Saudi Economic Awakening Is a Compelling U.S. Opportunity
RIYADH -- President Obama's visit to Saudi Arabia this week is a timely opportunity to transcend political tensions and rumors. It is a moment for Americans - particularly American investors - to focus on our shared interest in the Desert Kingdom's transformation from economic dependency on oil.
Under King Salman, who ascended the Saudi throne in January 2015, change is afoot, led by his youthful son and Deputy Crown Prince Mohammed. In particular, the dramatic fall in the price of oil from $147 per barrel at the peak to approximately $40 today has reinforced the urgency of the Kingdom's economic diversification and openness to the world. In June 2015, the Saudi stock market cautiously opened to qualified foreign investors, and the exchange hopes to join the MSCI Emerging Market Index by next year.
More ambitiously, the country seeks higher returns for its assets - and realizes that the best way to get them is to expand its investments abroad, particularly in the United States. Saudi sovereign wealth allocations are currently balanced 95-5 towards domestic vs. offshore investments; new plans call for equalizing this at 50-50, which assuming $2 trillion in sovereign assets implies huge inbound and outbound opportunities. Americans should welcome this not only for the greater economic stability it will bring to a key regional and global energy, commercial and security ally, but also as an opportunity to attract reliable long term capital to a wide range of sectors and regions of our country. The Kingdom seeks to maximize returns from investments in well-managed businesses, in which the American economy excels. It's a natural partnership, and in an increasingly interdependent world economy any fears of sovereign wealth are misplaced.
At the same time, the Kingdom is privatizing and deregulating its economy, again driven by the uncertainty of future oil revenues. While the possible IPO of Saudi Aramco has grabbed the headlines (deservedly so, as it would be the first trillion-dollar company that is at least partly public), other important changes loom large, as the Kingdom seeks globally competitive investors in the state-owned domestic assets in line for privatization, likely to include hospitals, petrochemicals and utilities of all stripes. A healthcare reform committee is studying options to focus the Ministry of Health on regulation while privatizing, improving healthcare while reducing costs.
In short, these are exciting times for those with stakes or opportunities in the Kingdom's economy. Oil of course remains the centerpiece (as that potential Saudi Aramco IPO shows), but a country of 20 million largely youthful citizens is thoughtfully considering some radical changes in its economic structure, as well as the fundamental social contract. Young Saudis, many of whom studied in the United States, are eager for the new opportunities that a liberalized economy will offer. This very much includes young Saudi women. Saudi women lawyers for example are assuming a growing role in the profession, and now appear before most courts.
Along with this, Saudi Arabia's nearly $1.7 trillion economy offers opportunities for Americans willing to invest. The country, as the hub of the six countries of the Gulf Cooperation Council, is a natural choice for light manufacturing, regional services centers, and other types of investments. A qualified workforce is looking for work in foreign companies, and the government welcomes the investments and is actively improving the regulatory climate for foreign investment.
If we do not seize these opportunities, our European competitors - all of whom are very active in the Arab Gulf region - surely will. That's one reason why President Obama's trip is so important. Having practiced much of my career in the region beginning in 1979, my experience and hope tell me that the climate has never been more conducive nor the opportunities greater.
In 2004, Walter Russell Mead wrote "America's Sticky Power," in which he described three types of power - sharp, sweet, and sticky. Sharp is our close defense relationship, forged above all in Desert Storm and now expressed in common interests such as fighting ISIL. Sweet is the taste for American culture, including music and film, among Saudi youth (YouTube is tremendously popular). Sticky power is economic and commercial power - and this is the chance to broaden and deepen the relationship, the essence of commercial and economic statecraft. During King Salman's visit to the White House last year, both leaders expressed a desire for a new strategic partnership for the 21st century. American business, too, has a vital role to play in making that a reality, to the manifest benefit of all concerned.
