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Middle East Risk Watch - Issue 8 - December 2017

  • Saudi Arabia
  • Resolving Critical Issues and Crises
  • Creating a Resilient Organisation
Middle East Risk Watch - Issue 8 - December 2017
Saudi  Arabia – the changing kingdom


The ongoing corruption investigations into members of the royal family, government officials and the economic elite are an unprecedented development in Saudi Arabia. Understanding both the likely next steps in the investigations and the bigger picture of what Crown Prince Mohammed bin Salman bin Abd al-Aziz Al Saud (widely known as MbS) is looking to achieve will help multinationals operating in the kingdom assess the implications of these developments for their operations.  

 

What’s next

Wide-ranging corruption investigations will take place over the coming months. The government is likely to detain more princes, officials and businessmen and investigate public works projects, land allocations and procurement deals reputed to have been affected by these investigations. Focusing on individuals and institutions perceived as corrupt by the public will help ensure popular support for the investigations, particularly among the country’s youth, who view the economy as being dominated by the privileged and well-connected.

The investigations are unlikely to be transparent or consistent. The decree establishing the new anti-corruption commission states that it can operate outside of existing laws and gives it broad powers to freeze assets and ban travel. Detainees will face considerable pressure from the authorities to seek amnesty or lighter sentences in return for surrendering assets allegedly obtained through corruption. Indeed, it seems clear that the government is intent on clawing bank hundreds of billions of dollars it believes have been misappropriated.

The bigger picture

In their broadest terms, the investigations should be seen as an attempt by MbS to remake the Saudi state.

The evolution of the Saudi monarchy between the death of the kingdom’s founder, Ibn Saud, in 1953 and the MbS’s rise to prominence in the last two years produced a sprawling horizontal structure in which a number of powerful princes (and subsequently their offspring) shared in the exercise of power and the control of wealth. MbS has recast this power structure by centralising control of the state in his own hands. He has now moved to break the other source of this group’s influence, its wealth.

In doing so, he is restructuring the royal family, politically and economically. Politically, Saudi Arabia will be a centralised monarchy in which the control of the state apparatus will be solely in the hands of the king, who will oversee a cabinet of technocratic ministers. Economically, stripping the richest branches of the family of significant amounts of their wealth will result in the breaking of the royal family’s quasi-monopoly over many sectors of the economy. Although well-connected figures and established businesses (including ones owned by princes) will continue to be powerful economic actors, the extended royal family will no longer control the distribution and accumulation of wealth.

Implications for multinationals

The investigations are unlikely to specifically target multinational companies. Government officials have sought to reassure international companies that the purpose of the campaign is to make the kingdom a more attractive place to do business by eliminating corruption. No foreign entities have been mentioned during the investigations thus far.  

However, the detentions are likely to have an indirect impact on foreign companies’ operations. Multinationals could find that their local partners or agents are under investigation. Businesses owned by individuals under investigation could face financial distress or be forced to withdraw from tenders or cancel projects. The investigations could also undermine the rationale for many multinationals’ local partnerships; given that many international firms choose their partners based on perceived connections and clout.

To remain successful in this changing marketplace, businesses will have to reconsider their operating model in Saudi Arabia to ensure that they are operating in line with what appears to be the government’s new approach to corruption and favouritism. If your organisation currently does business in the kingdom, you should consider taking the following steps to ensure that your business plan for the kingdom is resilient to the changing rules of the game. 

  • Implement a monitoring framework to ensure that you have the latest information and analysis about in-country developments and that it is distributed to the relevant stakeholders within your organisation.
  • Map your business and reputational exposure in the kingdom:  determine whether you work directly with individuals accused of corruption or partner with business interests they control. Have you received contracts from ministries in which they were active?
  • Confirm that you have done your due diligence on your partners in Saudi Arabia. If you have, these due diligence exercises should be revisited. If you have not, consider doing it now.
  • Review your anti-corruption programmes governing your Saudi business, and conduct a corruption risk assessment if you have not. Audit your existing documentation demonstrating implementation of your anti-corruption policy, including training logs, gifts and donations registers, risk assessments and due diligence reports.
  • Test your preparedness in case of an investigation or raid in your offices or one of your partners’ offices

 

Author

  • Graham Griffiths, Analyst

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