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Saudi walls of ritz crumble over intl. investors

Saudi Arabia’s jailing of hundreds of its wealthiest princes and businessmen is alarming investors and undermining Crown Prince Mohammed bin Salman’s express plan to wean the kingdom off oil revenue.

Saudi authorities describe the unprecedented crackdown as an anti-corruption drive but reports that the government was offering to exchange the wealth of allegedly corrupt royals and officials for their freedom have cast doubt on that claim.

Some of those detained have already struck deals that involve separating cash from assets like property and shares, and looking at bank accounts to assess cash values, the Reuters news agency reported on Friday.

The detentions are reminiscent of a tactic used before by post-Soviet regimes in which many rich individuals had their assets expropriated through plea bargains in order to have their freedom.

The tactic appears to be the most direct and convenient way for Saudi Arabia to refill the state coffers which are running dry from a protracted military intervention in Yemen and new arms purchases.

 

Saudi Arabia racked up a budget deficit of $96.5 billion in 2015 and a further $83 billion last year. There is no credible statistics on the fiscal deficit this year but it is expected to run up to similar figures again.

According to Bloomberg, the kingdom appears intent on plugging the deficit with infusions of the expropriated wealth to the tune of at least $100 billion.

“While it can be effective in supplementing government coffers, it’s not great for a country’s institutions and business climate,” an opinion piece on the financial news provider said.

Walls of dread 

The mood among foreign investors has already turned blue and many of the world’s top financiers who met Saudi Arabia’s business and political elite at the Ritz-Carlton in Riyadh last month are watching the unfolding drama at the ritzy premises with alarm.

In less than 10 days, the hotel in Riyadh has turned into a deluxe jail for more than 500 princes and businessmen rounded up in a crackdown which is spreading and squeezing the life out of business holders.

A general view of the closed main gate of the Ritz Carlton Hotel in Riyadh, Saudi Arabia, Nov. 5, 2017. Many of those targeted in the crackdown have been confined to closed quarters at the hotel.

The sweeping shakedown has netted some of the kingdom’s biggest tycoons, including billionaire investor Prince Alwaleed bin Talal. His net worth fell to $17.8 billion after the market value of the Saudi investment firm he founded plummeted $1.3 billion in 48 hours as the news of his arrest broke last week.

On Friday, sources told Reuters that his Kingdom Holding planned to sell stakes in the Moevenpick Hotel and Four Seasons Hotel in Beirut. Lebanon’s The Daily Star newspaper valued the deal to sell the Four Seasons Hotel stake at more than $110 million.

The speed and scope of the purge, now hollering from the dreadful walls of the Ritz-Carlton, has stunned foreign investors and raised doubts about the increasingly assertive heir-apparent’s grandiose projects, including a $500 billion city which he has announced to build in the desert.

“Half my Rolodex is in the Ritz right now. And they want me to invest there now? No way,” The Financial Times quoted one senior investor as saying. “The wall of money that was going to deploy into the kingdom is falling apart.”

“One day we are sleeping at the Ritz-Carlton, excited about a new era,” the British daily quoted one regional investor as saying. “The next day they have turned the hotel into a prison — what sort of message does this send us? We need some stability.”

A visualization of the futuristic mega-city of Neom which Saudi Arabia plans to build where the desert meets the Red Sea. 

Political purge

Saudi media portrays the clampdown as a much-needed battle against corruption, while much of the international media has viewed it as a political purge.

“The scale of the arrests means they go beyond the allegations of corruption, and are designed to further smooth the eventual succession whenever it takes place,” said Kristian Coates Ulrichsen, a Middle East fellow at Rice University’s Baker Institute for Public Policy.

By the time the crown prince ascends to the throne, he will have amassed plenty of enemies. At the same time he has launched an aggressive foreign policy drive in the region which has put Saudi Arabia on a collision course with many countries, making any prospective investor cautious.

“No one is going to go there and put $300 million down on a project, if you aren’t sure about the stability of the government,” according to Jean-Francois Seznec, quoted by the Voice of America.

“Investment will slow,” said the managing director of the Lafayette Group, a US-based private investment company and a visiting professor at the School of Advanced International Studies at Johns Hopkins University.

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