Saudi Arabia’s global investor: An interview with Prince Alwaleed 

Saudi Arabia’s global investor: An interview with Prince Alwaleed

The biggest individual foreign investor in the United States discusses the pace of reform in Saudi Arabia, his investments, and the future of Islam.

Kito de Boer

His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud— or Alwaleed, as he’s known in the Middle East—is a highly successful international investor, a member of the Saudi Royal family (and nephew of the king), and the biggest individual foreign investor in the United States. He first came to prominence in the West in 1991, after paying $590 million for a 14.9 percent stake in then-struggling Citicorp (now Citigroup). His investment quickly became worth billions of dollars when the US financial giant pulled itself back from the brink of bankruptcy and resumed its profitable growth. Most recently, he has attracted headlines by teaming up with Bill Gates to back a $3.7 billion management buyout of the Four Seasons Hotels and Resorts.

Alwaleed’s business empire today includes extensive direct investments (in real estate, banking, retailing, industrial, media, and construction) in Saudi Arabia and elsewhere in the region—such as private holdings centered on his Kingdom Holding (KHC) projects—plus a range of significant minority interests in some of the world’s more prominent companies. Besides Citigroup (where his shareholding now stands at 3.6 percent), his holdings  Web exclusive, December 2006

include Fairmont Hotels and Article at a glance Resorts, News Corporation, Time His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud is attracting growing attention as an Warner, the Walt Disney Company, international investor, most recently by teaming up with Canary Wharf (in the United Bill Gates to back a management buyout of the Four Kingdom), Apple Computer, and Seasons hotel group. Motorola. Alwaleed is estimated to Alwaleed, one of the world’s richest men, has an be one of the wealthiest people in empire that spans extensive property, media, and the world. construction interests in the Middle East and an array of minority stakes in leading Western companies. He combines a passion for market-driven economic and His significance, though, goes well social reform in his native Saudi Arabia and the region beyond his business and financial at large with a traditional Muslim religious outlook. career. A self-described “bridge” In this interview he talks about the pace of economic between Arab and Western cultures, progress in the Gulf states, the changing pattern of global investment flows, and the urgent need for he combines a traditional Muslim a debate within Islam and greater understanding outlook with a passion for market- between world religions. driven economic and social reform. Alwaleed prowls Wall Street and Related articles business boardrooms during the on mckinseyquarterly.com week yet spends his weekends “The new Silk Road: Opportunities for Asia dispensing charity to the Bedouin at and the Gulf,” his tented desert camp near Riyadh. Web exclusive, July 2006 He finances mosques in his native “Building world-class capital markets,” Saudi Arabia while promoting the Web exclusive, July 2005 cause of women as earnestly as any “Industry comment: The outlook for European corporate and investment banking,” campaigner in Europe or the United Web exclusive, August 2006 States—proudly pointing out, for example, that one of the pilots of his private plane is a woman.

In this conversation with McKinsey director Kito de Boer in Paris, Alwaleed discusses the pace of reform in Saudi Arabia, global investment flows, and the debate that must take place within Islam.

The Quarterly: How would you compare what’s happening in the Gulf today with the last oil boom, in the 1970s?

Alwaleed: Last time round we rushed into a lot of construction projects, and I think some things then were done haphazardly, but the countries of the Gulf have learned from those mistakes. Governments are now trying to do things properly and with more precision. Much of the basic Q4 2006 Prince Alwaleed interview Bio Exhibit 1 of 1 Glance: Biography of Prince AlwaleedSaudi BinArabia’s Talal globalBin Abdulaziz investor: Alsaud An interview with Prince Alwaleed 

Vital statistics • Born March 7, 1955, in Riyadh, Saudi Arabia • Son of Talal Bin Abdulaziz Alsaud and Princess Mona El-Solh (daughter of Riad El-Solh, first prime minister of modern day Lebanon); grandson of the founder of Saudi Arabia, King Abdulaziz Alsaud • Married with 2 children

