Google’s plans to make inroads into Saudi Arabia came to a halt in 2018 amid the backlash against the murder of journalist Jamal Khashoggi. Two years later, in December 2020, it clinched a deal with Saudi Aramco, the state oil company, to sell cloud services to the kingdom as the country's cloud market is estimated to be worth $10 billion in 2030. 

A declassified intelligence report released by the Biden administration on February 26 has caused fresh controversy as it directly links the country’s heir apparent, Mohammed bin Salman, to the journalist’s killing at the Saudi consulate in Istanbul. 

While Google declined to comment on whether the new evidence would prompt a review of its interests in the country, foreign investors have taken note. 

With a de facto leader found to be complicit in a state-sponsored assassination and an oil dependent country harbouring grand dreams to diversify its economy, investing in Saudi Arabia has become laced with the thorny question: is your baseline your profit margins or your ESG profile?

Vision 2030

The Saudi government’s hugely ambitious infrastructure projects such as Neom, its futuristic city state, and The Line, a carless city within Neom powered by renewable energy, are likely to attract hundreds of billions of dollars in investment – an opportunity unrivalled elsewhere in the Middle East.   

Before the release of the declassified report, the country was sending mixed messages to foreign investors, pulled between a desire to open up the economy and its protectionist policies amid rising competition in the region. 

On one hand, the country is opening up by offering tax incentives and is due to launch special economic zones (SEZs) this year. On the other, it has also called on businesses with government contracts to relocate their headquarters to Riyadh, known as Project HQ, and expected to go live in 2024. 

Due to the conservative religious nature of Saudi society and the lack of expat infrastructure, this is something foreign businesses are loath to do, sources tell fDi, favouring the city states of the UAE or elsewhere in the Gulf.

Zoë Harries, a consultant advising the government on the launch of the SEZs, says that perception and trust are most important for foreign investors and these “mixed signals are not going to help”.

Asked how investors might respond to the Saudi business environment, Ms Harries says: “We’re at a crossroads, where some investors making long-term sustainable decisions will put purpose and principles over financial gains, while there will be other companies and investors that are 100% financially driven.”

Human rights and FDI

Of late, FDI into Saudi Arabia has been rising, thanks to the government’s Vision 2030 strategy. According to Unctad’s World Investment Report, it increased by 7% to $4.6bn in 2019.

Jessica Leyland, senior intelligence analyst at AKE International, stresses that while there may be a brief dip in net FDI outflows over the coming months while investors assess the appetite of their shareholders, those eyeing investment in Saudi Arabia already have “built in a tolerance for this type of behaviour”.

“There is always this attitude [among businesses]: if we won’t do it, our competitor will and who is to sniff at a multi-billion dollar government contract?” she says.

While it has enforced the Khashoggi Ban, imposing visa restrictions on 76 Saudi nationals, the US government is unlikely to impose sanctions.

Ms Leyland says there was never any chance that President Biden could start sanctioning Saudi Arabia. Unlike Iran, the country, as the world’s largest oil exporter, is unlikely to be made a pariah due to its geopolitical leverage.

Neom hype

More profound problems may lie in the Vision 2030 plan itself. Pat Thaker, the Economist Intelligence Unit’s Middle East regional director, says that the details of the Neom project are “sketchy” and the timing “vague”.

If it wants to generate bottom-up creativity to match its top-down vision, Saudi Arabia will have to attract the right kind of international talent, including women, she says. 

Its ambitious end may well overwhelm the means required. “Unless it becomes a truly desirable place in which to live and work, Neom will risk realising one of its goals, but not in the way intended: it hopes to be the first city where robots outnumber people,” says Ms Thaker.