A Saudi revolution in convoluted times

Collaboration and Communication

“It’s a good time to be a woman in Saudi Arabia,” said the CEO of a bank over dinner at Riyadh’s fashionable Cipriani restaurant. She – for it was a she – is not alone in thinking that. In fact, the most senior role in the Saudi diplomatic service, Ambassador to Washington, is held by Princess Reema Al Saud, another foreign educated female in her 40s.

A policy including transport subsidies, childcare support and employer incentives for hiring women has resulted in the proportion of Saudi women in work doubling in only four years to 33 percent, exceeding the 27 percent average for the Middle East and North Africa, notes the IMF.

The role of women is not the only change in a country undergoing a seismic shift into a technologically-driven, innovative land. Demography, purpose and funds are the three foundations upon which Mohammed Bin Salman’s Vision 2030 is being built.

Demographic Dividend

Two thirds of Saudi Arabia’s 36m population is under 35 years old. With a fertility rate of 2.3 per woman, the young will continue dominating, although the birth rate has fallen substantially over the last years and that fall will likely accelerate as women take up more working roles. This is one reason for the Crown Prince, known as MBS, to pursue his framework for development at a brisk pace – one look at archenemy Iran provides another.

Iran’s population numbers a heftier 86m, but it has a similar age profile: 60% of its people are under 30. However, without a modernising agenda chock-a-block with opportunities for the young, and with no steady sources of income due to sanctions, its rulers, if they survive, will continue facing riots and revolts – like that sparked in September by the death of a young woman, probably due to religious police brutality.

Purposeful Activity

The second leg of the Saudi development stool is purpose. Vision 2030 envisages the country weaning itself off its dependence on oil revenues and diversifying its economy into sectors including science and technology.

The aims for the tourism sector are among the most ambitious – doubling the number of UNESCO world heritage sites, establishing the largest Islamic museum in the world, and promoting cultural and entertainment activities. This has a couple of advantages. Tourism employs large numbers of people, most likely the young, from both skilled and unskilled backgrounds, while also encouraging an openness to the world that will be hard to row back on.

One of the chosen areas for tourist development is in the northwest, around the town and oasis of AlUla, a stop-off on the historical Incense Road. Old shops are being restored, and local women in full hijab and increasingly more liberal outfits are given the task of running them with the rent and stock subsidised by the state. Cool cafés and restaurants abound, staffed by a mix of foreigners and Saudis, many of the latter on a steep learning curve.

On our recent visit, the tour guide showing us the nearby Nabatean tombs at Hegra – like Petra in Jordan but without the crowds – was a historian whose mother was a Bedouin and father a local. The Royal Commission AlUla (RCA) sends 500 students abroad annually for degrees, mainly to the US, a practice that the central government had been applying for years, resulting in a skilled, English-speaking youth. One of our Uber drivers in Riyadh, between jobs as a town planner, had studied at university in Texas on a full scholarship.

The cleverness of Vision 2030 for youth is that it not only hands them a purpose – pride in their country’s history and beauty, and it in its rapid modernisation – but it also provides entertainment. An example is Boulevard Riyadh City, a 900,000 square metre outdoor area of shops, laser shows, and concerts, built only three years ago and constantly increasing in size and offerings. A couple of weeks ago a female DJ in black leggings and a long-sleeved T-shirt was busy spinning and boogieing to what sounded to our untrained ears like Saudi house music.

The biggest boost to tourism will come from the lifting of the ban on alcohol, rumoured to be happening within the next two years. This will probably apply to tourist areas only, rather like Dubai and Qatar.

Expats make up around 38% of the population, ranging from the most menial jobs to the highly paid consultants from firms like McKinsey and Bain, who are making eye-watering amounts from their work.

Oil Funds

And Saudi Arabia has the money to pay them. The third leg of its development stool are the vast amounts flowing into its coffers due to the energy crisis. Saudi Arabia is making about $1 billion a day from oil exports, according to Bloomberg, marking a 123% increase year on year. The IMF estimates the country will be one of the world’s fastest growing economies this year, with GDP growing at 7.6%.

This is evident everywhere you look, whether in Riyadh or Jeddah, the second largest city on the coast, or AlUla. A plethora of architecturally stunning new buildings spring up continually and the air of excitement is palpable. This year’s annual FII conference, nicknamed Davos in the Desert, was the largest ever, with over 7,000 delegates from all over the world.

What could go wrong?

In a world awash in recession and inflation, Saudi Arabia stands out as the promised land, where vast funds are being applied to create a “vibrant society, a thriving economy and an ambitious nation.” What could be more symbolic than its football team beating World Cup favourites Argentina only a few days ago?

There is, however, one caveat to the fairy tale. “It all depends on one man,” noted a Saudi top executive.

Vision 2030, launched in 2016, was developed with the input of the Council of Economic & Development Affairs, and constant feedback from business, but MBS is key to its implementation. He took power away from the Council of Senior Scholars, the supreme religious body; from the Mutawa, the religious police; from the Saudi financial and political elite, many of whom are part of the royal family, with a well-publicised kidnap of around 500 of the country’s elite, held hostage in the Ritz-Carlton Hotel. Those actions should ensure that the 37-year old Crown Prince will be appointed King by the Royal Court when his father dies.

