Saudi economy vulnerable as corruption probe hits business old guard
RIYADH: Two weeks ago the glitzy Ritz Carlton hotel in Riyadh was the site of an international conference promoting Saudi Arabia as an investment destination, with over 3,000 officials and business leaders attending.
Now the hotel is temporarily serving as a luxury prison where some of the kingdom’s political and business elite are being held in a widening crackdown on corruption that may change the way the economy works.
By detaining dozens of officials and tycoons, a new anti-corruption body headed by Crown Prince Mohammed bin Salman is seeking to dismantle systems of patronage and kick-backs that have distorted the economy for decades.
But it is a risky process, because the crackdown is hurting some of the kingdom’s top private businessmen – leaders of family conglomerates who have built much of the non-oil economy over the past few decades.
Many industries could suffer if investment by these families dries up in coming months, at a time when the economy has already fallen into recession because of low oil prices and austerity policies.
Meanwhile, a new breed of state-backed companies is rising to compete with the old guard; many of the new enterprises are linked to the Public Investment Fund (PIF), the kingdom’s top sovereign wealth fund.
But it is not clear how smoothly the transition to these firms will happen.
“The rules of the game are changing. But they’re changing indiscriminately,” said one financial analyst in the region, declining to be named because of political sensitivities.
“Even people who thought they were within the rules don’t know if they will still be within those rules tomorrow. There’s just uncertainty.”
Some private businessmen in Saudi Arabia are now trying to move their money out of the country “while they still can”, the analyst said.
For many foreigners, the most shocking aspect of the purge has been the detention of billionaire Prince Alwaleed bin Talal, the flamboyant, internationally known chairman of investment firm Kingdom Holding.
But for Saudis, the names of other detainees have been equally stunning: Nasser bin Aqeel alTayyar, founder of the Al Tayyar Travel group; billionaire Saleh Kamel; and Bakr bin Laden, chairman of the huge Saudi Binladin construction conglomerate.
The saga of the Binladin group underlines how the business environment is changing.
Binladin and another big construction group, Saudi Oger, long enjoyed preferential access to the kingdom’s biggest projects and control over pricing as a result of their close relationships with royal patrons. — Reuters