SAUDI Arabia impressed bankers and fund managers from around the world this week with the size of its economic ambitions but it may not have convinced foreign businessmen to pour in the billions of dollars needed to transform the kingdom.

At a lavish, three-day investment conference attended by over 3,500 people from 88 countries, Crown Prince Mohammed bin Salman announced plans for a $500 billion business zone reaching into Jordan and Egypt. Riyadh’s main sovereign wealth fund said it would nearly double its assets to $400bn by 2020.

The event, part of the kingdom’s drive to free itself of reliance on oil exports in an era of cheap oil, attracted senior executives of global banks such as Citigroup, Goldman Sachs, Bank of China and Mizuho.

Under heavy security, officials from China, Russia and Africa huddled with Saudi officials in a palatial conference venue boasting chandeliers, gilt furniture and marble floors.

But many executives — speaking privately to avoid endangering their chances of winning business — said they remained concerned about Riyadh’s ability to execute its plans.

An undeveloped legal system, sluggish bureaucracy and poor labour productivity have deterred foreign investment in the past

An undeveloped legal system, sluggish bureaucracy and poor labour productivity have deterred foreign investment and frustrated many Saudi economic plans in the past. Foreigners own only a little over four per cent of the stock market, and foreign direct investment has been running at under $10bn a year.

“They have a decent vision, but also face steep hurdles,” said a London-based executive of a trading firm that works closely with manufacturers. “The objective is to bring money here, but we are seeing companies wanting to take money out.”

He said most international companies aimed to win supply contracts in Saudi Arabia, while banks were working for fees and commissions — but few companies were willing to make big, fixed investments in the country.

The conference was heavy on grand gestures. Prince Mohammed, the 32-year-old architect of Saudi economic reforms, took part in a panel discussion and held up an old-fashioned Nokia phone next to an iPhone to show the size of the change he planned.

NEOM: Saudi Arabia’s plan to build a 26,500 square kilometres business zone captured both the scale of its ambitions and the worries surrounding them.

The zone, known as NEOM, a word meaning “New Future” in a combination of English and Arabic abbreviations, could unlock vast potential in industries including tourism, solar energy and wind power, and logistics.

But Saudi Arabia has already tried with little success to build smaller but similar projects. For a decade it has been seeking to develop half a dozen new “economic cities “; most have grown much more slowly than hoped, and Riyadh complained last year that some faced “challenges that threaten their viability”.

Some of NEOM’s half-trillion dollar cost is supposed to come from private investors, but much of the private sector is wary of investing in state projects. A recession triggered by low oil prices and austerity policies has brought private sector growth down near zero, and bank lending has been shrinking.

Raza Agha, chief economist for the region at VTB Capital, said NEOM had potential but many aspects needed clarification, such as how the country could obtain the labour to build it without straining its balance of payments.

“The funding needs for this project will create additional pressure on government expenditures and consequently either on the rate of depletion of Saudi foreign assets or the increase in government debt levels,” he said.

It was clear at the conference that the government is determined to push through a vast overhaul of its regulatory system, and to become more transparent in many areas.

Nevertheless, major aspects of policy remained unclear, including details of a planned $300bn privatisation programme that is to include the sale of a 5pc stake in oil giant Saudi Aramco.

Published in Dawn, The Business and Finance Weekly, October 30th, 2017