Saudi Arabia’s Investment Conference & Khashoggi
This week, I had the pleasure of speaking with i24 News on Saudi Arabia’s need for foreign investments and the pullback since the Jamal Khashoggi killing.
With many questions surrounding Saudi Arabia’s involvement with the Khashoggi killing, it will ultimately hurt and hinder Saudi Arabia’s many plans that require large amounts of foreign investments in order to carry-through.
Saudi Arabia is trying to modernize their economy. They have a $500 billion plan by 2030 to diversify their economy away from oil into alternative energies, into travel and leisure. To do that, they need to be running at about a $20 billion a year pace of foreign direct investment. And, what’s happening now with Khashoggi is that foreign investors are pulling their funds out of Saudi Arabia.
In 2012, Saudi Arabia amounted to about 25% of foreign direct investment in the Middle East. That’s dropped to about 5% in 2017. They were running at about a pace of $12 billion of foreign investment a year, and that’s down to $1.4 billion.
To put this into perspective, Saudi Arabia is actually getting less foreign direct investment per year than Oman and Jordan. Saudi Arabia is in a very precarious position here when it comes to having foreigners invest in helping them modernize their economy.
It may not have much of an impact on the oil markets. I don’t think there is going to be any world-wide sanctions on Saudi oil output.
Congress will punish Saudi Arabia, but they likely will go by the 2016 Global Magnitsky Act where they impose taking away visas from key Saudi leaders and impose sanctions on their assets in the United States.
We are an era of conscious capitalism and every global corporation stands for something. If you think of any company, whether it be Starbucks or Nike, or even Chik-fil-A, these companies all stand for something. At some point global corporations, and we’re seeing this now, don’t want to align themselves with a brutal dictatorship that beheads people in the street, that cracks down on any protest, that kills journalists in foreign countries.
There is no benefit for any company, especially based in the United States, to align themselves with a government like Saudi Arabia’s.
My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives