Will corruption crackdown lead to sluggish business activity in Saudi?

Saudi Arabia’s clamping on corrupt officials, including princes and ministers, has put this Gulf nation on the forefront of the battle to refurbish the decades-old system.

Undoubtedly it was a decisive action of Saudi Arabia’s Crown Prince Mohammed bin Salman to detain dozens of princes, businessmen and senior officials on the charges of corruption. Later on their bank accounts were also stalled to ensure complete transparency during the ongoing probe.

Will Saudi Economy slow down?

Some of the detainees include big names, who have invested money in diverse portfolios. And there are reports that banks are shying away financing the projects of the companies that are being run by these detained individuals. Therefore there are apprehensions that, in the long run, this could slow down the business activity in the Kingdom.

However, the Riyadh government has made clear that it would not adversely affect the economy because probing officials are only targeting corrupt individuals, not their companies. And the companies can continue to run their businesses as usual.

“Saudi government is supporting the companies of detained individuals in every sense. There is no negative impact on their business at all,” a Saudi-based businessman, who was in Dubai recently to attend a conference, told TRENDS (sister-publication of AMEinfo), requesting not to be named.

Banks saying no to tainted officials’ companies

There are reports that Banks are refraining to extend any financial support to finance the new projects of the tainted businessmen.

Reuters reported, while quoting bank sources, that Kingdom Holding’s plan to borrow money to fund new investments has stalled because owner Prince Alwaleed bin Talal has been detained in Saudi Arabia’s anti-corruption crackdown. Kingdom 4280.SE had approached banks to obtain the loan, but the financing plan has been held up because the lenders are worried about potential repercussions if they lend to the prince’s company.

Kingdom Holding is a leading Saudi investment firm with stakes in key real estate properties including New York’s Plaza Hotel and London’s Savoy Hotel.

Negative notions in long run

According to Reuters, over 2000 bank accounts have been frozen by investigators. It they are kept frozen for long then there could be some negative implications in long run.

In its latest report, debt rating agency Moody’s said these actions are credit negative for Saudi banks, in the wake of their huge reliance on such deposits.

Looking for safe havens

Meanwhile, there are reports that some of the top-notch Saudi individuals have started looking forward to diversify their investments in safe locales and adopt entirely new corporate structures. This is to ensure that their wealth and assets would stay somewhat safe even when there is crackdown on them by the anti-corruption commission’s sleuths

“Wealthy Saudis are seeking to restructure their businesses to ring fence assets in case authorities widen their declared crackdown on corruption, according to three people with knowledge of the matter,” reported Bloomberg.

There is a widespread fear among rich Saudi businessmen and families that the scope of this purge will be widened in the coming months.