Education • Graduated in 1979 with BS in business administration from Menlo College, California • Earned MA in social science from Syracuse University in 1985 • Advanced degrees include – Doctorate in business management, Kyungwon University, Seoul, South Korea (1998) – Doctorates in law from Syracuse University (1999), American University in Cairo, Exeter University (2002) – Doctorate in humanities from AlAqsa University, Gaza (2004) – Honorary degrees: doctorate of humane letters, University of New Haven (1992); doctorates of letters from University for Development Studies, Ghana (2004) and Islamic University of Uganda (2005)

Career highlights • Private entrepreneur and international investor with holdings in agriculture, automobile manufacturing, banking, broadcasting and media, computers and electronics, entertainment, hospitality, retailing, supermarkets, telecom- munications, tourism, travel, upscale fashion Prince Alwaleed Bin Talal Bin • Kingdom Holding (KHC) (1980–present) – Owner Abdulaziz Alsaud • Established many business ventures, initially focusing on construction and real estate (1980) Prince Alwaleed Bin Talal Bin Fast facts Abdulaziz Alsaud • Recognized at 2nd Economic Business Women’s Forum in Cairo, in 2005, for his support of Arab women’s roles in economy and society • Honored with global achievement award, in 2005, by the American-Arab Anti-Discrimination Committee (ADC) • At 2006 International Islamic Finance Forum, received the Sheikh Mohammed Bin Rashid Almaktoum Islamic Finance Award for lifetime achievement in socially responsible investment

infrastructure—airports, roads, universities, et cetera—was put in place in the 1980s and 1990s, so political energies in Saudi Arabia can now be devoted to things that will impact the social structure, such as reducing unemployment, building houses for the poor, and other good causes.

A big achievement, in my view, has been the debt reduction program in Saudi Arabia, which has brought down public-sector debt from 118 percent of GDP at its peak to around 40 percent today, with a target of eliminating it completely by the end of 2007. It’s important that the bulk of the excess money be channeled into new industries with added value that can give us a good income in the future.

The Quarterly: How do you feel about the pace of economic reform in Saudi Arabia? Could the oil bonanza be an excuse to slow things down?  Web exclusive, December 2006

Alwaleed: Although some observers assume that the brakes will be put on political reform because of the new oil wealth, I honestly don’t believe this to be the case. For sure, I would like some things to be quicker. First, bureaucracy needs to be cut. When the law establishing the Saudi Arabian General Investment Authority [SAGIA] was enacted, the idea was that it would encourage one-stop shopping for international investors, but I am not certain we are seeing that happen. There is also a need for more competitive tax laws. We have to compare ourselves not only with the rest of the region but with Eastern Europe, Latin America, and Africa. It is a very tough climate for inward investment, and we have to go further than lowering the capital gains tax to 20 percent, from 40 percent. Finally, there are the labor laws, which—although less important than the first two issues—are still not clear enough.

The Quarterly: From the outside, Saudi Arabia sometimes seems to struggle to turn reform ideas into action because, unlike, say, in Bahrain or Dubai, no one person or institution appears to be driving the agenda. Is that fair?

Alwaleed: In the years when he was crown prince and since he became king, a year ago, King Abdullah has initiated major political, social, and economic reforms. In general, Saudi Arabia is now looked at favorably by international investors. We see that in the many companies locating there. King Abdullah would like to move faster, but for him it’s like moving a big yacht—it takes time to turn it round.

The comparison between Saudi Arabia and the Gulf countries, whether it be Dubai, Abu Dhabi, or Bahrain, is not right. These are all city or emirate states, whereas Saudi Arabia is a giant country with a lot of different constituencies: the Islamic constituency, the political constituency, the royal family, the conservatives, and the Bedouin. On top of that we are at the vanguard of Islam, and we have the wider Muslim population of the world— 1.3 billion people—looking to us for leadership. To move in Saudi Arabia, with all these entrenched interests, is very difficult.

