A partner for 2030

How have relations between the UK and Saudi Arabia developed over the last couple of years?
It is a time of very significant change inside Saudi Arabia. The roll-out of the implementation of Vision 2030 and the National Transformation Programme has proceeded and there have been significant political changes with the elevation of Prince Mohammad bin Salman to crown prince. A number of decrees have also been issued that have changed the machinery of government here in ways that are designed to deliver Vision 2030.
It has become increasingly clear that Vision 2030 is a programme of not only economic reform but also social change. The plan prepares the country for a period of reduced reliance on hydrocarbons, whether for external earning or government revenue. There is a young population here, with the median age well under 30 years.
The government is making changes across the economy and in the social sphere that will enable more jobs for Saudi nationals. They are also training people through reforms made in the education system and are increasing the participation rate of women in the economy and in society generally. It is an exciting and comprehensive programme.
The UK’s engagement with Saudi Arabia has reflected this. Historically, we have been a key partner to Saudi Arabia. Under Vision 2030, the UK is a main partner for the implementation of the programme and the high-level contacts between the two countries reflects that. There have been visits by the foreign secretary in December 2016 and in June 2017 to engage with the Crown Prince and with key ministers, and by the Prime Minister in April 2017.
During that visit, the Prime Minister announced the appointment of Ken Costa as the UK’s special envoy for Vision 2030. Ken Costa has visited Saudi Arabia, has visited the Crown Prince and has engaged with key ministers. Whether it is across trade, investment or education more broadly, the UK is working with the Saudi authorities for the delivery of that vision.

What is the economic footprint of the UK in Saudi Arabia beyond defence deals?
The main underlying theme of Vision 2030 is for Saudi Arabia to acquire the capabilities that they seek in order to implement that vision. When you look at those, the UK, in many sectors, has unique capabilities that make it an able partner.
Defence is an important sector and we are likely to see increased transfer of technology and increased in-kingdom production. This has already been reflected in the kind of business that we are doing with the defence sector. Security cooperation remains highly significant and that includes cooperation over cyber attacks, which are a shared threat to all countries these days.
On education, the UK has a world-class education system. How that partnership is delivered is changing. While there are still many Saudi students continuing to go to study in the UK, we are also working with the Ministry of Education for the training and provision of practical experience to teachers across Saudi Arabia. Vocational education is an area where we have significant British presence inside the country.
In healthcare, there is a joint ministerial body which has updated the areas of engagement as the Saudi government modernises its healthcare system. This has meant a greater focus has been placed on areas where the UK’s National Health Service have particular skills, namely: primary healthcare, mental health care and the older generation and their requirements.
Financial and professional services for major infrastructural projects are further areas of UK expertise. Many companies have longstanding relationships with Saudi Arabia. While the government reviewed its infrastructure programme following the pause in 2016, we worked with them to understand what the new priority areas are and where British companies can provide the kind of services that are needed.
Across all of these sectors, what we are seeing is that this is no longer about the provision of product. The key to success is to align with the Saudi leadership’s focus on developing partnerships that transfer technology and capability. We need to have a human resources element and a through-life approach to project management. In this way, it becomes no longer just about doing a deal and leaving, but about building a relationship that will enable institutions, organisations and companies to grow and to grow the people within those organisations.

How is this being implemented on the ground?
Firstly, it is implemented through high-level dialogue, from the prime minister’s visit to the defence secretary’s visits. There is a high level of engagement to make sure that we understand the strategy and align our response to that. Secondly, in the UK, there is a process of disseminating information about opportunities, making sure that the government, through the special envoy, is able to mobilise private-sector responses, reinforce existing relationships and help establish new ones.
Once businesses are in direct contact with the Saudi authorities in the right context, then they crack on. They know they have the government’s broad support and there is a relationship of trust. In each specific project in each sector, however, it is the companies themselves who will be able to develop that at home and build on it.

What is your assessment of the current financial prowess of Saudi Arabia?
2016 was a year of adjustment on the Saudi budget side. There were a number of projects that were put on hold and a number of payment challenges or issues had to be resolved by the end of 2016. That affected Saudi companies as well as international companies, including British ones. The Saudi government has moved to increase the proportion of revenue raised from non-oil sources, particularly looking ahead at the introduction of the VAT in 2018.
There are also a number of measures that have been taken on the expenditure side. The Saudi government has reviewed major projects in the country and introduced a number of measures, some of which have been temporary and others more enduring, such as to reduce allowances paid to public-sector employees.
The government has also been actively entering the debt market. Saudi Arabia is a country which has had extremely low debt. The move to issue bonds – sukuk and other instruments – to raise funds for development is a natural move for a country which is seeking to grow and develop.
Of course, there is the preparation of the Saudi Aramco IPO, the proceeds of which will establish the Public Investment Fund as something akin to the kind of sovereign wealth funds that a number of other countries have. The role of the Public Investment Fund in driving investment inside Saudi Arabia is highly significant and something which we are closely engaged with. The Saudi authorities are preparing a major investment conference in late 2017 which will showcase their strategy and how they intend to move forward.

