Saudi corruption probe hits business old guard

Saudi Crown Prince Mohammed bin Salman speaks at the opening ceremony of Future Investment Initiative Conference in Riyadh, Saudi Arabia. Picture: Saudi Press Agency via AP

Saudi Crown Prince Mohammed bin Salman speaks at the opening ceremony of Future Investment Initiative Conference in Riyadh, Saudi Arabia. Picture: Saudi Press Agency via AP

Published Nov 6, 2017

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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.

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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 al-Tayyar, founder of the Al

Tayyar Travel group; billionaire Saleh Kamel; and

Bakr bin Laden, chairman of the huge Saudi Binladin construction

conglomerate.

State contracts

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.

But the bottom fell out from under both companies last year,

when a cash squeeze resulting from low oil prices caused the

government to cancel or suspend projects and delay payments.

The firms faced multi-billion dollar debt restructurings;

Binladin has laid off tens of thousands of people while Oger's

bankers say it has essentially stopped operating.

At the same time, state oil giant Saudi Aramco is moving to

set up a construction company with local and international

partners to build non-oil infrastructure in Saudi Arabia -

potentially taking billions of dollars of business that would

previously have gone to the family conglomerates.

Aramco and PIF, the sovereign fund, have also linked up with

U.S. construction firm Jacobs Engineering to form a management

company for strategic projects in the kingdom.

Many in the Saudi business world are celebrating the

downfall of the old patronage system and the shift toward a

"cleaner" business environment.

"It's great news for the clean ones among us - 99.99 percent

are ecstatic," said one senior executive.

But others express disquiet about the possible economic

fallout of the purge. Some are concerned that banks could start

calling in loans to families implicated in the probe, using loan

clauses that permit this in cases of legal jeopardy; this could

collapse companies' share prices.

Many new business deals may be put on hold. A businessman at

a foreign technology services firm told Reuters he had been

considering a venture with a Saudi partner, but decided against

it this week because of the partner's ties to the detained Bakr

bin Laden.

The new anti-corruption commission has broad authority to

seize assets at home and abroad. Some businessmen wonder if

these powers could be used to pressure firms into participating

in Prince Mohammed's economic development projects.

"It's the old royal fiefdoms that are not in the Al Salman

branch of the royal family that are now being purged," said a

Western analyst.

"It's a further centralising of political and economic power,

and a seizing of the private assets that those fiefdoms have

accumulated." 

Reuters

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