That’s not to say I’m a defender of the status quo. Far from it. I’m frustrated that women can’t drive—we’re the only country in the world where they can’t—and that while it’s legal to buy a videotape and see it on the small screen, we don’t have any cinemas. These may be cosmetic issues, but they’re important. Saudi Arabia’s global investor: An interview with Prince Alwaleed 

The Quarterly: Are you worried that some of your neighbors in the Gulf are moving ahead more quickly?

Alwaleed: Saudi Arabia is the anchor of the region, just as Germany, France, Italy, and the United Kingdom matter economically much more than Slovakia, Poland, or Greece in Europe. I don’t agree that we will be left behind, but we have to take lessons from what is happening now in, say, Dubai and Abu Dhabi. It is quite possible to be politically conservative and at the same time to encourage reform. In Saudi Arabia we have to unlink political conservatism from economic liberalism. There are still some hiccups in this respect.

The Quarterly: Is the balance changing between conservatives and modernizers?

Alwaleed: There is certainly a tension, but the king and the government are very much proreform, and they are moving ahead. I’m not saying they are not conservative too—they are. I am conservative, I am a Muslim, I pray five times a day, but I’m economically and socially very liberal. I don’t see that as a conflict. In my judgment the conservative role is shrinking, or at least not getting stronger, and the king is taking a strong stance against this group. What the US government is doing in Lebanon, in Palestine, and Iraq, though, is not advancing the liberal cause.

The Quarterly: Are events in those territories a cause of instability in the Gulf region? What are the main risks for businesses as you see them?

Alwaleed: I think the Gulf region has learned by now to deal on the economic front with the hot spots around us. While a big benefit comes from the price of oil, the investment boom at the moment is very real. Clearly, terrorism is a risk, but the risk is diminishing. In Saudi Arabia we were not geared up for antiterrorism at the time of 9/11—we were never a police state—so we have been on a learning curve on how to combat terrorism. I am not saying terrorists have been eradicated, but I would say to Western people that the matter is under control and we are weeding them out before acts are committed. The political situation in the region, meanwhile, is very stable. Q Gulf edition 2007 Prince Alwaleed interview  Web exclusive, December 2006 Exhibit 2 of 2 Glance: Alwaleed’s business empire includes extensive direct investments.

     

Extensive investments

Selected holdings of Prince Alwaleed, by location of company headquarters, 2006

Saudi Arabia Kingdom Holding (KHC) Rotana Video & Audio Visual Kingdom Hospital Kingdom Schools Kingdom City Kingdom Centre Al Azizia Commercial Investment National Industrialization (Tasnee) Savola Group Samba Financial

Middle East LBC Satellite (LBCSAT) Consulting Clinics Beirut Palestine Development & Investment Kuwait Invest Holding Kingdom Hotel Investments International Financial Advisors (IFA) Arab Palestinian Investment

Africa Kingdom Zephyr Africa Management Kingdom Agriculture & Development

Canada Four Seasons Hotels and Resorts Fairmont Raffles Hotels and Resorts

Europe Four Seasons Hotel George V, Paris Four Seasons, London Mövenpick Hotels and Resorts Disneyland, Paris Ballast Nedam Canary Wharf

United States priceline.com Citigroup News Corporation Saks Fifth Avenue Kodak amazon.com Time Warner Apple Computer ebay.com Ford Motor HP Pepsi P&G Motorola The Walt Disney Company Kingdom Hotel International

Source: Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud Saudi Arabia’s global investor: An interview with Prince Alwaleed 

The Quarterly: Turning to investment matters, do you think the pattern of global capital flows is changing? As an international investor, where do you see the most attractive opportunities in the next few years?

Alwaleed: There’s no doubt that after 9/11 and after the Dubai Ports [DP World] debacle, many investors from our region, including the government of Saudi Arabia and other governments in the Gulf, have been thinking of putting more of their money into Europe, India, China, and the Far East in general. At the end of the day, politics is mirrored in economics and finance; US attitudes toward the Arab and Islamic worlds and toward the Dubai Ports deal have had a negative effect, though not on me.

I can’t put numbers on any of this, but I have seen the trend for some time in the communications I have with other investors. When the Bank of China asked Kingdom Holding to be the Saudi investor in their bank, we received subscriptions for the first $2 billion within three days. Actually, we were oversubscribed.

