HMA John Jenkins addressed the MEA at the Opportunity Arabia Conference at Manchester
The British Ambassador to Riyadh, John Jenkins, addressed the MEA at the Opportunity Arabia Conference at Manchester on October 4, 2013
Mr Chairman, distinguished fellow speakers, ladies and gentlemen, good morning. First of all I should say thank you to the MEA and our sponsors not just for hosting this important conference but in particular for bringing it to Manchester this year. My mother came from just down the road in Newton-Le-Willows, used to work at C and A Modes in the city centre, and I have cousins over in Preston. So it’s a bit of a homecoming. I should also say that it’s good from the perspective of the Middle East occasionally to focus our attention and that of our clients and customers on areas of the UK outside London and, for the oil economies, Aberdeen. I meet a surprising number of Saudis who know Britain well. But I am always on my guard for those who say they know the country and it turns out only know Mayfair, Knightsbridge and Kensington. I live in London and think it the greatest city in the world. But London is not England and is certainly not the United Kingdom.
Second, I remark on the fact that I have around me two of my most distinguished predecessors as British ambassador to Saudi Arabia, Sir Alan Munro and Sir William Patey. Alan was also my boss in London at a rather earlier part of my career. Having your predecessors and former bosses listening to your every word can be daunting (though perhaps not more so than having your bank manager doing the same as well…..). Here I hope it shows the continuity of the value that we as a country and successive British governments have placed upon our relations with KSA and the importance we have attached to having our best diplomats posted to Riyadh. Saudi Arabia is our most important partner in the Arab World, economically, politically, in terms of national security, energy market stability and trade. That is the essential background to today’s conference. And we need to reflect this in the way we do business.
I want to focus on the business context for British companies, dispel some of the myths, illustrate what British companies have achieved already, point to the opportunities and briefly explain what we in the Embassy can do for you.
William will be speaking shortly about the regional context. I don’t want to cut across him. So I shall confine myself to a few essential preliminary observations. First, in a region commonly known for instability and conflict, Saudi Arabia and its partners in the GCC are an oasis of stability, human development, infrastructural ambition and mercantile activity. This is not to say that no threats to this enviable state of affairs exist. They do – as they do for all of us. The external challenges posed by events in Syria, in North Africa and from across the Gulf in Iran are serious and considerable. But in my 32 years of engagement with the Arab world, I have seen many other threats come and go and learned that there is more resilience in Arab systems – governmental, economic, societal and demographic – that most outsiders believe. After all, the region weathered the storms of the 1950s, the challenges of aggressive nationalism in the 1960s and 1970s and the terror threats, aimed as much at Arabs and Muslims as at the West, of the 1970s through to the early 2000s. If you look back at the early 1970s, when the states of the lower Gulf became independent, you will find many observers at the time gloomy about their prospects. In the last 40 years they and the other states of the GCC have been the most successful of all Arab states. So I treat predictions of doom with scepticism, especially as they affect the region that concerns us most of all today.
The truth is that all the economies of the GCC and Saudi Arabia in particular are in very good shape; they are solvent and liquid; they have produced extraordinary economic development over the last 30 years; and they are pressing ahead with massive and ambitious plans for the next developmental leap – the physical infrastructure of mass transit and freight systems linking cities, towns, industrial areas and resource bases; the further mobilisation of human resources in now predominantly urbanised societies; the widening of public service provision; and the strengthening and broadening of technology, marketable skills and educational institutions. These economies have until now been almost entirely energy-based. In KSA 90% of the government’s budget comes from hydrocarbons and 50% of GDP is directly energy-based. Energy will not stop being the main driver of development, and Saudi Arabia is working to ensure it is able to remain the world’s largest exporter of crude by investing in 54GW of renewable and 18GW of nuclear generating capacity to help meet its domestic needs. Gas will also be a key part of the mix, hence Aramco’s activities in the Red Sea and the Empty Quarter. But the next step is diversification. That has already started – companies in Saudi Arabia deal for example in steel, aluminium, mineral extraction, transport, construction, financial and legal services, consumer goods and retail, hotels and tourism. Al Mara’i, with its Irish roots, is one of the biggest dairy companies in the world. Unilever, GSK, BAES all have production facilities in the Kingdom. Jaguar/Land Rover have announced that they will soon establish a joint venture to produce their vehicles in country. The new Saudi economy of the future, with an imperative to create productive jobs for new entrants each year to the labour market – which given the demographics of the Kingdom probably means around 3-500,000 new jobs each year - will need to be diverse, with a new industrial base, a bigger, dynamic and internationally competitive private sector and a new emphasis on technology and skills transfer and services.
