Saudi prince's big challenge on US visit: Easing investor fears after sweeping anti-corruption campaign

  • Saudi Crown Prince Mohammed bin Salman is preparing to visit the United States in the coming weeks.
  • His trip comes a few months after he spearheaded an anti-corruption drive that swept up prominent Saudi princes, officials and businessmen.
  • Explaining the campaign to investors and easing jitters about doing business in Saudi Arabia will be critical during the U.S. trip, analysts say.
President Donald Trump  meets with Mohammed bin Salman of Saudi Arabia, in the Oval Office at the White House, March 14, 2017 in Washington, DC.
Getty Images
President Donald Trump meets with Mohammed bin Salman of Saudi Arabia, in the Oval Office at the White House, March 14, 2017 in Washington, DC.

Saudi Arabia's powerful crown prince plans to travel to the United States in the coming weeks, where the 32-year-old economic reformer is expected to cement his warm relationship with the Trump administration and convince corporate leaders and investors to put their skills and money to work in the kingdom.

One of his biggest challenges, say experts, will be to explain the detention of dozens of princes, officials and businessmen last fall. The swift and unexpected crackdown spooked investors just days after the Saudi sovereign wealth fund hosted a major investment summit in Riyadh.

Three months after Crown Prince Mohammed bin Salman's anti-corruption drive roiled markets, analysts say tensions have eased, but it's too soon to determine the campaign's long-term impact on investor sentiment.

"I think it's going to take a while for the international community to watch what's going on in Saudi and then engage and then invest. That's pretty logical." -Stephen Schwarzman, Blackstone chairman and CEO

The recent release of Prince Alwaleed bin Talal — known as the Warren Buffett of Saudi Arabia — is positive, analysts say. But 56 people remained in detention as of last week.

Saudi Arabia's immediate concern is an initial public offering of Saudi Aramco, the world's biggest energy company. The IPO aims to raise $100 billion, create the world's largest sovereign wealth fund and underwrite Salman's plan to diversify the oil-dependent economy.

But beyond that, the anti-corruption drive could influence the Saudis' efforts to expand their capital markets, draw big investors into the domestic stock market and attract investment into industries dominated by state-owned companies that are undergoing privatization.

"My own viewpoint on this is that the power structure in the kingdom as the result of this has permanently changed," said Ayham Kamel, head of the Eurasia Group's Middle East and North Africa practice. "I think the crown prince is not only trying to deal with corruption and consolidate power, but trying to get rid of the old monopolies that dominated the Saudi system."

"I think over the long term, investors would view this as a positive," he said.

Analysts say there is an understanding among investors and the Saudi government that the kingdom did not adequately explain the crackdown, leaving outsiders to assume the worst.

After the arrests, Saudi Arabia saw a dip in international investors seeking to gain access to its capital markets, Saudi Finance Minister Mohammed bin Abdullah Al-Jadaan acknowledged last month at the World Economic Forum in Davos, Switzerland. But that activity has since hit new highs, he added.

"Investors realize that actually [the crackdown] is good for the economy. It is creating a level playing field," he said during a panel on the future of the Saudi economy.

Analysts expect the Saudis to wrap up the anti-corruption drive soon, perhaps before Salman's trip to the United States. The Saudi government says it has clawed back more than $100 billion in assets through financial settlements with elites accused of graft.

"I think that people are happy that it's winding down. I think they're hoping that there will be clear signaling that this is a one-off thing that won't be repeated and that a clear line will be drawn about that," said Bernard Haykel, a professor of Near Eastern studies at Princeton University familiar with the thinking of Salman's inner circle.

"I think it's still early days, but my sense is that people are anticipating that the government ... will do the right thing because they realize the rule of law is quite important to creating a business environment where the sanctity of property is respected," he said.

No gold rush

While Saudi Arabia has been investing more money beyond its borders, foreign direct investment into the kingdom has been shrinking in recent years.

The market should not expect a gold rush into Saudi Arabia, according to Stephen Schwarzman, chairman and CEO of Blackstone, the world's largest private equity firm.

"I think it's going to take a while for the international community to watch what's going on in Saudi and then engage and then invest. That's pretty logical. Whenever you see a major change, you want to see how's it going to work," said Schwarzman, referring to overall reform during the Saudi panel in Davos.

Still, Schwarzman was upbeat about the prospects for new industries, particularly entertainment and leisure, as Salman eases strict social regulations.

"Everybody likes to either go to the movies or go to a theme park or do things that everyone in the world does that the Saudis haven't done," he said. "How is that going to fail?"

The Alshaya Group, a Kuwait-based operator of retail franchises, has plans to invest billions in shopping centers in Saudi Arabia, Executive Chairman Mohammed Alshaya told the panel. He claimed banks are more interested this year than last year in funding Saudi projects.

The Saudi Embassy in Washington, D.C., is currently organizing Salman's visit to the United States. A spokesperson declined to offer details, but Salman is expected to meet with politicians, investors and business leaders from New York City to Silicon Valley.

On the tech front, the Saudis are in talks with Google-parent Alphabet to build data centers in the kingdom and could finalize a deal with Amazon to construct three server farms during the trip, The Wall Street Journal reported last week.

Eurasia Group's Kamel says Salman will seek not only to develop areas of mutual interest with the U.S. government and show he is a reliable successor to his father, King Salman bin Abdulaziz, but also look to clarify the corruption crackdown and engage business leaders.

"This is not a PR campaign only," he said. "This is about building long-term bonds, having direct channels with CEOs."

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