Investors can tolerate a lot when doing business and making money. In the case of Saudi Arabia, the human rights abuses of the government at home and abroad could not prevent the titans of global capitalism from killing Crown Prince [MuhammadbinSalman (MBS) when he launched his grandiose 2030 Blueprint vision Diversification sold the economy of the kingdom separated from oil.
Until the assassination of Saudi journalist Jamal Khashoggi.
Khashoggi's murder a year ago at the Saudi Consulate in Istanbul has shown how much a deterrent reputational risk has become in the wake-up era. Details of Khashoggi's murder via the Turkish media were dropped on a shocked global audience A-listers from the annual "Davos in the Desert" summit of the Saudi Public Investment Fund (PIF) rose in droves. Top managers who boycotted have sent lower ones instead.
If the absence of festival speakers on thefor this year's Investment Summit in October is yet to come, the brightest business executives may have come to the conclusion that a photo session with MBS is quite possible for the time being ,
As with most scandalous episodes, investors' willingness to look beyond the Khashoggi affair seems to be on the rise, even though US intelligence has concluded that MBS ordered the killing of Khashoggi. This finding did not prevent US President Donald Trump from praising MBS during the G20 summit in July.
However, with the decline in reputational risk, new threats emerge that cast doubt on the Kingdom's ability to persuade investors to embrace MBS's 2030 vision, which is critical to making Saudi Arabia a one-stop shop to lead a new, more sustainable economic direction.
Vision in the Meltdown
A successful departure from oil depends on Riyadh reinvesting the wealth of fossil fuels in growth industries of the future and convincing the private sector at home and abroad to invest in the Kingdom.
Investors' appetite for April's $ 12 billion public offering of state oil giant Saudi Aramco was in high demand. The kingdom's rehabilitation got back on track in September when BlackRock, the world's largest fund manager, announced that it had opened an office in Riyadh.
Further good news came on Monday, as government figures showed that economic growth was not oil-based. The second quarter of this year accelerated at its fastest pace since 2015. And one senior executive of Aramco announced on Monday that the full Oil production and capacity have returned to levels prior to the attack on the company's assets on 14 September.
"By September 25, we were able to recover all the capacity we had before the attacks," said Ibrahim Al-Buainain, head of Aramco's commercial arm, to a conference in the United Arab Emirates.
But not all Monday news was positive for the kingdom. Overall, Saudi Arabia's economic growth slowed to just 0.5 percent in the second quarter, mainly due to declining oil production. The anemic growth rate triggered the discussion about the recession risk.
Monday saw more disappointing news for the Softbank Group's Vision Fund, in which the UK's PIF owns $ 45 billion. Vision Fund invests in technology-oriented start-ups, industries that are crucial to the diversification of the kingdom, but that represent a radical departure from the government's past conservative investment strategy.
One of Vision Fund's major investments was made on Monday. We Company, the parent company of co-operating startup WeWork, dropped its plans for an IPO. The change was no surprise after a few weeks of punishment in which the founder of We Company resigned from his role as chief executive. Analysts question the company's business model and report that the start-up has considered a valuation of only $ 10- $ 12 billion before it dropped its stock market plans. In January, Softbank had invested $ 47 billion in We Company.
The collapse of We Company was not the only Vision Fund investment that disappointed this year. Two other well-known names in the startup portfolio, including co-driving giant Uber Technologies Inc and the messaging platform Slack Technologies Inc, have been overtaxed since their stock market debut.
"The Crown Prince is anxious to take more risks in order to rise returns," said F Gregory Gause, a professor of international affairs at the Bush School of Government of Texas A & M University.
"While the jury has not yet been informed about the long-term results, the problem with risky investment strategies is that they sometimes lose money," he told Al Jazeera.
Vision in Flames
The most painful blow from Monday to Vision 2030 was probably supplied by the New York based rating agency Fitch, which downgraded Saudi Arabia's credit rating from A to A +. Fitch highlighted the increasing geopolitical and military tensions on the Gulf and the "fragility" of the Kingdom's economic infrastructure for its mild downgrade.
"Although oil production was fully restored by the end of September, we believe there is a threat of further attacks against Saudi Arabia, which could lead to economic damage," Fitch said.
The attacks on the Aramco oil factories in Abqaiq and Khurais were not the first attacks on Saudi Arabia's oil sector, but the most tenacious. And investors were prepared for maximum control as the attacks took place less than a week after the arrival of the newly established Kingdom Energy Minister, Prince Abdulaziz bin Salman, who had the expectation that Aramco's long-awaited IPO would take place before year-end ,
The Aramco The initial public offering that the Saudis are advancing is at the heart of Vision 2030's plan to transfer vast sums of oil wealth into new industries.
Prior to this latest attack, analysts and energy experts had already undercut the $ 2 trillion MBS valuation in hopes of reaching the company. With the prospects for the price of oil and the increasing pressure that climate activists put on governments to aggressively combat greenhouse gas emissions, many thought $ 1.5 trillion was more realistic.
It also raised the question of how much Saudi officials were prepared to do so
"Private investors are unlikely to receive the information about Aramco they would expect from an IPO in the private sector," Gause said. "That could reduce investors' appetite for stocks."
To stimulate this appetite, Aramco announced on Monday to increase the dividend payout in 2020. If this fails, the kingdom is reportedly pushing the wealthy Saudis to take a step forward.
Such tactics with strong arms could work. But forcing investors to embark on a vision is not the same as convincing them.