Saudi Arabia sets up special economic zone to attract investors after Khashoggi backlash

Saudi Arabia is establishing a special economic zone (SEZ) at Riyadh’s King Khalid International airport in a bid to attract multinational investors as the kingdom faces an international backlash following the murder in Istanbul of Saudi journalist Jamal Khashoggi almost three weeks ago.

The zone will focus on integrated logistics and enjoy special rules and regulations aiming at attracting more multinational companies to the Kingdom, according to the Saudi Press Agency (SPA).

The establishment of the Integrated Logistics Bonded Zone, or ILBZ, forms part of a larger effort to attract foreign investment into a number of sectors, including ICT, tourism and financial services.

“A significant proportion of global trade passes through the region, making a logistics hub in the kingdom a natural choice for any company seeing to serve international markets,” said SAGIA governor Ibrahim Al-Omar.

A royal decree has been issued to approve the regulation of the “Integrated Logistics Bonded Zone (ILBZ)” and has assigned its establishment and operation to the General Authority for Civil Aviation as the zone governing body.

The ILBZ will offer support for multinationals through warehousing and fulfilment, inventory management, maintenance and repairs, staging, testing and assembly.

ILBZ is a major step in translating Vision 2030 into action by leveraging Saudi Arabia’s strategic location as the hub connecting three continents, one of three core pillars of the Kingdom’s Vision 2030 announced in 2016.

However, that vision might not materialise because of the Khashoggi killing.

Khashoggi Backlash: Can MBS’ Saudi reforms survive international isolation?

The scandal triggered by the killing of Jamal Khashoggi, a Saudi journalist, has put Saudi Arabia, like its de facto leader, Crown Prince Mohammed bin Salman, in jeopardy of losing its lustre.

Amid macabre reports of the journalist’s killing, Riyadh struggles with Saudi Arabia’s biggest diplomatic crisis with the west since the September 11 attacks on the US in 2001.

The scandal has shaken confidence in the country as a place to do business, with potential consequences for billions of dollars in investments going into and out of the country.

Foreign business and political leaders are dropping out of next week’s Future Investment Initiative, an annual event started last year by the kingdom that is seeking to boost investment in the country and reduce its reliance on oil.

Among those cancelling the ‘Davos of the desert’ conference are US Treasury Secretary Steven Mnuchin, JPMorgan chief executive Jamie Dimon, Ford Motor Co. chairman Bill Ford and Uber CEO Dara Khosrowshahi.

British billionaire Richard Branson has pulled back from two projects to develop Red Sea tourism and has suspended talks with the Saudi government about a $1bn investment in his space companies.
“I had high hopes for the current government … and its leader Crown Prince Mohammed bin Salman,” Branson said in a statement.

“What has reportedly happened in Turkey … if proved true, would clearly change the ability of any of us in the West to do business with the Saudi government.”

A second flagship project — building a futuristic zero-emissions mega city known as NEOM — is also facing problems.

Dan Doctoroff, chief executive of Alphabet subsidiary Sidewalk Labs, Silicon Valley entrepreneur Sam Altman, Tim Brown, head of design company IDEO, and Ernest Moniz, a former US energy secretary and the boss of Energy Futures Initiative, have said they will not work with NEOM, at least for now, despite being listed as members of its advisory board.

One year ago, with more than 3,500 business leaders and government officials in attendance in Riyadh, Crown Prince Mohammed bin Salman announced that Saudi Arabia was open for business. Today, what happened behind closed doors in the kingdom’s consulate in Turkey might have also killed the dream of economic reform.

Pedro Gonçalves
Pedro Gonçalves is Financial Correspondent at International Investment.

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