Saudi mega projects are back in focus as the impact of coronavirus pandemic has eased and the Middle East’s largest economy has benefited from a spike in oil prices triggered by Russia’s invasion of Ukraine. The Kingdom’s budget surplus jumped to $21 billion in the second quarter of 2022, highlighting that its economy recorded the highest rate of growth in the last 10 years at 11.8 percent. The Gulf country’s growth was 9.9 percent in the first quarter of this year.
French leader Emmanuel Macron and Saudi Crown Prince Mohammed bin Salman recently agreed to work “to ease the effects” of the Ukraine war. Like US President Joe Biden, who visited Riyadh in July, Macron had been keen to secure extra oil production from the Saudi leader.
Saudi Arabia, on its part, seeks to modernise the country and attract foreign investors. For this, the Kingdom has launched several policy reforms and mega- projects to diversify its economy away from oil. Countries such as France, with their expertise in key sectors, may help the Kingdom in developing and achieving the goals set under Vision 2030. All this make the recent strategic partnership deal between the two countries crucial.
Seeking to modernize the country and attract foreign investors, the Kingdom has launched a vast program of reforms and mega- projects to diversify its economy from oil.
“Saudi Arabia is a new El Dorado for business with all the projects such as Neom, Al Ula, Read Sea and others,” said Bertrand Besancenot, former French ambassador in Riyadh. “Moreover, the Gulf country is quite business friendly and the market offers huge opportunities.”
Investing for a long term in GCC
As part of the Saudi delegation in Paris, the Kingdom’s Minister of Investment Khalid Al-Falih had met several French companies last month. “We held talks with both (Saudi sovereign fund) and the ministry,” said François-Aïssa Touazi, vice-president of Saudi group at MEDEF International and senior managing director at Ardian investment fund.
“MEDEF international is a partner of Saudi Ministry of Investment. Our main objective is to develop economic partnerships and bring French companies to Saudi Arabia and also help Saudi businesses in France. We organize regular meetings and send French delegations to Saudi Arabia. The latest one was focused on entertainment industry and the next one in October will focus on healthcare,” he added.
The year 2021 was marked by the strengthening of economic relations between the two countries and by the long-awaited visit of the French President Emanuel Macron to Jeddah on December 4.
France is the second largest investor in Saudi Arabia. Commercially, it maintains a market share of around 3.5 percent in total Saudi imports and is the 8th largest supplier to Saudi Arabia (2022). There are around 140 French companies established in the Kingdom.
“The interest of the French companies in Saudi market is growing,” said Florence Fontani, French Trade Advisor to the UAE. A lot of them have their regional headquarters in the UAE and follow closely the evolution of Saudi projects, mainly in energy, water and waste treatment, transport, aeronautics and construction.
“We can see a strong interest of the French investors in GCC as a global market and beyond, including Africa and the countries such as Egypt, Morocco, etc. There is no doubt, investors eye Middle East as the monetary crises are managed quite well in the region. The legal framework is also improving as well as there is a political stability,” she told TRENDS.
Energy and water
Major French groups are particularly well positioned in renewable energies (for example, EDF, Engie, TotalEnergies) and in the water sector (Saur, Suez, Veolia) in the Kingdom.
Engie, which is the second-largest French investor in Saudi Arabia, has been in the Kingdom for past 20 years. “We have roughly US$8.9 billion of investments and 10 percent of the power capacity in Saudi Arabia is through Engie Developments, while 11 percent of the water desalination is through Engie iInvestments”, said Turki Alshehri, Chief Executive Officer of Engie KSA in an exclusive interview to TRENDS.
“We have roughly 2,000 employees and we operate in 17 cities in the Kingdom. We plan to double our investments in the next three to five years,” he said. “We plan to build more desalination projects. We also have plans in green energy sector. We were the first to build, for example, a solar plant for agriculture sector here. We also bid for the 850 MW wind project. We are in discussions for green hydrogen solutions to name only a few.”
“We are not only building and operating projects, we also support the government in developing the strategic framework in energy (transition) sector. Strong relations between the two countries are very important for companies like us, operating in private sector,” said Turki Alshehri. “That’s why the Saudi Crown Prince’s recent visit to Paris was important for us.”
According to the Banque de France, the stock of French direct investment in Saudi Arabia approached nearly US$3 billion at the start of 2021. This represents 25 percent of French FDI in the Gulf region and Middle East.
The key challenge for the French economic presence in Saudi Arabia is the development of activities in the new priority sectors like the new technologies and innovation, the digital economy, the space sector, health, tourism and leisure, the sustainable city, clean energies and agriculture. The Kingdom also plans to become a leader in renewables energies, pharmaceutical and defense industries. “Saudi Arabia wants to become a leader in green hydrogen,” said Turki Alshehri. “I think we will see a strong acceleration in this field. It will be one of the consequences of the actual energy crises”.
Defense equipment
For the companies like Thales, Saudi Arabia is also a key market. “We have a longstanding presence in the Kingdom for more than 50 years,” Pascal Lesaulnier, Thales CEO in Saudi Arabia told TRENDS. “The local team is working in partnership with the public and private sector in defense, security, aeronautics, space, transport and digital identity.”
The group also works for the protection of the Holy sites and provide technologically advanced integrated security solutions for Holy mosques in Makkah and Madinah.
France is a major provider of defense equipment and technologies to Saudi Arabia. The relationship was underscored by the US$12 billion in deals signed between the two countries in 2015. “French-Saudi relationship has always had a security and military dimension,” said Aïssa-Touazi.
But to win the partnership race, “France has to be not only competitive in different tenders, but it has to address the challenges that are main priority for Saudis such as employment and training. There is also a big need for technology transfer” said Bertrand Besancenot.
Supporting Saudi talents
“We need to understand that Saudi Arabia has changed and that traditional commercial relation is over. It is important to invest in the country and to believe in the country”, said Francois Aïssa-Touazi. “Saudi has big challenges to deal with. It needs to succeed its ambitious plan and create jobs. The unemployment of youth is high. France has a lot to offer in terms of training and education.”
HEC Paris, one of the best business schools in the world, offers an executive MBA through its partnership with PIF. “We are engaged in developing talents and research in Saudi Arabia. We have our first cohort there with 35 participants this year. All of them come either from PIF or from the companies in the PIF portfolio,” Joshua Kobb, Executive Director, Partnerships and Growth at HEC Paris Doha Campus told TRENDS.
Investing together in Africa
“France represents very interesting investment opportunities for Saudi economic operators, particularly in the context of the French recovery plan launched by president Macron”, said Francois Aïssa-Touazi. “I am convinced that Saudi and French companies can develop strong partnerships together, not only in France but also in the MENA region and Africa. With our strong combination, we can be very successful in this part of the world.”
Saudi Arabia invests in France, mainly in the real estate sector. However, “there are some corporations and groups investing in food industry as well,” said the senior managing director at Ardian. “PIF has also invested in the Accor Group and has a partnership with French funds such as Ardian (known for its investment in Hy24, the world’s first clean hydrogen infrastructure investment platform).”
Thus, there are lot of opportunities to grow and Saudi companies want to strengthen their presence in France and invest in the French companies.