Miami’s Saudi love affair hasn’t convinced everyone

Reuters

It may be the beaches that make it reminiscent of parts of the Gulf. It may be the lifestyle. But it is more likely to be the lack of state income taxes, the pro-business policies and a predilection for billionaires. Whatever the reasons, a love fest is linking Miami and the GCC, particularly Saudi Arabia.

The Saudi-backed Future Investment Initiative held its third annual forum in the South Florida city last week.

Gulf tycoons such as Yasir Al-Rumayyan, governor of the Public Investment Fund and chairman of Aramco, and Rishi Kapoor, CEO of Bahrain’s Investcorp, flew in to greet Elon Musk, and even US President Donald Trump.

Uber-wealthy American corporate and financial kingmakers who have recently come to call Miami home were also there, from Citadel’s chief executive Kenneth Griffin to Josh Harris, a co-founder of Apollo Global Management.

A lot of money sloshed around the Faena Hotel conference venue. Khalid A Al-Falih, the Saudi investment minister, announced that InvestSaudi will open its second US office in Miami as a “gateway” for inbound and outbound flows to and from North and South America.

There were crowded parties and hushed behind-closed-doors meetings of the select few. Outsized black SUVs with chauffeurs and tinted windows shuttled VIPs up and down Miami Beach’s palm-lined boulevards. 

The vibe was very Dubai. It also had a touch of 1980s America, where Michael Douglas’s Gordon Gekko proclaimed in Wall Street that “greed is good” and Don Johnson in his signature white blazer chased street gangsters on Miami Vice.

Trump’s ‘Drill, baby, drill’ mantra too could result in reduced investor appetite for the Gulf, including Saudi Arabia

Euphoria about Saudi Arabia abounded. The world’s largest investors described it as a “one-in-many-generations” opportunity for high returns and low risks, especially as rising geofragmentation and protectionism increase the need for portfolio diversification. 

Lisa McGeough, HSBC’s president and chief executive for the US, said Saudi Arabia is the most exciting destination in the world today, ahead of even the US, India and Southeast Asia. 

“Where do I see political stability, where do I see policy and fiscal programmes that are aligned with my interest, where do we see potentially energy security as well, and a stable environment to invest?” McGeough gushed rhetorically. 

Blackrock’s president Rob Kapito said that Saudi Arabia offers growth, scale, resiliency, a young population and social impact.

“If KSA was a company, and I was looking to invest, I would be all in,” he claimed. 

“The story is tremendous,” chimed in Yie-Hsin Hung, president and CEO of State Street Global Advisors. “You have great growth prospects, relatively low debt-to-gdp, a young vibrant talent pool, and a really strong intent and track record by the government of diversifying the economy.”

But if there was no room for doubt on stage, concerns came from other investors in the audience. They told AGBI they too would like to jump in, but need to see deeper, more liquid markets in Saudi Arabia, and more global indexes and funds linked to it.

And while Trump’s return to the White House has put Saudi Arabia uniquely in the spotlight, engendering sudden FOMO among US investors wanting a piece of the pie, not all his policies are likely to benefit it in practice.

The threat of tariffs and uncertainty over his other policies risk cooling global demand, and could have an inflationary effect that keeps interest rates high in America and, because of the dollar peg, the GCC. 

Trump’s “Drill, baby, drill” mantra too could result in reduced investor appetite for the Gulf, including Saudi Arabia, where a profitable oil industry is still needed to drive economic growth even amid diversification efforts.

Bank of America chief investment strategist Michael Hartnett told my AGBI colleague Megha Merani this week that investors today are keener on regions that can harness lower oil prices, and are more “risk averse” vis-a-vis new emerging markets than a decade ago. 

“That’s better for China, for India, for Europe – it’s relatively less good for the Gulf,” he said.

Saudi Arabia was already on track for lower FDI inflows year on year by the third quarter of 2024. It is also facing fresh financial and fiscal constraints because of the spending demanded by Vision 2030. 

Foreign companies separately remain wary of doing business in Saudi Arabia, even though officials have made strides in recent years to make it easier to set up shop and operate there.

Speaking at the World Government Summit in Dubai earlier this month, the International Monetary Fund’s managing director Kristalina Georgieva called Saudi Arabia and the other GCC states a “bright spot” for the global economy. But she encouraged local leadership to continue raising productivity, consolidating public finances and deepening regional economic integration.

She noted “promising initiatives” across the region to attract new private investment. 

“I think of the national governance framework to streamline fees and levies in Saudi Arabia,” she said.

“But there is more to do. Upgrading the regulatory environment and ensuring a level playing field can help further raise R&D investment.”

Valentina Pasquali is a senior editor at AGBI