Can Saudi Arabia emulate Dubai’s success?
Reza Karim discusses the key macro takeaways from his recent trip to the Middle East, where he met with dozens of companies across Saudi Arabia, Oman and the UAE.
![Reza Karim](https://www.jupiteram.com/uploads/2021/01/5086522a9d5a4742b8003a0cb3487a40/reza_karim_350x350.jpg?v=1640791205)
Saudi Arabia: The new Dubai?
“…designed to create new ecosystems and unlock new sectors… to stimulate the economy and their benefits are expected to expand significantly beyond the real estate and infrastructure sectors, helping to diversify the economy away from oil, especially given their sheer scale.”
There are currently five ongoing projects:
- NEOM (the line city in the desert)
- Red Sea (28,000 square kilometres of beach-type resorts)
- Qiddiya (gaming and entertainment district)
- ROSHN (affordable housing)
- Diriyah (cultural and historical tourism)
However, each of these projects is incredibly ambitious, and they pose a number of questions: are they being assessed prudently; will they ever deliver economic benefits; and will Saudi Arabia end up bankrupting itself in the process?
Realistically, it will take five years or so before we can gauge the success of these plans – in that time, we should be able to get a sense of whether Saudi Arabia can attract net immigration, for example, which would give a good indication of its successes. However, right now, we are somewhat sceptical of these highly ambitious – and expensive – plans. Market valuations for its sovereign bonds don’t seem to account for these kinds of projects. In our strategy, we remain underweight Saudi Arabia’s sovereign bonds, as well as being underweight GRE credits, reflecting our relatively bearish view.
We appreciate, nonetheless, that many had the same doubts about Dubai around 50 years ago, and that can be considered a success story. Could Saudi Arabia follow in Dubai’s footsteps?
While Saudi Arabia is trying to follow the Dubai model, we believe it faces several limitations in achieving that model. First, Dubai’s GDP per capita is about $50k, whereas Saudi Arabia’s is just half of that, yet it is running much more expensive projects than Dubai on a much larger scale, and it expects to be supported (at least to some extent) by its local population. Second, Saudi Arabia’s population is 10 times the size of Dubai’s, and the execution and governance of projects is likely to be much more difficult on such a scale. Third, the quality of its projects, at least superficially, doesn’t seem to be as high as in Dubai. It is not a service-based economy like Dubai, and getting the local population to enter that mindset could prove difficult. Fourth, there is some back and forth about how open Saudi Arabia wants to be; it maintains several policies that are not business friendly (e.g. in the real estate sector), and as such, the country ranks low on the ease of doing business scale. Fifth, it appears that Riyadh is already too slow in developing its infrastructure; the traffic is bad, and the metro isn’t on track for completion this year. Anecdotally, several Dubai-based businesses have told us that many of the western businesses that would like to operate in Riyadh are having to operate from Dubai instead, as Saudi Arabia’s infrastructure isn’t developed enough. There are vast areas in places like Jeddah which have been demolished to be rebuilt, but there already seems to be a bottleneck as the pace isn’t keeping up.
On the positive side, the economy and the culture are opening up incredibly fast. Women have only been allowed to drive since 2021, yet it is now commonplace to see women driving, as well as working in the immigration police. Female participation has increased rapidly, and in all of our company meetings, we met with several senior management-level female employees. Mohammed bin Salman seems to be popular among the local population broadly speaking, and people seem to appreciate the changes he is making, especially around the defanging of the religious police. Furthermore, new and upcoming areas in Riyadh are not dissimilar to Dubai, with a much more international feel.
In summary, while the market is booming in Saudi Arabia, and the changes we’re seeing there could prove transformational, we remain relatively cautious about its ambitious plans, and we believe that it could be heading towards some bumpy times over the coming years.
Oman: A much sleepier feel
The UAE: Hot real estate market
The main thing that stood out for me was how hot the real estate market has become across the residential, commercial and retail segments – there is a sense that the real estate market is getting a bit too expensive. However, leverage in the sector is much lower than it was ahead of Dubai’s previous real estate market crash. Supply also isn’t huge, so we expect its real estate market will likely remain strong for at least a year. We have some exposure to the UAE’s real estate market, and we remain comfortable with that positioning following the trip.
