Identifier
Created
Classification
Origin
10RIYADH97
2010-01-21 11:54:00
CONFIDENTIAL
Embassy Riyadh
Cable title:  

SAUDI INVESTMENT AUTHORITY OUTLINES AMBITIOUS

Tags:  EINV ECON ETRD ENRG TBIO PREL SA 
pdf how-to read a cable
VZCZCXYZ0005
RR RUEHWEB

DE RUEHRH #0097/01 0211154
ZNY CCCCC ZZH
R 211154Z JAN 10 ZDK
FM AMEMBASSY RIYADH
TO RUEHC/SECSTATE WASHDC 2342
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L RIYADH 000097 

SIPDIS

E.O. 12958: DECL: 01/25/2020
TAGS: EINV ECON ETRD ENRG TBIO PREL SA
SUBJECT: SAUDI INVESTMENT AUTHORITY OUTLINES AMBITIOUS
PLANS, CALLS FOR GREATER U.S. INVESTMENT

Classified By: Ambassador James B. Smith, reasons 1.4 (b and d).

C O N F I D E N T I A L RIYADH 000097

SIPDIS

E.O. 12958: DECL: 01/25/2020
TAGS: EINV ECON ETRD ENRG TBIO PREL SA
SUBJECT: SAUDI INVESTMENT AUTHORITY OUTLINES AMBITIOUS
PLANS, CALLS FOR GREATER U.S. INVESTMENT

Classified By: Ambassador James B. Smith, reasons 1.4 (b and d).


1. (C) Summary: The Saudi Arabian General Investment
Authority (SAGIA) has achieved remarkable results over the
last five years in making Saudi Arabia a more attractive
destination for foreign investment, more than doubling total
investment to $38 billion in 2008. SAGIA is trying to focus
the country on attracting investments that make best use of
its two primary competitive advantages, abundant hydrocarbons
and a strategic location between east and west. SAGIA hopes
that more targeted investment partnering will help the
Kingdom create a knowledge-based economy that will create the
better paying, more challenging jobs that a rapidly growing,
very young population needs to improve its standard of
living. SAGIA is pursuing a number of initiatives to
accomplish this goal, including setting up at least four
economic cities, each of which will focus on a different
'value proposition,' designed to attract both foreign
investors and Saudis seeking higher paying jobs in new cities
with attractive government services. SAGIA is proud of its
efforts to date to make Saudi Arabia an easier place to do
business, and points to its World Bank ranking for ease of
doing business, which has improved from number 67 in 2005 to
number 13 in 2009. Its goal is to crack the top ten easiest
places to do business by the end of 2010 (ten by ten). SAGIA
will focus this year on improving contract enforcement and
setting up arbitration centers, addressing one of Saudi
Arabia's weakest points in the World Bank rating. SAGIA is
also very keen to attract greater U.S. investment. End
Summary.

Investment Key to Development:
- - - - - - - - - - - - - - - -


2. (C) Amr Al-Dabbagh the President of the Saudi Arabian
General Investment Authority (SAGIA) recently briefed the
Ambassador on the Kingdom's ambitious plans to attract more
foreign investment. Al-Dabbagh explained that rapid economic

growth in Saudi Arabia continues, but population growth is
roughly double the rate of GDP growth, which means living
standards are declining, and Saudis are now facing
unemployment. Beginning in 2000, SAGIA analyzed Saudi
Arabia's development challenges, and looked at its record of
attracting foreign and domestic investment. Two prominent
initiatives from the 1970's and 1980's they examined were the
drive for Saudization, and the efforts to promote the
industrial cities of Jubail and Yanbu, which have attracted
fifty percent of FDI into Saudi Arabia over the last thirty
years. They also looked at the experience of other
countries, including Ireland and Singapore. The way forward,
in SAGIA's view, is not to pursue a strategy of Saudization,
but one of job creation. SAGIA also decided that the Kingdom
can no longer try to attract all kinds of investments.
Instead, it would make more sense to better target
investments to take advantage of the Kingdom's two main
competitive advantages of abundant hydrocarbons and strategic
location between Asia and Europe. SAGIA also concluded that,
to create the necessary jobs to improve standards of living,
Saudi Arabia needs to attract a larger amount of FDI and
domestic investment.