At the same time, a lot of capital is being invested in the local economies of the Gulf. In the past several months, I have met five or six chairmen of US banks and investment banks that are lining up to come to Saudi Arabia, to open branches and serve the corporate sector and high-net- worth individuals. Studies say that in excess of $1 trillion could flow into the budgets of the Gulf economies in the next two years, even with oil at around $60 a barrel, and if there were to be a slowdown in the world economy the transfers would be huge.

The Quarterly: Apart from oil and property, what other industries do you see emerging in Saudi Arabia over the next five to ten years?

Alwaleed: At the end of the day, any country has to invest where it has an economic edge. During the first boom, Saudi Arabia announced that it was going to be self-sufficient in wheat. Yet we had none of the components that make agriculture feasible in a country—an abundance of water, cheap labor, or soil. We were importing labor, and we were digging wells to find water before exhausting them. That policy was a blunder. As a derivative of the oil industry, petrochemicals is one sector that is likely to be very  Web exclusive, December 2006

important. Banking and financial services too. We are planning to build an international financial center in Riyadh to compete with the rest of the Gulf region, though it remains to be seen if it will be successful. Islamic tourism is another potential area for expansion, though I don’t think we’re talking about tourism in the international sense.

The Quarterly: What changes have you been making—or do you intend to make—in the asset allocation of your own global portfolio?

Alwaleed: After 9/11 my investments in the United States actually grew, not just tactically, but strategically. Because of Kingdom’s restructuring ahead of our IPO, we have not really invested a lot recently in the Middle East region. But we intend to invest tens of millions of rials in Saudi Arabia in various sectors, including airlines, real estate in Jeddah and Riyadh, and banking. Elsewhere in the Gulf, we are opening Four Seasons properties in Bahrain and Abu Dhabi and will end up with ten hotels in the region in the next two to three years. But we will not expand in other areas for the sake of expanding—we want to consolidate what we have now.

The Quarterly: Can you tell us about your extensive media interests? Besides the investment angle, is this a way for you to change perceptions of Islam in the West and, indeed, of the West in the Middle East?

Alwaleed: That is a good question. My media investments are worth about $5 billion to $6 billion and are divided into Middle East assets, which are grouped around the Rotana brand and include six television channels and the Islamic channel Alresalah, magazines, radio stations, and a stake in LBC Satellite (LBCSAT); and international interests, which include Time Warner, Walt Disney, and News Corporation, in which we are the third- largest shareholder. In the second phase of going public, we may have another IPO for our media entities.

I must say adamantly that we do not try to influence the political direction of our international media interests. However, given our alliance and strong relationship with the owners of certain entities, like Mr. Murdoch’s Fox News, we try to build bridges and discuss things with them in a logical and pragmatic way. We only ask for the chance to be heard. We are not asking them to be pro-Iraq, pro-Palestine, or pro-Islam, but we are asking them to be neutral. Saudi Arabia’s global investor: An interview with Prince Alwaleed 

Most media outlets in the Arab world—at least the print and TV ones— reflect the wishes and the dreams of their governments. So we are not so worried about that.

The Quarterly: What else can be done to bridge the gap between Muslims and the West?

Alwaleed: Through Kingdom Foundation we have established a $20 million Islamic studies program at Harvard University and a $20 million Center for Muslim-Christian Understanding at Georgetown University, in addition to our funding at Exeter University in England. We have set up the only two American centers in the Middle East, at the American University of Beirut and the American University in Cairo, donating $5 million and $10 million, respectively. At the request of President Chirac we have supported the Islamic wing of the Louvre, in Paris, and I am discussing with universities in the United Kingdom the opening of new Islamic-Christian-Jewish centers.

We put our money—more than $100 million—where our mouth is, but it’s going to take a long time to have any effect.

The Quarterly: What can be done to change hard-line attitudes in the Middle East? Do you share the view that education reform has a key part to play in the next few years?