What does this mean for the UK and what does it mean for companies who want to make an impact in the Kingdom? Well, I was in al Khobar and Dammam last Sunday, for the annual reception of the Eastern Chamber of Commerce. And I asked all my Saudi business friends there what the single most important message was that they thought I could deliver today. It was this: sustained partnership and commitment. The days of agencies, one-off trade deals and the export of finished goods are fading. There will still be such deals and such exports. But long-term value increasingly lies in long-term relationships and the joint development of skills and products. Everything I hear from my Saudi friends, from The Crown Prince and his ministers down to the big merchant families, is about long-term investment, joint ventures, skills transfer and human development. This makes sense from a Saudi point of view. And it should make sense for us too.
Let me give this a tighter focus. Given the global economic context and the need for the UK to improve its export performance outside its traditional markets in the US and EU, Saudi Arabia is a market no one can ignore. It is by far the largest economy in the Middle East, with a GDP of around $750bn. It is also the largest source of project opportunities in the Gulf, as a glance at any edition of MEED will show. Economic growth last year was an impressive 6.8%. Massive investments are being made in physical and social infrastructure, and the value of civil projects awarded this year is likely to exceed the previous record of US$73 billion set in 2011. Projects already planned over the next 5 years are estimated at a further $225 billion. Current projects include:
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A massive railways development programme, including north-south and east-west links, and the Makkah-Madinah high speed line on which Foster and Buro Happold are designing the stations and Invensys providing the signalling and software. Ambitious metro and bus projects are also underway or planned in Riyadh, Makkah and Jeddah.
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A £60 billion investment programme in healthcare development including infrastructure, workforce and systems development. UK providers are well placed to benefit under the Saudi/UK MOU on healthcare cooperation
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Water and wastewater upgrades involving a £30 billion programme including new desalination and sewage treatment plants.
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Development of Saudi airports, including a brand new airport in Jeddah and new terminals in Riyadh and elsewhere. UK expertise in engineering design, security, training and PPP is relevant here.
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A large expansion of vocational training, whereby 40% of school leavers will go into technical training rather than the current 10-12%. UK providers are already winning significant contracts worth hundreds of millions of dollars under the new Colleges of Excellence programme.
It makes no sense for any company to have a strategy for trading with the Gulf without a strategy for Saudi. In spite of all the current upheavals in the region, Saudi Arabia continues to represent a stable and highly attractive business destination. This isn’t to say there are no challenges in diversifying away from dependence on oil and gas, dealing as everywhere with price distortions and red tape and creating jobs for a rapidly growing young population. But the economic fundamentals are strong. There is low government debt, most of it domestic. Official reserves are around $700bn. And there are significant private sector and other institutional holdings to supplement this. That gives the government a solid base on which to construct and deliver the changes and reforms that the next few years will need. There are impressively able people within the Saudi system, both public and private, who will be in charge of this. Do not underestimate them. In particular, a major effort is underway to develop knowledge-driven industries and to attract investment in new industrial sectors including the automobile industry, biotechnology, information and communication technologies, and downstream petrochemicals. And there is a real desire to stimulate and grow the SME sector: this after all is where most new jobs will be created and there are already some impressive examples of new Saudi entrepreneurs looking for foreign partnerships
How are we positioned to take better advantage of these opportunities? First, our historic relationship with Saudi Arabia gives us an excellent start. We have been present in and with the country since its foundation. Like everywhere else in the Middle East, it has been at times a complicated relationship. But what it has given those of us who know and value Saudi Arabia is a depth of experience and a familiarity with its customs, culture and people. This is not universal: there are many who have a distorted view of the country, the region and our relationships. And this, plus the fear of the unknown, can deter people, including business men and women, from taking the plunge. But it has been striking to me since my arrival in Riyadh 16 months ago how often first time visitors – ministers, MPs, officials, business people, friends and family – have said to me after a day or two in Riyadh or Jeddah that the country has defied their expectations and they have changed their minds about it. That is good. We all need to do more to promote the positive.
This government is certainly doing so. The Prime Minister visited twice last year. The Defence Secretary has been to the Kingdom three times since my arrival. The Foreign Secretary sees his counterpart, HRH Prince Saud al Faisal, frequently, most recently in New York a week or so ago. We have just had Lord Green, our Trade Minister, on a very successful visit. Health ministers and senior officials met in London three weeks ago for our annual Ministerial Committee. Other ministers and senior officials visit frequently.
