War in the Middle East clouds prospects for Saudi ‘Davos in the desert’

Saudi Arabian officials lamented the economic fallout from the regional conflict on Tuesday as the Gulf kingdom’s sovereign wealth fund told an investor forum it was cutting back some of its overseas investments.

For the second year in a row, the mood at the glittering Future Investment Initiative, sometimes called “Davos in the desert,” has been darkened by Israel’s wars with Hamas in Gaza and Hezbollah in Lebanon.

This year’s three-day event is expected to attract more than 7,000 delegates, including TikTok CEO Shu Zi Chu and executives from Citigroup and Goldman Sachs.

The Persian Gulf has been a “bright spot in the region” but there is no doubt that ongoing wars are dragging down economic growth, Muhammad al-Jasser, chairman of the Islamic Development Bank, said on Tuesday morning.

“The potential that was waiting to be developed is evaporating with all this conflict and level of uncertainty,” said Jasser, a former Saudi Arabian central bank governor.

Last year’s FII took place just weeks after an unprecedented Hamas attack on southern Israel sparked a war in the Gaza Strip, with senior speakers warning of economic disruption if the fighting spread to other countries.

A year later, those fears have materialized as Israel conducts operations against Hezbollah in Lebanon and launches retaliatory strikes against Iran.

Saudi Arabia’s Investment Minister Khalid al-Falih said on Tuesday that the kingdom would inevitably be damaged by military action in the region, including attacks by Yemen’s Houthi rebels on shipping in the Red Sea.

“We are the center of the Middle East,” Falih said.

“And we feel the pain that is happening on a human level and we see the turmoil in the Red Sea.”

– Wealth fund shift –

The Future Investment Initiative (FII) debuted in 2017 as a showcase of Saudi Arabia’s de facto ruler Crown Prince Mohammed bin Salman’s dream of diversifying the economy of the world’s largest oil exporter.

The main driver of Prince Mohammed’s Vision 2030 was a sovereign wealth fund known as the Public Investment Fund (PIF), which has more than $900 billion in assets under management.

PIF governor Yasser al-Rumayyan told the commission on Tuesday he would reduce the proportion of its overseas investments after years of high-profile deals, including in sports and entertainment.

Describing how the mutual fund has grown over the last decade or so, Rumayyan said its share of international investments has jumped from less than two percent to 30 percent.

“Our goal now is to reduce it to 18 to 20 percent,” he said, without specifying a time frame.

“However, the absolute dollar amount continues to rise.”

Rumayyan’s announcement comes amid growing skepticism about the Gulf kingdom’s most ambitious development projects, such as the futuristic metropolis known as NEOM.

Authorities have reportedly cut the target size and population of NEOM, which would include a ski resort and 170-kilometer (105-mile) long twin skyscrapers, by 2030.

On Sunday, NEOM announced the opening of its “first physical storefront” – a luxury Red Sea island known as Sindala, with restaurants, hotels and yacht marinas.

“There was so much skepticism about NEOM in the Western media that the Saudis had to do something to demonstrate their commitment,” said Jim Crane of Rice University’s Baker Institute.

“NEOM’s early discovery is likely intended to confuse skeptics by telling the world that Saudi Arabia is moving forward. This is a message of “to those in doubt, beware.”

Saudi Finance Minister Mohammed al-Jadaan said in May that “turmoil,” including the war in Gaza, had prompted officials to “reprioritize” some aspects of Vision 2030.

– ‘The show must go on’ –

While most of Tuesday’s speakers refrained from making overtly political statements, American economist Jeffrey Sachs used his speaking time to loudly call for the creation of a Palestinian state.

“Why is there a war in the Gaza Strip and Lebanon and perhaps spreading to Iran and further in this region? Because obviously there is no state of Palestine,” he said.

“Because Israel is blocking it, the United States is blocking it, and until that happens there will be no peace in the region.”

FII Institute CEO Richard Attias told a press conference in Riyadh this month that the meeting was not intended to focus on “politics” and should instead pursue large-scale investment “to build a better world.”

“We are an independent platform and we don’t want to, excuse me for saying this, be contaminated by any political events,” said Attias, a former producer at the World Economic Forum in Davos, Switzerland.

“I’ve been curating events for 35 years, and one thing I’ve learned is that the show must go on.”

On Tuesday, Attias announced that FII this year will be his last as the institute’s director general.

RCB/TH/JSA