Alwaleed: Our curriculum in Saudi Arabia is old and obsolete—I say that openly—and we need to do more. In schools we need more science, more English at the elementary level, more mathematics, and more emphasis on the Internet, reflecting the world we live in now. Things are moving a bit in universities, but it’s still the same story. On the religious side, the Ministry of Islamic Affairs has issued a circular that promotes moderate preaching in mosques and takes out anything related to the so-called enhancing of terrorist acts against Judaism and Christianity.

The Quarterly: What misunderstandings between Saudi Arabia and the West most frustrate you?

Alwaleed: In the West, and specifically in the United States, any act of terrorism by a Muslim is blamed on the entire Muslim community. In response to a recent attempted terrorist plot in the United Kingdom, for 10 Web exclusive, December 2006

instance, the president of the United States talked of Islamic fascism. One or 2 people, or 20 people, or 100, or even 1,000 may fall into that category, but you can’t make a general statement about 1.3 billion people. I acknowledge that we have problems inside our Islamic community, but putting all Muslims into one pot and implying Islam is a terrorist religion adds fuel to the fire. This polarization between Islam and Christianity is very dangerous. There is very little difference between Islam, Christianity, and Judaism—they all believe in one God, one day of judgment, and a scripture that teaches about heaven. OK, one says the Bible is the word of God, the other that the Koran is the word of God. There are differences, but we are so close.

The Quarterly: A prominent Middle East editor said recently, “Not all Muslims are terrorists, but all terrorists are Muslim.” Is there a debate within Islam about the way things are going?

Alwaleed: I know that. Not all Muslims are terrorists; unfortunately, most terrorists in Russia, Thailand, the United Kingdom, and Spain are Muslim. I acknowledge that, but we have an issue with that internally in the Muslim community, and this is very dangerous talk for many people. In my view we need a major reform movement in the Arab and Islamic world to change perceptions. We are where the Catholic Church was when it controlled Europe, in the Middle Ages, and the political agenda succumbed to the religious agenda. But who is going to do it? I worry that things may have to get worse before we go in that direction, just as they got really nasty in Europe in the Middle Ages. That’s why I’m doing my best, with others, to bridge the gap, to think about the curriculum, and to take initiatives in the academic arena.

The Quarterly: Have you thought about doing something for Muslims in the region, equivalent to the Harvard and Georgetown foundations?

Alwaleed: It is very delicate to have something within the Islamic community. Right now we only have the Arab Thought Foundation, and while we are thinking of an opportunity ourselves, something new would have to be done by the government. We are seeing some indications, such as the recent conference in Mecca, that the debate is beginning, and it is important that the West should understand this. But we are living in history now. There is a beautiful Koranic verse that says God does not change people unless they change what they have inside them. In 100 years we will Saudi Arabia’s global investor: An interview with Prince Alwaleed 11

see what is happening—5 to 10 years is not enough. Look how long it took for Martin Luther to bring about change in Europe. It is not going to happen in the Middle East unless we have a strong reformer to take the lead.

The Quarterly: Kingdom Holding has been a pioneer in promoting women. Tell us about that, and what is happening generally in the country at the moment?

Alwaleed: I am Islamically conservative—I will do anything to help people, especially in the Islamic community—but I believe in the women’s cause, not just for their sake, but for the sake of the economy and for Saudi Arabia. You cannot have a population that is 50 percent female and have it account for only 4 or 5 percent of productivity. In my company I am trying to set an example. And what I do gets monitored because I have a relatively high profile. I have, for example, hired the first lady pilot, the first lady flight attendant, and the first lady jockey. And I use my media outlets to promote that. The jockey went to the Emirates, and all they talked about was her, even though she didn’t win. On television the pilot pointed out that she was not permitted to drive on the roads, but she could fly a plane and look down on everyone from the air.

Not many others are following at the moment, and a lot of Saudi women are frustrated as a result. But things are changing and will have to change more. Q

Kito de Boer is a director in McKinsey’s Dubai office. Copyright © 2006 McKinsey & Company. All rights reserved.