We also have the huge advantage of direct links between Royal Families. TRHs Prince Charles and the Duchess of Cornwall had a wonderfully warm reception in Riyadh and Jeddah earlier this year. HRH The Duke of York has visited too. This all boosts the ties between people, from the top down, that are the essential requirement for doing business, whether diplomatic, defence, trade or investment, in the Gulf.
The other side of this is the number of Saudis who know, visit and study in the UK. Each year we issue around 90,000 visas to Saudi citizens. This year we have seen an average 40% region-wide increase, and received some 40,000 more applications in June-August than we did last year. Part of that comes from the impact in other markets – Egypt, for example – of the so-called Arab Spring. But part is because the UK, and London in particular, is seen by Saudis as welcoming, familiar and also exciting. We need to keep it so. We also have around 16,000 Saudi students studying at British universities and colleges. Some are on the King Abdullah Scholarship Programme, a visionary initiative by HM The King. Others are financing themselves privately, including many young Saudi women. This is the future of the Kingdom. We need to make sure we are part of it. Some of that is down to me: we need to maintain and improve the standards of our visa service in Riyadh. We have had some difficulty this year because of the sheer numbers involved. That is a nice problem to have. But we need to do better. As we talked the other day about opportunities for British companies in the massive new planned public transport expansion in the city, the Governor of Riyadh told me of his experience learning English in Eastbourne in the early 1970s. He clearly remembered his days on the South Coast, staying with an ordinary British family, with great warmth. That sort of experience doesn’t guarantee you will get the contract, the deal, the agreement. But without it success becomes more difficult.
This brings me to what is perhaps my most important point. Success in Saudi Arabia – in what I try to do, in what business tries to do, in what our armed forces and defence industries try to do or in what universities try to do – does not come from the one-off deal. It comes from the long-term establishment of trust, mutual confidence and friendship. That has always been true. But it matters more now because the Saudi government as well as the private sector are clearly going to reward those who show these qualities more than those who don’t: and there is far more at stake as the country accelerates towards its development goals. British companies who commit to a long term presence in the local market are well regarded. But it is not a market that can be penetrated from a distance through flying in and out from a regional base, however glamorous and comfortable it might seem. That does not signal commitment. Building relationships and trust is key. It can take some two years from the date of a first visit to conclude a contract and navigate the necessary procedures. But once you are inside the country and have built the framework, there is long-term business to be done. This is something Lord Green heard in Riyadh last week from a group of British businesses I had invited dinner to dine with him at my Residence. And it is what you will hear constantly from your own contacts in the Kingdom.
This can sound daunting, I know, especially to SME’s unfamiliar with the market. That is where we in the Embassy and UKTI in London can help. We are moving ahead with a scheme to restructure and reenergise the services we provide for all businesses looking to enter the Saudi market. This is Lord Green’s Initiative to enhance overseas business networks and work more closely with Chambers of Commerce. We made good progress on this last week in Riyadh in discussions with the Saudi Council of Chambers of Commerce and with the newly reconstituted Saudi Britain Joint Business Council, under the excellent joint chairing of Shaikh Nasser al Mutawwa’ and Baroness Symons. I hope we shall get this new mechanism off the ground in the New Year. My aim is to use this to encourage more and more British SME’s to link up with Saudi counterparts. It can be done. As a result of recent assistance provided through UKTI’s overseas market introduction service, for example, the UK environmental specialist Kingspan is talking to a number of Saudi partners on possible partnerships. In December last year we had an excellent UK Energy Week in the Eastern Province. Many of the SMEs who participated were first time entrants to the Saudi market. They found the experience very rewarding. The Saudi Aramco initiative Wa’ed is an example of the Saudi drive to boost this sector. Set up to help new entrepreneurs turn ideas into business, Wa’ed provides guidance, smart tools and finance to help young Saudis set-up their own businesses. Yesterday I heard from a Saudi friend of another one: the Saudi Royal Commission for Jubail and Yanbu’ Initiative for Entrepreneurs. Saudi Chambers of Commerce and universities are also very active in developing SMEs. UKTI and British investors have supported this work by exchanging experience and providing real, practical assistance in this important area. Only last week Lord Green and I witnessed the signing of a technology partnership on electronic payments between Ixaris of the UK and the Saudi start-up company 3omlati. Lappett, the Saudi-owned but Yorkshire-based manufacturer of top of the range Shemaghs – the archetypal Saudi head dress – recently celebrated its 100th anniversary at the Embassy.
