What to expect from the $100 billion Saudi-SoftBank partnership
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King Abdullah University of Science and Technology. CC BY-SA 3.0

King Abdullah University of Science and Technology. CC BY-SA 3.0

We take a closer look at what SoftBank’s new Saudi partner brings to the table

The $100 billion investment fund being up by Japan’s SoftBank and the Saudi Arabian Public Investment Fund (PIF) has yet to announce any major projects, but it stands as one of, if not the, largest VC undertakings to date. SoftBank is putting up $25 billion already, with $45 billion on hand from the Saudis. On their own, SoftBank already has a large portfolio of investments encompassing e-commerce, energy, transportation, telecommunications, cyber security, fintech, online marketing, and wearables.

While the fund’s remit remains unclear, SoftBank has said it already has several multibillion dollar acquisitions planned. The Saudis for their part appear to be busying themselves ahead of the October announcement this summer in Silicon Valley. In a round of high-profile visits to technology companies and venture capitalists alike, a royal delegation, “visited with tech CEOs including Apple Inc.’s Tim Cook, Facebook Inc.’s Mark Zuckerberg and Microsoft Corp.’s Satya Nadella” according to The Wall Street Journal.

Just prior to this grand tour, Uber raised $3.5 billion from Saudi Arabia over the summer, the biggest single investment the kingdom has yet made in ICT. More deals like it will follow. But as PIF develops its investments, both with SoftBank and on its own or with other partners, only time will tell if further issues about localization, ethics, and the politics of the kingdom itself will prove stumbling blocks. Both domestic and international constraints loom ahead.

Domestically, because of a limited base to work off of and laws limiting online access. Saudi Arabia is, according to a study from Al Imam Mohammad Ibn Saud Islamic University, one of the more wired-in nations of the Middle East,  but still, “is in the early stage of technology startup development.” Add to this the perception internationally, as suggested by the Journal’s report and complaints from transparency and free speech advocates, fears that letting the Saudis put capital and executives into projects may compromise companies’ core values.

Sovereign wealth expansion

The Saudis’ willingness to invest in foreign technology companies is a relatively new development, since most sovereign wealth funding from the kingdom flows to domestic enterprises. But the new ICT focus does shift Saudi wealth managers from primarily putting money into the national development funds, large banks, and conglomerates of their major trading partners.

This complements an existing strategy for building a stronger ICT portfolio. As outlined by Startup Illusion, “Few are aware that Saudi Arabia has already been investing heavily in acquiring and commercializing international patents and technologies, and is already actively engaged with companies and institutions such as General Electric, MIT, Siemens and IBM.”

Aware that the socioeconomic order of the kingdom remains highly dependent on oil, the Saudis hope by 2030 to have a more diversified investment portfolio abroad … as well a more diversified economy at home. Already, “The government is responsible for 50 percent of the Kingdom’s startup incubators,” reports Arab News, which tend to be in healthcare, energy, and, now, ICT.

SoftBank's portfolio. Photo Credit: SoftBank

SoftBank’s portfolio. Photo Credit: SoftBank

Some cash has already been put down for such ends. The Saudi Telecom Company set up $50 million for, “smaller firms operating in the field of telecommunications and IT”. Later, in 2014, the Saudi government announced a $270 million venture capital fund for domestic technology applications, albeit with some room for foreign investments as well. And last year, the government set up an ICT fund worth $137 million for investing in pan-Arab digital enterprises, plus another innovation fund offering up to $2 million in domestic ICT grants.

However, these moves are not immune from criticism. Saudi Arabia is one of the Middle East’s most censorious states when it comes to internet usage. Collaboration among foreign telecoms, international research centers, and Saudi security services in the past have been a sore point in arguing for greater ICT collaboration for years, given the likelihood the fruits of such investment and partnership may be used in restrictive policies that actually limit Saudis’ access to the web.

State of the kingdom

The history of Twitter in Saudi Arabia is one example of such a clash of cultures. While Prince Alwaleed bin Talal, one of the worst’s richest men, bought up $1 billion worth of shares between 2013 and 2015, top clerics were condemning the platform as un-Islamic. People have been arrested for “improper” use of it as well.

But to make matters even more complicated, despite the jeremiads against it, Twitter is a popular platform among many religious personalities, to get their messages out. Granted, one particularly sore point about the app within the royal family is that an anonymous leaker, @Mujtahidd, has used it to break open government scandals. Banned on and off as a result, he remained popular for tabloid exposés of rarely covered issues.

The very fact that so many Saudi Twitter users keep taking to the site to denounce misuse of it shows that the official line, to stay off it altogether, has never been very convincing. 5 million Saudis have accounts on Twitter and are among the most active users worldwide. But, increasingly, the app is being policed for signs of incipient dissent, chilling users’ speech. “People don’t openly discuss important things on Twitter anymore,” the activist Ali Adubisi told Bloomberg.

Controversy even attends the ride-sharing market in the kingdom. The reason Uber is a reasonably sound investment for the Saudis is the fact that women cannot drive anyplace by themselves in the country, so ride-sharing has a large market. Uber argues that despite the continuing ban on women driving themselves, the expansion of operations is a successful work around that will improve female mobility regardless. Some Saudi women, though, actually protested the Uber deal because an expanded ride-sharing campaign with the government’s imprimatur suggests a shutdown of debate over the eventual easing out of these restrictions.

Uber's $3.5 billion Saudi announcement is a gigantic gamechanger for private capital (image, screenshot Uber KSA on Twitter)

Uber’s $3.5 billion Saudi announcement is a gigantic gamechanger for private capital (image, screenshot Uber KSA on Twitter)

Uber is also aware that in August, a series of arrests in the neighboring UAE effectively grounded their operations in that country. (Ride-sharing restrictions there are as strict as anything in Saudi Arabia itself.) Entering markets with heavy government restrictions has proven problematic for Uber elsewhere, too.

However at this point, it appears unlikely that the Saudis would attempt to throw up too many roadblocks with their foreign partners, given the importance of developing these relationships to benefit the country’s economic reforms looking ahead to 2030. There is a lot to work needed to be done domestically to make this a reality. A recent SAI Computing Conference report likewise concluded that, “Saudi Arabian universities must improve their ICT infrastructure, including the provision of suitable connection networks and formal training of staff in utilising ICT resources.”

While there are signs of change afoot, don’t expect improvements from inside any time soon. As one expert told Seeker, “Dependence on external sources of skills and technology will continue, perhaps for another ten years before a discernible shift to domestic sourcing.”

The PIF itself is worth $160 billion today. Total assets across the entirety of the kingdom’s SAMA Foreign Holdings entity, though, are valued at $600 billion. This would make SAMA the fourth largest sovereign wealth fund by assets in the world: only Norway, China, and the UAE surpass it. And the Saudis hope to raise these figures even more, to nearly $2 trillion.

For the Saudis too, then, $100 billion is “only” the beginning.

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