Saudi Development Spree Could Help US Firms

Oil and cash are Saudi Arabia's two biggest exports. Now at a time when global coffers are strapped, the Kingdom is going on a spending spree, putting $400 billion dollars to work.

Saudi Arabia's domestic development efforts could provide a much-needed financial boost to firms outside of the Kingdom, according to the Governor of Saudi Arabia General Investment Authority H.E. Amr al-Dabbagh. That's why al-Dabbagh is visiting the U.S. this week to meet with the chief executives of American firms who may be interested in bidding for some of that sizeable payout. Slideshows:

If you run a power plant, water desalinization, education or healthcare business, Saudi Arabia wants you. Among other infrastructure investments, Al-Dabbagh says that the Kingdom plans to spend $120 billion on enhancing the its power capacity and another $50 billion on water desalinization.

"We hope to create the biggest contruction site in the world today," according to al-Dabbagh. "We have over 20 airports that need to be expanded and upgraded, seaports, hubs and knowledge-based industries including health, education schools universities are being constructed."

The Kingdom isn't as cash rich as it was a year ago now that the price of oil is down at $54 a barrel, down from its highs above $100. Saudi Arabia will run its first budget deficit this year. Al-Dabbagh acknowledges that the oil price isn't optimum for his spending plans—he thinks $70 a barrel is a "healthy" level—but the fall in other commodity prices presents a good opportunity.

"We're taking advantage of the economic slowdown that has resulted in decreased building material prices," explained al-Dabbagh. The surplus capacity of contracting companies means that the Kingdom has pricing power—an advantage of 30-40 percent according to his estimates—when it comes to hiring corporate partners.

Oil Refinery in California
Oil Refinery in California

Courting American firms to invest in Saudi Arabia right now is a tough sell. Still, al-Dabbagh says these "shovel ready" programs could feed demand for corporate services at a time when so many firms are cutting back their expansion plans. Al-Dabbagh also emphasizes that Saudi Arabia won't be spending only at home.

"Saudi capital is smart capital," al-Dabbagh explains. Saudi Arabia already ranks among the top three biggest holders of U.S. debt, and al-Dabbagh wouldn't rule out the possibility that Saudi Arabia may start to spend its capital on stocks.

"You never know. The private sector is extremely sophisticated and looking for opportunity in the U.S. and other parts of the world. It takes two to tango. U.S. companies need to expose what opportunities there are for Saudi capital to get engaged with," he says.

Timing is everything. A year ago Saudi Arabia was trying to play catch-up with the hot markets of its neighbors in Dubai, Abu Dhabi and Qatar. These days its conservative investment strategy makes it a Gulf country still looking for ways to spend.

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