The German entrepreneur had just set up the internet, but he was already imagining the space as the bustling future headquarters of Golden Scent, a Dubai-based e-commerce firm he co-founded with a Saudi friend five years ago.
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“If you want to be big in the Middle East, you need to be in Saudi—full stop,” he said. “Maybe in six months we’ll stand here and it’s full.”
The growing number of start-ups in Riyadh reflects an undeclared competition between two Gulf allies that’s set to intensify this year, realigning the economics of a region striving to reduce its reliance on oil.
Dubai has staked its economic recovery on World Expo 2020, a six-month showcase of global innovation expected to attract some 25 million visitors, while investing billions of dollars in infrastructure. It’s also a big year for Saudi Arabia, which takes on the chairmanship of the Group of 20 major economies and plans a series of events to promote its own breakneck transformation.
Until recently, Dubai was the place to be for Middle Eastern start-ups like Golden Scent, which sells perfume and beauty products. The glitzy city in the United Arab Emirates built its reputation as a freewheeling business hub in a region clogged with bureaucracy.
Even companies focused on the much larger Saudi market would base themselves in Dubai, deterred by restrictive investment rules or the religious police that roamed the streets badgering women to cover up.
But as Crown Prince Mohammed bin Salman reshapes Saudi Arabia, that’s beginning to change. In just a few years, the Islamic kingdom has opened up to tourists for the first time, dramatically eased restrictions on women, allowed cinemas and wooed visitors with a parade of world-class chefs, concerts and sporting spectacles.
Rumours are even circulating that a long-standing alcohol ban may be relaxed as Saudi Arabia vies to win back business it’s lost to other Gulf countries over the years.
Five years ago, Abdullah Altamami, a Saudi venture capitalist and chairman of online payments system HyperPay, struggled to establish a business in his home country. Today, he sees a sleeping giant that’s waking up.
“I don’t invest in a company now regionally that doesn’t focus on Saudi Arabia,” said the 34-year-old.
Nobody denies there’s a long way to go. Saudi Arabia’s transformation has coincided with a crackdown on political dissent – also little tolerated in the UAE. It was tainted in the eyes of some investors by a foreign policy that has been more aggressive and unpredictable under Prince Mohammed. The 2018 murder of Washington Post columnist Jamal Khashoggi dealt a reputational blow that Saudi Arabia has yet to overcome.
And day-to-day difficulties still remain. Foreign workers in Saudi Arabia must request “exit visas” from employers to leave the country, even for a weekend away. While restrictions on having fun have loosened up, there’s no comparison with Dubai, while the modest dress code puts off many women. As a result, it takes generous packages to attract talent.
But people are coming, and it’s not just Saudi entrepreneurs moving home.
Last year, a Norwegian company planning to set up a $90 million salmon farm in the UAE decided to base it in Saudi Arabia instead. Residents of the Emirates consume way more salmon now, but Saudi Arabia offers future growth as the government is pushing fish as a healthy choice.
Michael Page, an international employment agency, has noticed a surge in executives, particularly in the property industry, looking to relocate as Saudi Arabia unveils projects for entire new cities that could yet eclipse the splashy developments, such as the Burj Khalifa skyscraper, on which Dubai built its name.
“Over the last 18 months, we have seen many high profile leaders in the real estate sector moving from across the world looking to be involved in the giga-projects,” said Tim Watson, a partner at Michael Page Middle East.
That’s the catch for Dubai – Saudi Arabia’s sheer size. At 34 million, the population is more than three times the UAE’s, making it the biggest market in the Gulf by far. Even if Prince Mohammed only succeeds in realizing part of his vision to transform the country, it will have implications for neighbouring states, which long benefited from Saudi Arabia being a closed shop.
The island of Bahrain, linked to Saudi Arabia’s Gulf coast by a bridge, served for decades as a weekend destination for Saudis and foreign executives looking to catch a movie or concert. With all that now available at home, Bahrain’s economy could also feel the pinch. In the UAE, weak oil prices and a real estate slump have prompted authorities to rethink residency rules to encourage the large expatriate population to stay through the tough times.
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