That ruthlessness was also apparent in the 2018 murder of dissident journalist Jamal Khashoggi in Istanbul, with the CIA ascribing blame to the Saudi ruler. Public opprobrium followed, but was short-lived – most evidently when this summer, vociferous critic Joe Biden travelled to Saudi Arabia to fist-pump with MBS and plead for higher oil production; most recently with rival Turkey gratefully accepting a purported $5bn transfer to its central bank reserves.

Saudi coffee, delicious as it is, is unrecognisable as coffee to Western palates. Saffron, cardamom, ginger, and other spices, add an entirely different dimension. So it is proving with Saudi Arabia’s revolution. An awe-inspiring local creation, but one that won’t suit all palates.

Neutrality is not an option

How quantum benefits from geopolitical fissures

“Neutrality is not an option,” said the top NATO executive. Speaking at a private dinner a week ago, his words applied to the business world, not just to nation states.

The question is, how aware are Boards of the binary choices they are facing, and what does this mean for the quantum sector?

Geopolitical risk galloped back onto Board agendas over the last few years with Brexit, the economic consequences of former President Trump’s economic nationalism, and President Xi’s ‘fortress China’ policy. Events this year only added to its importance: Russia’s invasion of Ukraine, which today morphed into a possible war on the West, China’s stepped-up aggression towards Taiwan, and the volte-face of neutral Sweden joining NATO.

Western tech companies that fundraising are turning away approaches from Tencent and Alibaba, the Chinese technology behemoths, who they would have welcomed with open arms only a few years ago. The US and Europe, among others, are encouraging ‘onshoring’ or ‘friendly shoring’, the return of manufacturing to the domestic market, or at least to countries that are seen as friendly. Supply chain resilience is now a central issue for business and governments – note the billion-dollar subsidies for domestic semiconductor manufacturing in President Biden’s CHIPS and Science Act 2022.

But the full implications of Russia’s invasion of Ukraine and China/US tensions over Taiwan have yet to be digested by business leaders attached to globalisation and, above all, attached to the profit-making possibilities of a vast Chinese middle class – 400m people, larger than the US population. In his recently published diaries, Lord Patten, the last Governor of Hong Kong before its return to China, wrote that Canadian governments from 1995 onwards had a “crush” on the country. “They see – here we go again – treasures beyond human craving just over the horizon.” His words are widely applicable today not just to nations, but companies as well’.

A few months ago, the CEO of a FTSE-100 asset management firm agreed at a private lunch that the geopolitical divide between the West and China had widened markedly. But the firm, he said, was not dialling down its exposure to the country. Its operations there were both profitable and a great source of data, he added.

Within the next seven years an invasion of Taiwan, or at the very least a blockade, is looking more likely, say experts. There are parallels between President Xi and President Putin. In the words of former head of MI6 Sir Alex Younger, referring to Russia’s invasion of Ukraine, the ageing Russian leader had gone into “legacy mode, almost messianic in his determination to be the president that restored Russia to greatness.”* The same could well apply to Xi.

Putin’s invasion led to a set of unparalleled sanctions which hurt Western and other allied companies doing business in Russia as they struggled to depart the country, selling their assets at knock-down prices, while it also had a deleterious effect on many economies through higher energy and food prices.

However, the escalation of Taiwan tensions into something resembling a war will make this year’s issues seem paltry by comparison, given China’s integration into the world economy.

Yet for the world of quantum, a world of opportunity beckons – albeit not in China. At a time where private sector funding for Deep Tech is looking sparse, newly-emboldened governments and security alliances are stepping in.

Not only is there the CHIPS and Science Act 2022 in the US, but only a few months ago NATO launched a €1 billion Innovation Fund for early-stage start-ups and venture capital funds developing dual-use emerging technologies in areas including quantum-enabled technologies, novel materials, energy and AI. Germany stated last week that it would become Europe’s leading military power with, according to German Chancellor Olaf Scholz, “the best-equipped force in Europe.”

In parallel with the development of quantum technologies in areas like energy and novel materials, the largest opportunity exists in cybersecurity. This encompasses protection against a functional quantum computer that can break current classical encryption – expected within the next 5-7 years – and better protection against current break-ins, which include the ‘harvest now, decrypt later’ strategy.

As China evolves into a declared enemy, its efficient cyberespionage programme is becoming ever more newsworthy. The FBI opens a new investigation into Chinese espionage every 12 hours, it has stated, while MI5’s caseload has risen sevenfold since 2018, according to the British spy agency.

One US estimate suggested that Chinese commercial espionage stole as much as $600bn of US intellectual property every year. The EU has estimated that total IP theft costs it €50bn in sales every year, with the loss of 671,000 jobs.

From Post-Quantum Cryptography (PQC) to Quantum Key Distribution (QKD), firms in the quantum space are developing a mix of technologies to combat this by securing communications and keeping data safe.

The National Security Agency (NSA) put a shot across the bows of systemically important companies earlier in September when it released future quantum resistant algorithm requirements for national security systems. In fact, actual post-quantum software defences are still being elaborated, and the National Institute of Standards and Technology (NIST) has not yet published the final list of those it considers viable – we are only at the short list stage. But the NSA was intent on warning corporates that major investment in new cyber security systems are on the horizon.

To be sure, funding for quantum start-ups has not totally dried up. $2.2 billion went into the sector over the last 12 months, up 15.0% on the previous year, according to quantum market data from The Quantum Insider. However, much larger amounts are likely to be coming from governments and corporates as they adjust to deepened fissures in the geopolitical strata.

*Quote from Michael Smith’s fascinating book The Real Special Relationship – The True Story of how the British and UK Secret Services work together