Trump’s Saudi trip yields mutual financial rewards
Washington - Much of the attention surrounding US President Donald Trump’s visit to Saudi Arabia focused on his speech addressing the need for Muslim countries to more fully commit to combating Islamist extremism. Equally important, however, is that Saudi officials signed deals with US companies worth hundreds of billions of dollars, a move with important political and economic implications for both countries.
Saudi Foreign Minister Adel al-Jubeir said the value of all the agreements signed between the Saudis and US firms would total more than $380 billion over ten years, including a $110 billion arms package signed by Trump and Saudi King Salman bin Abdulaziz Al Saud that helps bolster a flagging US defence industry while providing Riyadh with enhanced regional military security.
As part of the flurry of deal signing, state oil giant Saudi Aramco announced that it reached $50 billion worth of agreements with US companies.
The reality is that some of the deals had been previously announced while others are memorandums of understanding (MOUs) with details and numbers yet to be fleshed out. They were orchestrated to highlight the reset of the bilateral relationship following the Obama administration’s eight years in office. The agreements help satisfy key elements of both governments’ political and financial agendas.
For the Saudis, investment in the kingdom by US companies will foster development of non-oil sector businesses and generate private-sector jobs for Saudi nationals, two critical goals of Saudi Vision 2030, the fiscal programme created and overseen by King Salman’s son, Deputy Crown Prince Mohammed bin Salman bin Abdulaziz.
An important aspect of the deals signed during Trump’s visit was the emphasis on local content so the kingdom can manufacture goods previously imported while building domestic labour expertise.
The influx of US investment in the economy is a badly needed political triumph for the Saudi government, which has largely pinned the success of Saudi Vision 2030 on the much-anticipated initial public offering (IPO) of Saudi Aramco.
The IPO, expected in the second half of 2018, will involve selling up to 5% of the state-owned energy giant.
By committing to invest in the United States, Riyadh is helping Trump score political points as he tries to expand domestic job creation, a key focus of his presidential campaign.
Saudi Aramco signed 16 deals with 12 US firms on May 20, primarily MOUs and joint venture agreements that emphasised local content. Houston-based oil services company McDermott International signed an MOU with the Saudi state oil firm valued at $2.8 billion that will involve the US company moving its ship fabrication facilities from Dubai to a new shipbuilding complex that Saudi Aramco is to open in the kingdom. The deal will create up to 2,000 jobs, with McDermott committed to boosting the number of Saudi nationals in its Middle East workforce to 40% by 2030.
Dallas-based Jacobs Engineering reached agreement with Saudi Aramco to form a Saudi-based joint venture company to provide professional programme and construction management services for social infrastructure projects in the kingdom and across the MENA region. Jacobs Chairman and CEO Steve Demetriou said the venture would include projects associated with the kingdom’s Public Investment Fund (PIF), the sovereign wealth fund that, as part of Vision 2030, is intended to diversify the Saudi economy away from reliance on oil revenue.
US technology and engineering giant General Electric signed $15 billion worth of commercial agreements with the Saudi government, including projects to make Saudi power generation more efficient and provide digital technology to Saudi Aramco’s operations.
The Saudi government was intent on showing its own earnestness in strengthening its economic connection with the United States. The PIF and US private equity firm Blackstone announced that it was studying a proposal to establish a $40 billion vehicle to invest in infrastructure projects, primarily in the United States. Trump proposed in his recently released budget plan spending $200 billion over the next decade to generate $1 trillion in new investments in ailing US infrastructure.
That announcement coincided with news from the world’s largest private equity fund, Softbank Vision Fund — established by Japan’s Softbank Group and the PIF with backers including Apple Inc and Abu Dhabi’s Mubadala Investment — that it had raised more than $93 billion to invest in technology sectors such as artificial intelligence and robotics. Much of the fund’s money is expected to be invested in the United States, with the Saudi government undoubtedly gaining access to critical new technology that will help diversify its economy.