Three Initiatives:
- - - - - - - - - -


3. (SBU) In late 2004, SAGIA began its strategic plan to
increase investments, defining for itself a mission of
creating a pro-business environment, with world class
economic cities and develop a knowledge economy. SAGIA
sought to focus on the small number of actions that would
have the biggest impact in terms of increasing Saudi Arabia's
competitiveness. This led to the goal of becoming one of the
world's ten most competitive places by 2010, as ranked by the
World Bank ("ten by ten," in SAGIA parlance). This analysis
led to three initiatives: institutionalizing competitiveness
process; building export zones, or pockets of competitiveness
that introduce the next generation of best practices; and
third, build three business centers. If this initiative
works, it will add $150 billion to current GDP, and generate
1.3 million jobs while supporting 4.5 million people (roughly
another Riyadh). SAGIA also hopes to increase the average
salary from today's $18,000 level to $33,000 by 2020.

Improved Competitiveness:
- - - - - - - - - - - - -


4. (C) SAGIA began the first initiative in 2005, hiring
Michael Porter, the author of the Competitive Advantage of
Nations. He looked at key indicators, such as how many days
and how much money does it take to start a business, and
helped suggest areas for improvement. As a result of these
suggestions, SAGIA has cut the number of steps by 70% and the
cost by 90%, and the time it takes by 80%. As an example of
the improvement, the number of companies formed in Saudi
Arabia in December 2007 equaled the number for the rest of
the year.


5. (C) SAGIA decided against trying to fix the existing
economic base in the Kingdom's three largest cities, and
opted instead to start from scratch in creating four economic
cities, of which the King Abdullah Economic City near Jeddah
is the flagship. There are also economic cities planned in
Hail, Jizan and Medina, designed to develop less prosperous
regions. Each city will have a different 'value proposition'
in terms of a key focus area. SAGIA aims to install best
practices as it builds these cities, including adopting a new
way of looking at government services, guaranteeing that
citizens can receive service within 60 minutes of placing a
call, 24 hours a day, 7 days a week. SAGIA hopes this will
become contagious in the rest of the country. CISCO is
working to install the next generation of smart city
infrastructure, such as broadband, in the cities now. All
buildings will be LEED certified.


6. (C) SAGIA recognizes it will be hard to get people to
move, but believes that offering good, high quality jobs will
help. 90% of high school grads leave their home towns today;
economic cities might help reverse that internal migration
trend. They are also hoping that high level of government
services, such as health (set up in cooperation with the
Cleveland Clinics) will help.


7. (C) Al-Dabbagh said SAGIA is looking to develop several
specific sectors, such as knowledge based industries and
petrochemicals. The goal is to increase Saudi Arabia's share
of the global plastics petrochemical industry from 1% today
to 15% in 2020. As an example, Al-Dabbagh noted China
imports oil and resins today from Saudi Arabia and exports
plastics to Saudi Arabia. Saudi would like to become the
newest plastics hub, and has contracted Booz Allen Hamilton
to come up with a strategy that will fit into the national
clusters program (done in coordination with the Ministries of
Commerce and Petroleum). SAGIA has also picked ten areas in
mining to develop, including bauxite for aluminum, phosphates
and glass. To meet these goals, Saudi Arabia will have to
invest $120 billion by 2020 to double its electricity
generation to 60 GW, in addition to $50 billion in new water
desalination capacity to meet demand. Al-Dabbagh estimated
that, together, initiatives in these sectors could represent
$300 billion in investment opportunities.

Transportation:
- - - - - - - -


8. (SBU) SAGIA is pursuing a significant effort to develop
the transport sector, expecting to make big upgrades to the
system built in the 1970's and 1980's, including roads,
logistics, air and sea ports, and rail. SAGIA is also
looking at green field ports and rail projects, and trying to
promote the logistics industry as a strategic industry for
the country. SAGIA estimates there is up to $100 billion in
investment potential in these sectors.

Knowledge Based Industries:
- - - - - - - - - - - - - - -


9. (C) SAGIA is also promoting the creation of
knowledge-based industries, including health, life sciences,
education and information and computing technology.
Al-Dabbagh said SAGIA is targeting the training of highly
proficient Saudis who can compete anywhere in the world,
preparing them for a career, and not just a job, in which
they can add value, not costs. SAGIA is looking to build
smart cities from scratch to promote information technology
industries (in part because they are cheaper then
retrofitting existing cities),based on the model of
Amsterdam. SAGIA also plans to develop opportunities in the
health sector, using the economic cities as model for a
patient-centric approach, based on a partnership with the
Cleveland Clinic, which will set up the Kingdom's first
cardiac center soon. They are also working with the Jocelyn
Center and the Harvard diabetes strategy to set up 30
clinics. SAGIA estimates a total of $100 billion investment
opportunities in the health sector.

