Until recently, Dubai was the right place for Middle Eastern startups like Golden Scent
Ronny Froehlich's voice echoed through the empty rooms as he walked through his company's new office in Riyadh.
The German entrepreneur had just set up the Internet, but was already imagining the space as the busy future headquarters of Golden Scent, a Dubai-based e-commerce company he founded five years ago with a Saudi friend. The next step is to move employees from Dubai and hire more people in the Saudi capital.
"If you want to be big in the Middle East, you have to be in Saudi Arabia," he said. "Maybe we'll be here in six months and it's full."
The growing number of startups in Riyadh reflects an undeclared competition between two Gulf allies, which will intensify this year and realign the economy of a region that is trying to reduce its dependence on oil.
Dubai has put its economic recovery on the 2020 World's Fair, a six-month presentation of global innovations that are expected to attract around 25 million visitors and invest billions of dollars in infrastructure. It's also a big year for Saudi Arabia, which will chair the group of 20 major economies and is planning a series of events to drive its own breakneck transformation.
The economic slowdown DubaiDubai, United Arab Emirates. Photographer: Christopher Pike / Bloomberg
Until recently, Dubai was the place to go for Middle Eastern startups like Golden Scent, which sell perfume and beauty products. The dazzling city in the United Arab Emirates has built its reputation as a freewheeling business center in a bureaucratic region.
Even companies that focused on the much larger Saudi market would settle in Dubai, deterred by restrictive investment rules or the religious police that roamed the streets and made women hide.
But when Crown Prince Mohammed bin Salman reshapes Saudi Arabia, this begins to change. In just a few years, the Islamic kingdom has opened to tourists for the first time, drastically loosening restrictions on women, allowing cinemas, and courting visitors with a parade of world-class chefs, concerts, and sports spectacles.
There are even rumors that a longstanding ban on alcohol could be eased as Saudi Arabia tries to regain the business it has lost to other Gulf states over the years.
Five years ago, Abdullah Altamami, a Saudi venture capitalist and chairman of the HyperPay online payment system, had difficulty starting a business in his home country. Today he sees a sleeping giant waking up.
Abdullah Altamami in his office in Riyadh on February 11th. Photographer: Maya Anwar Siddiqui / Bloomberg
"I am now not investing regionally in a company that is not focused on Saudi Arabia," said the 34-year-old.
Nobody denies that there is still a long way to go. The transformation of Saudi Arabia coincided with action against political disagreements – also little tolerated in the United States. It was affected in the eyes of some investors by a foreign policy that was more aggressive and unpredictable under Prince Mohammed. The murder of Washington Post columnist Jamal Khashoggi in 2018 was a reputational blow that Saudi Arabia has yet to overcome.
And the daily difficulties remain. Foreign workers in Saudi Arabia have to apply for "exit visas" from employers in order to leave the country for a weekend. While the restrictions on fun have eased, there is no comparison to Dubai, and the modest dress code still scares off many women. Generous packages are therefore required to attract talent.
But people are coming and it's not just Saudi entrepreneurs who are moving home.
Last year, a Norwegian company planned to set up a $ 90 million salmon farm in the United States. decided to start it in Saudi Arabia instead. Emirates residents now consume much more salmon, but Saudi Arabia offers future growth as the government pushes fish as a healthy choice.
Michael Page, an international employment agency, has seen an increase in executives, particularly in the real estate industry, looking to move as Saudi Arabia unveils projects for whole new cities that overshadow lively developments like the Burj Khalifa skyscraper Dubai built its name.
"In the past 18 months, many top real estate executives from around the world have tried to participate in the Giga projects," said Tom Watson, partner at Michael Page Middle East.
That is the catch on the size of Dubai-Saudi Arabia. With a population of 34 million, its population is more than three times that of the United States. It is by far the largest market in the Gulf. Even if Prince Mohammed only succeeds in realizing part of his vision of transforming the country, this will have an impact on neighboring countries, which have long benefited from Saudi Arabia's closed shop.
The island of Bahrain, which is connected to the Gulf Coast of Saudi Arabia by a bridge, has served as a weekend destination for Saudis and foreign executives who want to see a film or concert for decades. With everything that is now available at home, Bahrain's economy could also feel the crisis. In the United Arab Emirates, weak oil prices and a slump in real estate have prompted authorities to rethink residence regulations to encourage the large foreign population to weather the difficult times.
Saudi Arabia was among the top ten most improved countries in the World Bank's Doing Business report for 2020 because it was easier to start a business, get permits, power and credit, and enforce contracts. The U.A.E. still leads the region, but the gap is narrowing.
"The opening of Saudi Arabia in Dubai is definitely nervous," said Steffen Hertog, golf specialist and associate professor at the London School of Economics. "I don't think Dubai will lose its status as the region's main hub once it is that far ahead. & # 39; & # 39;
"However, Saudi Arabia-based companies are at least more likely to move to Saudi Arabia because social life and bureaucracy will become easier there," he added.
This is the case for Malik Al-Shehab, the Saudi co-founder of Golden Scent. As early as 2014, he and Froehlich tried to found their company in the kingdom, which they always regarded as their home market. However, it was difficult to find Saudi investors, and at that time Saudi Arabia had strict restrictions on foreign investment. Now these rules have changed, it made sense to come home, Shehab said.
The social measures have also helped. Shehab is now preparing to move his family from Dubai to Riyadh.
Early on, Prince Mohammed viewed Dubai as a city built on the basis of Saudi Arabia's shortcomings and home to Saudi companies that were driven abroad. He imagined his futuristic project "Neom", a $ 500 billion city that was built from scratch and became a global center that was larger than Dubai.
In an interview in 2017, however, the crown prince refused to speak of rivalry. "I don't think Hong Kong hurt Singapore or Singapore Hong Kong," he said. "They create good demand around one another."
Indeed, many executives say that the rise of a new Saudi Arabia and the new markets it would open up could ultimately strengthen the tiny states on the Gulf coast. This is the line of the Dubai officials who also saw the Saudi transformation as a win-win situation.
"This is not a story of either / or, it is a story of a combination," said Fadi Ghandour, managing director of Dubai-based Middle East venture capital firm Wamda Capital. "The United States and Saudi Arabia complement each other."
Happy stay at the Golden Scent in Dubai. But he is also looking for a place in Riyadh.
(Except for the headline, this story was not edited by NDTV staff and published from a syndicated feed.)
