Saudi Arabia: Salman cuts a dash through South-east Asia

Published in GSN, 9 March 2017

Local press have been effusive in their coverage of King Salman Bin Abdulaziz in the early weeks of his month-long tour around Asia, which began in Malaysia in late February and also takes in Indonesia, Brunei, Japan, China and the Maldives. On each step of the journey, the scale of his entourage has prompted astonished headlines, with 1,500 people including 25 princes and ten ministers travelling with the king in a fleet of Boeing 747 and 777 aircraft. It was impossible to get a room at the St Regis or Le Meridien hotels in Kuala Lumpur, which had been booked out by the delegation and its sundry hangers-on. “They’ve brought a lot of foreign exchange into the country”, one Malaysian told GSN approvingly. The Saudi authorities will no doubt be delighted with the attention, providing some support for the idea that the kingdom can be a significant trading partner and is keen to do more business with Asian counterparts.

The trip has led to a host of memorandums of understanding (MoUs) in areas such as halal products, construction and hajj visitors, but the most eye-catching deal so far has been the $7bn investment by Saudi Aramco into the 300,000 b/d Refinery & Petrochemical Integrated Development (Rapid) project being developed by Petroliam Nasional (Petronas) on the southern tip of peninsula Malaysia. Saudi Aramco will meet most of the crude feedstock requirements of the refinery, with natural gas, power and other utilities to be supplied by Petronas.

It comes on top of a similar $6bn investment in Indonesia agreed with PT Pertamina last December and helps to secure future demand for Saudi crude in the region. That is an important consideration given that Asia already accounts for the majority of Saudi oil sales and Riyadh is fighting to maintain global market share in the face of US shale sales and a revitalised Iranian hydrocarbons industry. Iran is now a far more significant investor in Indonesia than Saudi Arabia, according to Jakarta-based think-tank Albalad. Aything that can help in Riyadh’s rivalry with Tehran will be seen as a plus by the Al-Saud.

Continuing controversy over the 1Malaysia Development Berhad (1MDB) scandal (GSN 999/4) doesn’t seem to have dented Saudi willingness to invest in the region – although Gulf businessmen in Asia told GSN that questions about 1MDB continuously come up in discussions about projects with potential investors. The focus of the scandal has been payments of $700m or more made to Malaysian prime minister Najib Razak and his associates; the transactions involved senior figures and prominent institutions in Saudi Arabia, the UAE and Qatar.

1MDB does not appear to have affected the personal relations between leaders. Salman and Razak indulged in a selfie in the early days of the king’s tour, the go-to option for rulers wanting to suggest relaxed friendship these days.

There may be knock-on benefits from all this for other Gulf investments in the region, such as the Medini project to create a new city of 250,000 people along with a business cluster just across the Strait of Johor from Singapore. One of the three developers is Dubai-based United World Infrastructure and the scheme has previously attracted investment from Abu Dhabi’s Mubadala Development Company (MDC) and Kuwait Finance House. According to one senior executive involved, some Saudi companies are now planning fact-finding visits to the site.

“If you’re going to be running refinery services here, you’re going to need to anchor yourself, to have your office somewhere,” said Global Capital & Development chief executive Sujit Parhar. His company is a vehicle used by MDC and others to invest in Medini.

The trip is not just about Saudi investment. There have been talks on counter-terrorism and counter-radicalisation efforts. Riyadh is also trying hard to drum up interest among potential Asian investors to bolster the Vision 2030 strategy’s economic diversification plans – particularly in areas such as transport and logistics, healthcare, tourism and financial services. As yet there have been no significant new deals announced, although conferences happening as part of the tour will provide an opportunity to pique some Asian business interest.

Alongside the deals, there has been a steady stream of gossipy coverage around the trip and what the king either expects or demands, from the gold-coloured escalators he uses to descend from his 747 to the height of the toilet seat (53cm from the ground, accompanied by armrests on either side and a plush carpet). Nude statues in the grounds of the Bogor State Palace in Jakarta were covered up with foliage when Salman came to visit; some 300 luxury cars were leased in Bali, where Salman and his retinue are taking a break from 4-12 March.

There is also great anticipation of what happens when the King reaches the Maldives, with speculation that Saudi Arabia is to buy the entire Faafu atoll, comprising 19 coral islands, plus reefs and lagoons in a potentially huge new Indian Ocean resort, in an estimated $10bn deal with President Abdulla Yameen.