners will follow is a different story) and that it emerges as a partner the players in the region know is willing to listen to them.
France is the third foreign direct investor in Saudi Arabia. But it occupies only nine per cent of the market while less than one percent of French exports goes to the kingdom. It is hardly surprising that there is a keen interest for more French investment towards the second largest economy of the Middle East.
French Foreign Affairs Minister Jean-Yves Le Drian assured the Saudi ministers of his government’s willingness to contribute to the economic success of both countries and that French companies are eager to invest in Saudi Arabia. The Saudi-France CEO Forum was held under the auspices of his ministry. Le Drian and MBS – we are told by a Saudi minister – are “old friends”. Under the former Hollande government, Le Drian was Defence minister (2012 - 2017) and MBS’s counterpart then. It was Le Drian who greeted Prince Mohammad bin Salman at the Bourget airport when he landed in France on April 8th.
Among the 179 French companies which have invested in Saudi Arabia, Total, the French multinational oil and gas company, has been operating in the country since 1974. Its CEO, Patrick Jean Pouyanné pointed out that investing in Saudi Arabia represents an opportunity to reach other markets; namely fast-growing economies in Asia such as India and China.
Changes at all levels
In order to meet the ambitious goals of MbS’ Vision 2030 and open up the economy, laws are being amended to create an investment friendly environment.
“We are passing many laws right now. The last one was a modification of the trade law in order to involve foreign investors. In the past, there were limitations on foreign investments, it had to be 59% foreign and 51% Saudi. Now, we are opening the doors whether in partnership or full ownership”, says Raedah Abunayan.
The changes apparently also reside in the manner in which Saudis now conduct business. A “massive change” according to Jean Lemierre, chairman of BNP Paribas, the 4th largest global bank in the world, in Saudi Arabia since 2005. He speaks of a country and people who are more open to answering questions and addressing concerns of investors.
“People [in Saudi Arabia] know exactly what to do and when to do it. This is very impressive and is rewarded by investors and the markets. Now, we investors see well how we can prepare, how we can schedule investments and grow the business we do. This is important for the future”, observes Lemierre.
The chairman of BNP Paribas recommends that Saudi Arabia builds the capacity to have an international banking sector competing well:
“This will give a lot to Saudi Arabia. Because this is very important for the future when you have a programme [Vision 2030] of that ambition and size.”
But Lemierre adds that there is still a need for communication:
“We need to understand well who does what and that will be probably for tomorrow the key of success which is how to team up, how to create partnerships with the right investors giving us guidance to do more.”
Stimulating SME activity
Small and medium enterprises account for 99.7% of all Saudi enterprises, according to the Global Entrepreneurship Monitor (GEM) for Saudi Arabia. But they only contribute to 20% of the country’s GDP.
SMEs as an agent of growth is not a novelty. But Saudi SMEs face challenges similar to their peers in developing nations and which, according to GEM, are complex policy and regulations, lack of access to funding and finding the necessary skills.
Uturn is an SME, a Saudi online entertainment network that specialises in arabic video content. It recently merged with Diwanee, the middle east company of Webedia, a French digital company and then proceeded to sign a 100 million dollar investment contract with Webedia and Five Capital, a French hedge fund.
Uturn CEO Kaswara Al Khatib explains that even though it wasn’t easy to attract foreign investment, investors outside the region possess a better understanding of the potential of digital media in today’s world.
“Media is a black box in the Arab world. A lot of people see media and perceive it as something that is owned by the government. And [they think] of media as mainstream, that is the radio, the TV and the press.
Digital media in the Arab world is seen as under the radar, as just social media, without the power it could have. So, that’s why you wouldn’t find a lot of people willing to invest from that region in media. Actually, banks consider it a high risk investment.
So, it was very difficult to get funds. Now, the opportunity came from the Western world because they understand the power of media and how to truly run a digital media company. And we managed to find Webedia who understands what we do.”
The female factor
There is a marked openness on the part of the Saudi establishment towards women joining the labour market. But they only account for 10 per cent of the workforce.
The lifting of a ban – later in June – on women driving is expected to raise female employment and create new jobs. The next step will be amendments to the guardianship laws which will give Saudi women greater freedom of movement.
Meanwhile, there is a handful of women occupying high ranking positions. Manahel Al Mohaimeed is in her 30s, CEO of Al Mohaimeed, a luxury travel agency in Riyadh, set up by her father 46 years ago. She brushed aside comments about the scarcity of Saudi women in the workplace and cited Lubna Olayan (CEO of Olayan Financing Company) who is on Forbes recent list of the 3 most powerful Arab women in business and politics.
“We have been working for a long time. We work very hard to get what we want. [It is only] now that the media is focusing on us, after Vision 2030.”
Communication is not enough
Vision 2030 officially kicked off a year ago. There’s only 12 years left for its sweeping reforms to bear fruits and push through the transformations needed to pull the Kingdom away from its heavy reliance on oil.
After Mohammad Bin Salman ascended to the position as heir to the throne in June 2017, a number of businessmen and princes were held in the Ritz-Carlton hotel in Riyadh as part of an anti-corruption campaign.
The Ritz-Carlton round up illustrates “Saudi Arabia’s contradiction” remarks Stephane Lacroix, an associate professor at the Paris School of International Affairs at Sciences-Po.
“On the one hand, MbS is doing a huge public relations stunt, he is travelling across the world to promote Saudi Arabia as a growing economy full of opportunities for investors and, at the same time, within the country, big businessmen are being detained and those businessmen are business partners to most of the big businessmen in the West. So, when Al Waleed bin Talal is detained in the hotel, all the French, American, European business who work with Al Waleed bin Talal certainly see the message as something negative.”
Lacroix fears a risk of war as a result of MbS’ position on Iran and the aggressive foreign policy, he says, Saudi Arabia is handling. A combination which Lacroix believes will have a detrimental effect on potential investors.
“So, there is a bit of a contradiction here. The Saudis are doing a lot to get investment but at the same time their policies mostly have a negative impact. We’ll see what comes out… but I think the Saudis are going to discover that PR is simply not enough, policies is also what brings investors, not just communication,” adds Stephane Lacroix.
Proposing a progressive, modern, tech-savvy Saudi Arabia is what the authorities have actively sought to do to persuade the outside world of its objectives.
Within the Kingdom, 32-year old Mohammad Bin Salman belongs to a generation that believes it can better relate to the Saudi youth and hear its pressing demands for change. A digitally connected youth who have limited patience and could constitute the internal support-base the young Prince needs as he has certainly created enemies at home.
Yet, through his latest odyssey of Egypt, Spain, the UK, the USA, and France – the last three being permanent members of the United Nations Security Council – Mohammad bin Salman seems to have consolidated Saudi Arabia's international alliances.
Follow Zeenat Hansrod on Twitter @zxnt
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