While most of us in Europe were stuck on our sofas during strict lockdowns, some of the world’s most recognisable celebrities – such as Cristiano Ronaldo – were hitting the shores of Dubai, long a popular tourist destination.
That’s not to say that the United Arab Emirates’ tourism market has not been hit hard by Covid-19. It has indeed been walloped, but not nearly as much as other locations in the Middle East (or the world for that matter).
One could hardly say the same about the UAE’s biggest economic rival in the region, Saudi Arabia, whose international tourism market remains infantile (disregarding Hajj pilgrims) and bereft of celebrity hotshots. Indeed, the country only opened its doors to foreign tourists in 2019 (to just 49 countries) – and people have hardly scrambled to get in.
The country knows it suffers from a perception issue, to put it very lightly. This is why, in recent years, social media feeds across ‘the West’ have been bombarded by slick videos marketing Saudi Arabia’s natural beauty and tourism offering, as part of its wider Vision 2030 plan to diversify and internationalise its oil-dependent economy.
So far, the programme has rather failed to attract the huge levels of foreign direct investment (FDI) hoped for. The slump in oil prices has not helped, but a deeper structural issue remains. Saudi Arabia is not a place where foreigners want to live or visit, and doing business in the kingdom can be tricky or reputationally risky (the alleged state-sanctioned murder of Washington Post journalist Jamal Khashoggi springs to mind).
Covid has boosted Dubai’s lead over Saudi Arabia
For well over a decade now, the UAE has been the economic powerhouse of the Middle East, as reflected by the fact that it attracts more foreign investment than any other Arab country (and by far). In fact, foreign investors made the UAE what it is today, a global hub.
Conscious that Covid might cut off the flow of FDI and foreign talent, the UAE has opened up its economy and society even more over the past 14 months. Regulatory changes include a new visa regime that offers citizenship to qualifying investors, while reforms to commercial company ownership laws have removed the requirement for onshore companies to have a local sponsor.
This follows a spate of other liberalisations in recent years that have increased the numbers of sectors in which companies are allowed 100% foreign ownership. Alongside the country’s acclaimed management of Covid-19, these efforts seem to be paying off.
The UAE witnessed impressive levels of FDI in 2020, boasting a net inflow from the private sector for the first time since 2013, according to preliminary balance of payments data. In fact, the UAE welcomed $19.8bn-worth of FDI, a growth of 11.1% compared with the previous year. This is particularly notable since global foreign investment declined by 42% in 2020 due to the pandemic.
Saudi Arabia needs more reform and less repression
Although Saudi Arabia saw strong FDI in 2020, it has looked upon Dubai’s decades-long success with envy – and levied Vision 2030 to play catch up.
It has also resorted to controversial and provocative tactics. For example, early in 2021 it launched ‘Project HQ’, aimed at pushing foreign companies to establish a permanent, in-country presence in Saudi Arabia. More specifically, it stipulates that foreign companies must move their headquarters to the kingdom (mainly from Dubai) by 2024 if they want to participate in Saudi government investment opportunities.
Saudi Arabia is not a place where foreigners want to live or visit, and doing business in the kingdom can be tricky or reputationally risky.
However, businesses will only make that move if they see that Saudi Arabia’s business environment has improved significantly over the coming year or two (no small feat), or if they are near guaranteed to win major government contracts.
Alternatively, some companies may make a show of relocating their headquarters, but only to comply with the minimum requirements. This will, in other words, keep those businesses’ true influence, intelligentsia and capital at bay. Companies will also be wary of paying the higher salaries that expats would demand to live in Saudi Arabia compared with more attractive regional locations such as Dubai, which boast a better quality of life.
So, rather than coercing and cajoling companies into Saudi Arabia, the country would do far better to actually make the place more welcoming to non-Saudis. Incoherent strides in the direction have been made, but the country remains a highly conservative society. Frankly speaking, this is no fun for foreigners (or for many locals). Drinking alcohol, wearing bikinis or even holding hands remain highly risky and, almost entirely, illegal activities in public.
Meanwhile, the UAE has made much more significant steps in liberalising its conservative laws in recent years. For example, in late 2020, it announced reforms that will loosen alcohol restrictions, allow unmarried couples to cohabitate, and criminalise so-called ‘honour killings’. The country also boasts a renowned party and events scene, both above board and underground.
If Saudi Arabia is ever to catch up with the likes of Dubai, it must rapidly embark on the road set out by the UAE in terms of international reputation, business reform and (more importantly) fun.