Results:
- - - - -



10. (SBU) In 2005, Saudi Arabia was number 67 in the world,
rising to 38, 23, 16, and 13 in 2009. UNCTAD estimates that
FDI has also increased, from number 27 in 2006 to number 14
in 2009. Saudi Arabia was one of five countries to increase
its FDI in 2009, doubling its investment from 2008.
Al-Dabbagh noted this has created 340,000 new jobs, with high
salaries in the $90,000 range. Only 10% of this is in the
oil and gas sector, and 15% in petrochemicals.

Judicial Reform Top Goal for 2010:
- - - - - - - - - - - - - - - - - -


11. (SBU) Over the next year, SAGIA will focus on reform of
the commercial code and the judicial system. Two years ago,
the Saudi Government began a major judicial reform process
intended to create more effective commercial courts. SAGIA
is working with the Board of Grievances and the Ministry of
Justice to set up commercial courts, and with the Ministry of
Commerce and Chambers of Commerce to set up amicable
settlement centers. This will help Saudi Arabia address the
main difference between being ranked number 13 and number 10
in the World Bank rating, which is contract enforcement.
Saudi Arabia currently ranks number 147 in that measure.
SAGIA also wants to increase the role of women in the
workforce, as Saudi Arabia ranks last in the World Bank
indicators on this score.

Entrepreneurship:
- - - - - - - - - -


12. (C) SAGIA hopes to unleash local entrepreneurs, in part
by creating a training program with Babson College and
creating an entrepreneurship road map under USAID's
centennial fund. SAGIA also intends to create a national
entrepreneurship center by 2010. Once this center is up and
running, every student will start - and liquidate - a company
during a school term.

Better Use of Oil:
- - - - - - - - - -


13. (C) Saudi Arabia is also looking to reduce local
electricity demand. SAGIA believes it would make more sense
to reduce the domestic subsidies for oil and electricity to
encourage companies to make more rational use of these
resources, which reduce local demand, freeing up more oil for
export. SAGIA wants to use the additional revenue to
incentivize growth at home. SAGIA is looking at options to
install smart grids to reduce electricity distribution loss
by 50%. Connecting the east and west grids will also reduce
demand and make the system more efficient. SAGIA is also
looking for ways to increase the use of renewable energy,
particularly solar, as well as wind on the coast. There are
some start-up Saudi companies that already make panels for
solar cells, and SAGIA is working on a national energy
strategy for solar.

Call for More U.S. Investment:
- - - - - - - - - - - - - - -


14. (C) Al-Dabbagh lamented that the U.S. is no longer the
largest source of foreign direct investment, and said SAGIA
would like to increase the U.S. share, both of FDI into
Saudi, and of Saudi FDI into the U.S. In order to increase
Saudi Arabia's profile, SAGIA plans to open 12 offices in the
U.S. Al-Dabbagh noted, by reference, that Singapore has 30).
SAGIA is also trying to develop strategic alliances with key
law firms and consultants to attract the right kind of firms
to invest in Saudi Arabia. Part of the problem, according to
Al-Dabbagh is that Saudi Arabia needs a clearer vision for
its investment strategy. Al-Dabbagh believes it makes more
sense for Saudi Arabia not to pursue companies looking for a
cheap place to outsource production from the U.S. Rather, it
makes more sense to pursue companies looking for long-term
strategic partners in key areas, which are more likely to
make better use of Saudi Arabia's competitive advantages.

Comment:
- - - -


15. (C) There are no better exponents of the King's vision of
the need to develop a knowledge-based economy quickly than
Amr Al-Dabbagh and his young, energetic SAGIA team. They have
achieved impressive results in terms of addressing a number
of procedural problems that has made it easier for foreign
and domestic companies to set up shop in Saudi Arabia. We
believe they have also identified some important factors for
the government to consider if the country is to achieve the
King's development vision. Unfortunately, SAGIA's vision is
not the only vision in the Saudi Government. While there is
significant overlap between SAGIA's program and the Ministry
of Commerce's National Industrial Strategy, and the Stairway
to Knowledge strategy of the King Abdulaziz Center for
Science and Technology, there are important areas of
difference. It is also not clear that other ministries, let
alone private companies, are sold on the concept of the
economic cities. SAGIA is also not always the most effective
proponent of foreign investor interests when regulatory or
licensing questions arise with other ministries. All that
said, we will continue to work closely with SAGIA to help it
realize its vision of making Saudi Arabia a more welcoming
place for investors and a champion of reform.



SMITH