Business backlash over Khashoggi threatens Saudi Arabia’s economic dreams

One year ago, with more than 3,500 business leaders and government officials in attendance in Riyadh, Crown Prince Mohammed bin Salman announced that Saudi Arabia was open for business.

The kingdom unveiled plans to build a $500 billion metropolis. The mood was upbeat. Bin Salman promised global CEOs and foreign investors that Saudi Arabia was heading down a new path of tolerance and engagement with the rest of the world.

Many were convinced, including Colony Capital CEO Tom Barrack, who told CNN at the time that the government was committed to creating an environment that would be “transparent, secure, stable and understandable.”

Now businesses and CEOs are distancing themselves from Saudi Arabia over the disappearance of journalist Jamal Khashoggi, threatening the country’s bid to transform its oil-dependent economy.

Turkey claims to have evidence that Khashoggi, a US resident and columnist for the Washington Post, was murdered inside the Saudi consulate in Istanbul early this month — an accusation the kingdom strenuously denies.

But the unexplained disappearance of Khashoggi, a former Saudi government adviser turned critic, has already prompted some big-name business partners to cut ties with projects that are central to bin Salman’s hopes of building a modern economy with technology at its core.

British billionaire Richard Branson has pulled back from two projects to develop Red Sea tourism and has suspended talks with the Saudi government about a $1 billion investment in his space companies.

“I had high hopes for the current government … and its leader Crown Prince Mohammed bin Salman,” Branson said in a statement.

“What has reportedly happened in Turkey … if proved true, would clearly change the ability of any of us in the West to do business with the Saudi government.”

Saudi Arabia’s plan to develop 100 miles of sandy coastline while protecting the Red Sea environment was one of the first detailed initiatives to emerge from bin Salman’s Vision 2030, an ambitious program to end the kingdom’s addiction to oil.

Developing tourism along the Red Sea coast is a core part of Saudi Arabia's economic vision.

Advisers quit mega city project

A second flagship project — building a futuristic zero-emissions mega city known as NEOM — is also running into trouble.

Dan Doctoroff, CEO of Alphabet (GOOGL) subsidiary Sidewalk Labs, Silicon Valley entrepreneur Sam Altman, Tim Brown, CEO of design company IDEO, and Ernest Moniz, a former US energy secretary and the CEO of Energy Futures Initiative, have said they won’t work with NEOM, at least for now, despite being listed as members of its advisory board.

Crown Prince Mohammed bin Salman hopes the NEOM project will transform Saudi Arabia's economy.

Related article Tech execs will help Saudi Arabia build its mega city of the future, but some are having second thoughts.

NEOM and the Public Investment Fund of Saudi Arabia did not respond to requests for comment.

The NEOM project was announced at last year’s conference in Riyadh, dubbed “Davos in the desert.”

But events since then have shaken investor confidence. Just days after the conference, Saudi authorities arrested dozens of royals, officials and prominent business people -— including billionaire investor Prince Alwaleed bin Talal — accusing them of corruption.

Many were held for weeks in Riyadh’s Ritz-Carlton hotel before they were released after agreeing to hand over cash, real estate and other assets worth more than $100 billion. In February, Saudi officials went on a roadshow in a bid to calm nervous foreign investors.

There have been more disappointments since. Plans for a blockbuster IPO of state oil giant Aramco have been shelved indefinitely. A listing would have demonstrated a new level of transparency in Saudi markets, as well as generating significant funds for investment in other areas.

Confidence has ‘dropped through the floor’

Now the unexplained disappearance of Khashoggi has international executives rattled, just as the kingdom prepares for this year’s edition of the Riyadh conference, the Future Investment Initiative.

“This is the dealbreaker,” said Neil Quilliam, senior research fellow at London-based think tank Chatham House. “No one thought [Vision 2030] would be entirely successful, they maybe gave it sort of a 50% success rating, now that’s really dropped off and business confidence has really dropped through the floor.”

Uber CEO Dara Khosrowshahi, Viacom (VIAB) CEO Bob Bakish, and Arianna Huffington have withdrawn from the conference. Most of the event’s media partners, including CNN, have pulled out.

Nobel Peace Prize laureate Tawakkol Karman holds a picture of missing journalist Jamal Khashoggi during a demonstration outside the Saudi consulate in Istanbul.

Related article Media sponsors drop out of Saudi conference after journalist goes missing

Khosrowshahi’s announcement is particularly significant because Saudi Arabia’s sovereign wealth fund is a big shareholder in Uber. In 2016, it invested $3.5 billion in the ride-hailing startup.

The kingdom is becoming a major investor in global technology. SoftBank and Saudi Arabia joined forces in 2016 to create the SoftBank Vision Fund, raising nearly $100 billion to spend on tech businesses. Its latest investments include $2.25 billion for GM’s (GM) self driving unit.

Saudi Arabia is also investing $1 billion in Lucid, a potential rival to Tesla (TSLA). It already owns nearly 5% of Elon Musk’s electric-car maker.

SoftBank (SFTBF) CEO Masayoshi Son is the global tech CEO with the deepest involvement in Saudi Arabia’s efforts to transform its economy.

Until early Friday, he was listed as a speaker at the investment conference, as were the head of SoftBank’s international business, and the CEO of the SoftBank Vision Fund. The online program was stripped of all names later in the day, and the speaker list was removed entirely from the website.

SoftBank has not yet responded to multiple requests for comment about the Khashoggi disappearance.

Michael Kaplan, Zahraa Alkhalisi and Sara O’Brien contributed to this article.