Latest Insights
Emerging market debt: Will focus return to EM fundamentals?
The dollar and its rivals
Emerging market debt: Correcting six common misconceptions
The case for emerging markets in 2024
European equities spotlight: Carel
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals
Important Information
This communication is intended for investment professionals* and is not for the use or benefit of other persons, including retail investors.
This document is for informational purposes only and is not investment advice.
The views expressed are those of the Fund Managers at the time of writing and are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.
Issued in the UK by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. Issued in Hong Kong by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission.
No part of this commentary may be reproduced in any manner without the prior permission of JAM, JAMI or JAM HK.
*In Hong Kong, investment professionals refer to Professional Investors as defined under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).and in Singapore, Institutional Investors as defined under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore.
For professional investors in US Offshore only:
The Jupiter Asia Pacific Income Fund (IRL) has not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person, unless the securities are registered under the Act, or an exemption from the registration requirements of the Act is available. A US Person is defined as (a) any individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income tax regardless of whether such income is effectively connected with a United States trade or business.
For professional investors in LATAM only:
Legal Notice for Residents in Brazil: The Fund may not be offered or sold to the public in Brazil. Accordingly, the Fund has not been and will not be registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, the “CVM”), nor has been submitted to the foregoing agency for approval. Documents relating to the Funds, as well as the information contained therein, may not be supplied to the public in Brazil, as the offering is not a public offering of funds in Brazil, nor used in connection with any offer for subscription or sale of funds to the public in Brazil.
Aviso Legal para Residentes en Chile: Esta oferta privada se inicia el día según lo establecido en el título y se acoge a las disposiciones de la norma de carácter general nº 336 de la Superintendencia de Valores y Seguros. Esta oferta versa sobre valores no inscritos en el registro de valores o en el registro de valores extranjeros que lleva la Superintendencia de Valores y Seguros, por lo que tales valores no están sujetos a la fiscalización de ésta. Por tratar de valores no inscritos no existe la obligación por parte del emisor de entregar en Chile información pública respecto de los valores sobre los que versa esta oferta. Estos valores no podrán ser objeto de oferta pública mientras no sean inscritos en el Registro de Valores correspondiente.
This private offer commences on the date as stated in the title and it avails itself of the General Regulation No. 336 of the Superintendence of Securities and Insurance. This offer relates to securities not registered with the Securities Registry or the Registry of Foreign Securities of the Superintendence of Securities and Insurance, and therefore such shares are not subject to oversight by the latter. Being unregistered securities, there is no obligation on the issuer to provide public information in Chile regarding such securities. These securities may not be subject to a public offer until they are registered in the corresponding Securities Registry.
Legal Notice for Residents of Mexico: The securities have not been and will not be registered with the National Registry of Securities, maintained by the Mexican National Banking and Securities Commission and, as a result, may not be offered or sold publicly in Mexico. The fund and any underwriter or purchaser may offer and sell the securities in Mexico on a private placement basis to Institutional and Accredited Investors pursuant to Article 8 of the Mexican Securities Market Law.
Legal Notice for Residents of Paraguay: The Shares have not been registered with the Comisión Nacional de Valores of Paraguay (CNV), neither with the Stock Exchange of Asuncion (BVPASA) and are being placed by means of a private offer. CNV nor BVPASA has not reviewed the information provided to the investor. This document is only for the exclusive use of specific investor in Paraguay and is not for public distribution.
Legal Notice for Residents of Peru: The funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is only for the exclusive use of institutional investors in Peru and is not for public distribution.
Legal Notice for Residents of Uruguay: The sale of the securities qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627. The securities must not be offered or sold to the public in Uruguay, except in circumstances which do not constitute a public offering or distribution under Uruguayan laws and regulations. The securities are not and will not be registered with the Financial Services Superintendency of the Central Bank of Uruguay. The securities correspond to investment funds that are not investment funds regulated by Uruguayan law 16,774 dated September 27, 1996, as amended.