All companies entering or already in the Saudi market need to commit themselves to a transfer of technology and skills, as well as creating real jobs now for young Saudis. Major high value opportunities exist in airport and railway/metro development, education and healthcare, and energy and water. The mining and minerals sector is also developing rapidly, as is the retail sector. We currently have 8 UKTI high value opportunity campaigns running with the support of industry specialists, and significant contracts have recently been won in project management, engineering design and training.
The high value opportunity campaign focused on the massive new Sadara petrochemical plant, for instance, has delivered a major success for UK companies. Fundamental to that success is a US$700 million UK Export Finance guarantee of finance to British companies awarded contracts on the new US$20 billion facility in Jubail. UKTI is engaged with the UK supply chain and we now have over 50 companies pre-qualified for work with Sadara.
We have also worked closely with industry to support UK involvement in the ambitious airport, railway and metro development programmes. In July this year Parsons Brinkerhoff, with whom I also worked in Iraq, won the £60 million project management contract for Makkah metro. Atkins, Areen and Lakesmere are closely involved in the design and build of the new King Abdulaziz International Airport in Jeddah. And it is no secret that we are supporting National Express in their bid for the Riyadh bus contact, an essential precursor to the £15 billion Riyadh metro project.
Close government to government relations are important to set the framework for cooperation and exchanges of expertise, as Saudi Arabia builds its capacity to respond to economic and social challenges. Cooperation is particularly close in the defence, education, training and healthcare sectors where institutional partnerships and exchange visits have demonstrated to Saudi ministers and their officials the quality of UK expertise, systems and technologies in these areas. As a direct result of the Minister of Labour’s UK visit in 2011 and follow-up with his advisers, UK vocational training providers and welfare to work companies have won a significant share of the contracts for new Colleges of Excellence in the Kingdom, and job placement centre contracts through the Human Resources Development Fund. A range of training contracts with the Ministry of Health is also being discussed with UK universities and specialist NHS providers.
I am particularly keen to encourage universities to expand their range of contacts and partnerships in Saudi Arabia. British tertiary education is excellent. We need to protect that quality and that reputation. But Saudi Arabia is expanding its university sector more rapidly than any other country. 20 years ago there were 8 universities there; today there are 24 government universities (a few of which now appear in world university rankings) and 8 private universities and colleges. Cambridge, Oxford and Imperial have some joint projects with KAUST and KACST. When I visited Jizan last year I discovered that the faculty had a partnership in place with Liverpool School of Tropical Medicine. York University is doing some fascinating archaeological work with their colleagues at KAU on the Farasan Islands. There are more partnerships. But the opportunities – in materials science, in petrochemical engineering, in life sciences – are huge. Last year we had over 70 British universities and other tertiary institutions at the annual ICEHE in March. Next year I hope to see even more. I shall be in touch with them very shortly to discuss how we mobilise their networks of alumni more effectively in support of our shared interests.
We are doing well in terms of trade. The 2012 trade figures were particularly impressive with combined UK exports of goods and services rising to £7.5 billion, up from £5.4 billion in 2011. UK exports of services increased by 64% to £4.4 billion in 2012, and are now more than the rest of the Gulf combined, and more than any other emerging or non OECD market including China. These figures do not include significant defence exports, or goods imported via UAE ports. Saudi exports to the UK also increased by some 60% to £2.3 billion in 2012, so with a combined bilateral trade balance of some £10 billion we are heading in the right direction. We remain a leading investor in Saudi Arabia, with some 200 JVs valued at around $18bn and also welcome significant Saudi investment in the UK, including Olayan Financing Group’s stake in Peel Holding in NW England and SABIC’s plant on Teeside. Kingdom Holdings and others have expressed interest recently in infrastructure in London.
But competition is increasing, particularly from the Far East. Korean companies are particularly active in the engineering and contracting sector, and many of our European colleagues are also doing well. My UKTI Team in Saudi Arabia headed by Chris Innes-Hopkins is at your disposal for market advice, introductions to local partners, and support for company launches. I have made my Residence available for these, including an innovative and well-attended Fashion Show for Harvey Nichols earlier in the Year, market launches for leading Property and Wealth Management Companies and a reception for Al Hokair Group, representing a wide variety of British retail companies. I have discussed doing something similar with Burberry, and will host a reception for Aston Martin later this year. We can offer a range of tailored services, and look forward to welcoming many trade missions including the Middle East Association, the East of England, Scottish Development International, the Black Country, and Yorkshire and Humberside later this year.
I look forward to meeting many of you in the margins of the conference. I wish you an interesting and productive day.