How will the Brexit process affect the relationship between the two countries?
A very senior Saudi said to me very soon after the referendum that Saudi Arabia had an excellent relationship with the UK before they joined the EU, that they had an excellent relationship during the UK’s time in the EU and that they look forward to having an excellent relationship with the UK as they leave the EU.
That is an important point. The relationship between the UK and Saudi Arabia has never been primarily driven by our membership in the EU or in the single market. Most trade and most Saudi investment in the UK is not a function of single-market access. Trade is driven by other factors, such as security, the strength of our legal system, the value that investment in the UK represents to international investors, the acquisition of technologies and the building of partnerships.
If you look at the Gulf generally, Saudi Arabia is the largest market, but the Gulf is a significant partner to the UK across our economy and our trade in goods and services. It is an open market, and Brexit provides both the necessity and the opportunity to take a fresh look at those relationships and to commit to working harder, more actively and in a more agile way to build them.
Roughly 47% of the UK’s trade is with the EU27 countries. North America is about half of that and Saudi Arabia and the UAE are about another half again. Thus, when we look at this region in a post-Brexit environment, this is one of the most significant markets outside Europe and North America for the UK. Since there is an open market and an existing relationship of trust and knowledge, there is a major opportunity, in due course, for looking at a free trade agreement. For now, we are already looking at how we engage.
Our Saudi and other Gulf friends are obviously looking at Brexit and managing the Brexit risk is a factor for them, but the nature of that risk management is not different from that of any other global investor looking into the UK. In many respects it is less because Gulf investors know the UK well. They know the strength of our national institutions, of our legal infrastructure and of our professional services and they have confidence in their resilience and capability.
Brexit represents an opportunity that needs to be carefully managed and executed because there are many other countries that will be looking for business in Saudi Arabia. The Brexit risk factor is really about investment into the UK, not the other way around.
The government has made clear that there will not be a cliff edge, but that they will provide as much certainty to businesses as possible throughout the remainder of the negotiating period and under Article 50. Managing the Gulf relationship aspect of this, whether it is for the government or the private sector, is a relatively clear-cut process. It needs to be done, we are doing it and it is not complicated.

Is there an element of uncertainty that will hold off Gulf investors, at least for the next 18 months until March 2019?
We have not seen that. When you talk to ministers, senior figures here and senior business figures in Saudi Arabia, they are looking at the big picture. They are not preoccupied by twists and turns in the negotiating progress. They look at the big picture and see that the UK is a nation with strong institutions, a strong legal infrastructure and an economy that they are familiar with and which has many sectors where British businesses have what they are looking for.
There is quite a good synchronicity between the change that Brexit implies for the UK and the change that Vision 2030 implies for Saudi Arabia. One can say those two factors align the opportunities for doing business rather than driving them apart. People talk about the risks of Vision 2030, but also about the opportunities. Likewise, with Brexit in the UK, people are talking about both the risks and the opportunities.

Does the ongoing dispute with Qatar affect British diplomacy in Saudi Arabia?
The UK attaches importance to the unity of the Gulf, which is important for the security and prosperity of the states of the Gulf, their populations and for all of us who engage with them. We have a direct interest in the security of the Gulf. The prime minister spoke at the last Gulf leaders’ summit in Bahrain in December 2016 and said that their security is our security and that their prosperity is our prosperity.
We are keen to see progress made as rapidly as possible to resolve this dispute and we fully support the Kuwaiti-led mediation effort. We work closely with the US and also with other like-minded countries, including France and Germany, to support the Kuwaiti-led mediation, and we hope that this will be successful.
The last visit of the foreign secretary here came just a few days before Secretary of State Rex Tillerson’s visit. That was not an accident. Some of the ideas that were discussed during Boris Johnson’s visit were fed through into the Tillerson visit. This was coordinated work and the British National Security Advisor joined Tillerson’s delegation for the meeting in Kuwait, which resulted in the principles and roadmap that were put forward by the Americans at that time.
There is a broad programme, internationally, in which the UK is playing a proactive part to support the Kuwaitis to find a practical way to solve the dispute. We have excellent relations with each of the Gulf countries and British companies have excellent relations with them too. We do not expect British companies or other international companies to have to choose between relationships in those markets and we have made that clear in our own conversations with each government.
Ultimately, the longer this dispute continues, the more damaging it will be to the environment of trade and investment in the Gulf as a whole. The dispute introduces geopolitical risk, so it is not a positive for anybody in the region. This undermines our determination to work for the earliest possible resolution.

How closely in contact are you with officials in London?
For each meeting, a lot of detailed work here is done. When the Prime Minister came, there were important meetings with the King, with the then-Crown Prince and the then-Deputy Crown Prince. Included in those meetings were the key security and prosperity ministers and other leaders, such as the head of the Public Investment Fund.
The Prime Minister visited Tadawul, the Saudi stock exchange. Xavier Rolet, the CEO of the London Stock Exchange Group (LSEG), was part of the delegation and took part in that meeting. The LSEG and Tadawul are building a strong partnership and the Prime Minister’s visit helped to develop that.
On social issues, I think the Prime Minister’s visit with Princess Reema bint Bandar Al Saud allowed a really exciting conversation about her ministry’s efforts to increase the participation of all Saudis in sport, to develop elite sport, including for women and people in rural or harder-to-reach areas.
Vision 2030 is not only about economic development; it is also about social development. There were also important discussions about regional security issues, such as the role of Iran in the region, the situation in Iraq and Syria, the fight against Daesh [Islamic State], the humanitarian situation in Yemen and what might be done to tackle that. [Saudi Vision 2030] really covers the whole spectrum of our relationship with Saudi Arabia.

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