Will Migrating Funds Become an Issue in Saudi Arabia?

By Rob L. Wagner

The Arab Weekly

18 March 2016

Jeddah – During a Shura Council session in February, council member Sad­aqa Fadhel warned that “nearly one million Saudis” are living permanently or temporarily in foreign countries and that could impact the coun­try’s social and economic security.

“I don’t really care why people are out of the country, whether so­cial or financial,” Fadhel told The Arab Weekly. “We have 5% of the population out of the country and we need to know why.”

Fadhel said he asked the Minis­try of Foreign Affairs to study the issue and return with recommen­dations. “I think it’s a danger to so­cial security, and something has to be done about it,” he said.

The Shura Council member has raised the issue of whether Saudis are leaving for a better living en­vironment or to start businesses and invest capital abroad. Regard­less of the specific reasons, not only must the Saudi government contend with its citizens choosing to live abroad, but also the migra­tion of money leaving the country. The potential impact at the micro­economic level affecting small and medium-sized businesses could have significant consequences for middle-income Saudis.

The continuing trend of moving huge sums of investment capital to other countries comes at a time when the kingdom is implement­ing programmes to generate non-oil producing revenue to close the gap in its $98 billion budget deficit.

Amal Alkhalifa, a Saudi citizen living in Boston, said she chooses to live in the United States. She founded Teletransport, a transpor­tation, accommodations and edu­cation guidance company serving university students. She started her company in the United States because of the ease and freedom she found with municipal and Massachusetts state government rules and regulations.

“I found it really hard to own or establish a business (in Saudi Ara­bia) because of the kafala (sponsor­ship) system and lack of transpor­tation,” Alkhalifa said. “As women are bound to that, it becomes a real obstacle.”

The difficulty of starting a busi­ness in Saudi Arabia is not gender specific. According to the World Bank’s Doing Business 2016, Saudi Arabia ranks 82nd out of 189 coun­tries as business-friendly. The kingdom ranks 130th in the ease of starting a business and is 99th in protecting minority investors. The World Bank ranked the kingdom 150th in trading across borders. Generally, businesses found Saudi Arabia’s lack of government trans­parency in procedures frustrating, according to the World Bank.

A Riyadh Chamber of Commerce survey found that 65% of small and medium-sized enterprises found bureaucracy a “significant obsta­cle”.

Fifty-nine percent of the SMEs reported that access to financing was a problem, while 44% of SMEs complained that workforce-related issues caused hurdles in establish­ing businesses.

Saudi investments were pegged at about $41.4 billion at the end of May 2015 in 30 Arab and foreign countries. About 41% of those in­vestments are in the United Arab Emirates, Turkey and China.

Using his own sources, Fadhel said 430,000 Saudis are living in Egypt, 200,000 in the UAE, 90,000 in the United States, 50,000 in In­donesia and 100,000 in Morocco. About 200,000 Saudis had lived in Syria, Jordan and Lebanon until the Syrian civil war. But many have since migrated to Turkey or from Syria and Lebanon to Jordan, he said.

Wanda Krause, owner of Krause Consulting, which specialises in Middle East civil society, socio-economic research and political science, said female entrepreneurs often prefer to establish a business in an environment where they have the freedom to network with both men and women.

“The short-term impact on the (Saudi) economy may not be ap­parent, but there will be long-term impact,” Krause said. “If we project into the future, the next five or 20 years, and if the trend is growing, it should be of great concern.”

Krause said that while Saudi businessmen and women might have initially earned their income through operations in Saudi Ara­bia, they may spend that income elsewhere after their success.

“When living outside Saudi Arabia, they are investing in their lives,” Krause said. “They are buy­ing houses, taking trips, paying for the education of their children, buying clothes. Everything is tak­ing place outside Saudi Arabia.”

James Thomas, a partner with management consulting company Strategy& in Dubai, who tracks cultural and behaviour transfor­mations of businesses, cautioned not all companies in Saudi Arabia leave the kingdom because of gov­ernment bureaucracy and lack of transparency.

“We had one Saudi company that relocated in the GCC,” Thom­as said. “It had acquired another company and already had an office here. It was easier to attract expat professionals. It was the type of business that made sense to relo­cate.”

Businesswoman Alkhalifa said she is unsure whether she will leave Boston to return to Saudi Arabia.

“I’m well established here and my kids go to school over here,” she said. “I might go back but I’m not sure. I have bought a home here, which would not be possible if I’m a single mother in Saudi Arabia.”

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