A Saudi Silicon Valley? No easy feat, experts say

109 2018-04-07

Throughout his US tour, Saudi Crown Prince Mohammed bin Salman has painted a picture of a changing society in his homeland - one that is less conservative, social media-savvy and eager to open up to the world.

To that end, Bin Salman has met with tech leaders and announced mega projects and partnerships in a bid to turn the kingdom into an international information technology (IT) hub.

The IT drive is part of Saudi Vision 2030, which aims to cut government spending and diversify the economy that had long been dependent on oil revenues.

But in a country where social media users are jailed for their tweets and bloggers are flogged for their posts, creating a Silicon Valley-like environment where startups can thrive is not an easy feat, experts say.

In Washington state, Bin Salman met with Microsoft founder Bill Gates and later with CEO Satya Narayana Nadella. He also rented an entire hotel in Silicon Valley, California, to hold talks with tech executives.

Memorandas of understanding worth billions of dollars with IT firms have been announced, including a partnership between Google and Saudi oil company Aramco to develop cloud services.

However, analysts say money alone does not ensure success in the tech world, and the conservative kingdom lacks both the expertise and the market to become an IT Mecca.

Zubair Iqbal, the former assistant director of the International Monetary Fund's Middle East and Central Asia Department, said technology may have a minor role in pushing the Saudi economy away from oil, "but it's not a game changer".

The relatively small size of the economy, absence of a stable regional market and lack of skilled workers who can power tech-related industries will make it difficult for Saudi Arabia to attract foreign IT investors, Iqbal said.

"In Saudi Arabia itself, much of the skills that exist are quite simple and modest," Iqbal told MEE.

In a column published by CNBC last month, Abdulrahman Tarabzouni, the CEO of STV - a $500m Saudi Telecom venture fund - stressed the role of technology in transforming the kingdom.

But Tarabzouni acknowledged that oil money has been "a curse because of the way it bred complacency".

Saudis occupy only 19 percent of jobs in the private sector in their country, according to a recent report by the Institute of International Finance, a Washington-based think-tank.

"If you're going to import a large number of highly skilled expatriate workers in order to use the technology and produce something that can be exported or used domestically, why would an investor from a country like the United States go to Saudi Arabia to do it?" Iqbal said.

"Why don't they go directly to the country where those skills exist? It's much cheaper."

Charles Kane, senior lecturer at the Massachusetts Institute of Technology (MIT), said Gulf countries have succeeded in educating their younger generation in international universities, but that does not entirely solve the skill shortage.

"A lot of Saudis are well-educated in other parts of the world. The question is, will they return to start a company up in that area," he told MEE.

He said graduates with the capability to start companies would find a less challenging environment in Boston or Silicon valley.

Incentives

One way to woo investors is to offer subsidies, and here lies the "conundrum," according to Iqbal.

"If you're going to give them subsidies, then basically you cannot cut down on government spending," he said. "If you cannot cut down on government spending, then you cannot implement the Vision 2030."

Kane said tax incentives entice companies to invest in new markets. He cited Ireland as an example of a low tax hub for tech giants.

But Saudi Arabia lacks the infrastructure and commerce level that the "Silicon Valleys" of Europe enjoy. Hence, Kane suspects that joint investments will be the way forward in Saudi Arabia.

Riyadh has embarked on a massive partnership with Japanese tech investor SoftBank, which is pouring money into startups and tech firms. During bin Salman's visit to New York late last month, SoftBank announced a $200bn initiative to build the world's largest solar power generation project.

SoftBank CEO Masayoshi Son credits the Saudi crown prince for the venture.

"The kingdom has great sunshine, great size of available land, great engineers, great labourers," he was quoted as saying by CNBC. "But most importantly it has the greatest vision."

Kane explained that venture funds allow investors to take an equity position of partial ownership in the startups that they finance.

"The free flow of money, though, doesn't necessarily mean success," he told MEE. "The idea has to be well-founded, and the manpower around it has to be sufficient to take it to the next level."

Social media

In interviews with 60 Minutes and the Atlantic, bin Salman pointed to Saudis' unrestricted access to social media to deflect questions about free speech in Saudi Arabia.

As part of the push to attract tech firms, the kingdom is inviting social media giants to establish centres in Saudi Arabia. Snapchat is reportedly in talks to open offices there.

But in spite of the crown prince's assertions, Saudi Arabia regularly jails people for what they express on the internet.

The kingdom's Anti-Cyber Crime Law has been used to prosecute dissidents who use social media platforms to speaking out against the government.

In February, rights activists Issa al-Nukheifi and Essam Koshak were sentenced to six and four years in prison respectively for criticising authorities on Twitter. The sentences included social media bans after the campaigners' release.

"Instead of engaging with activists on reforms, the authorities are going after them one by one, with almost all of the country’s human rights activists now silenced or imprisoned," Dana Ahmed, Amnesty International's campaigner on Saudi Arabia, said earlier this year.

Moreover, conservative norms enforced by the government may censor certain content, which may prove to be a hurdle for advertisers.

For example, in 2012, Ikea edited women out of photos in its Saudi catalog. The Swedish furniture company apologised after the story made headlines in Western media outlets, saying that removing women from the pictures is against its values.

Kane said Saudi Arabia and the Middle East at large is a market where social media firms can grow in influence.

"The challenge on the social media side is the restrictions that would be a part of that environment," he said. "So they may not be able to expand in the way they could in other parts of the world."

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