Saudi Arabia beats targets in energy, tourism, jobs for women

Saudi Arabia’s efforts to jumpstart its alternative energy and tourism industries while bringing more women into the labor market are running ahead of targets, though the kingdom still faces challenges to its aspirations for becoming a global financial center.

Citing the annual report on Vision 2030, the blueprint that was presented seven years ago to guide a dramatic revamping of Saudi society, officials said the improved benchmarks were due to world-leading economic growth in 2022. That growth came from increased oil revenue and bolstered the kingdom’s investment funds.

“Despite the global economic hardships, the country’s economy is growing at an unprecedented rate, and its GDP has risen to a higher-than-expected level,” Mohammed AlQahtani, CEO of government-owned Saudi Arabia Holding Co. said in a LinkedIn post. He said the government is “on track to surpass its Vision 2030 objectives.”

Among the markers outlined in Vision 2030, the annual report said that Saudi Arabia’s 25% share of non-oil exports in non-oil GDP beat its target by 6.3%. Excerpts from the Arabic-language report were posted Friday on the Vision 2030 website, which maps out economic and social milestones for the kingdom’s development over the next seven years.

Tourism revenue grew by 121% last year over 2021 as the country drew 16.5 million foreign visitors. Saudi Arabia introduced an online tourist visa in 2019, making it easier to enter the kingdom. The report said 909,000 direct jobs were created in the tourism sector, exceeding the 2022 target of 617,000.

The participation of women in the labor market doubled from 2016 and reached 34.5% last year, beating the Vision 2030 target for 2022 of 22.8%.

Bringing more women into the workforce and allowing them for the first time to drive were among the dramatic reforms introduced by Crown Prince Mohammed bin Salman, when he unveiled the Vision 2030 plan in 2016.

Writing in the report, the prince, who was appointed prime minister last year by his father, King Salman, said the numbers were promising but must improve. “Our country deserves more than what has been achieved,” he wrote.

Saudi Arabia led the G20 group of the world’s largest economies last year with 8.7% growth in GDP, followed by India at 6.7%.

Middle East risk manager Ghanem Nuseibeh said it was impressive that the Saudis exceeded the “very ambitious” goals set in Vision 2030, while noting the “low bar” from which tourism and the status of women started when the document was written.

“The challenge moving forward will become more difficult,” Nuseibeh, founder of London-based Cornerstone Global Associates, told The Circuit. “This is because moving forward would require upgrading the infrastructure … and convincing foreigners and expatriates to move to Saudi, which is also not going to be easy or cheap.”

Saudi Arabia issued a notice in 2019 requiring multinational companies to locate their regional headquarters in the kingdom in order to sell to the public sector, effective in 2024. Many expatriates are reluctant to move to the country because of its conservative Islamic lifestyle, which prohibits alcohol consumption and has a legacy of restrictions for women, even though the driving ban and dress requirements have been liberalized.

Saudi Aramco, the kingdom’s national oil company, posted 2022 net income of $161 billion, which was the highest profit of any publicly traded company in the world. Its chairman, Yasir Al-Rumayyan, who is also chairman of Saudi Arabia’s $680 billion Public Investment Fund, said at a March conference in Miami, Fla., that he expects the sovereign wealth fund to grow to $1 trillion in assets by 2025 and at least $2 trillion by 2030.

“Will expats swap Dubai for Riyadh? That’s the big question,” Nuseibeh said. “Saudi Arabia can do it, they have the right leadership to implement it and they have the ingredients to make it happen. But turning those ingredients into reality will take time.”

Israeli tech startups gird for long-term decline in venture funding

TEL AVIV, Israel — Israeli technology companies, the country’s economic engine and branding platform for three decades, are scraping for cash and trying to protect what they’ve raised by moving funds abroad.

While the government has temporarily paused its proposed judicial overhaul that led to a downgrade by Moody’s Investors Service of Israel’s economic outlook, startup founders are making contingency plans that include transferring key employee teams to other countries and shifting money from domestic accounts.

The concerns were reflected in a survey published this month by a nonprofit organization that has spent years cheerleading for Israel’s tech industry and promoting its potential value to new markets such as the United Arab Emirates, Bahrain and Morocco. Banking data from the first quarter of 2023 showed a 71% decline in startup investment from the same period last year.

“To move your capital outside Israel takes a phone call,” Avi Hasson, CEO of Start-Up Nation Central, which commissioned the survey, told The Circuit. “But if you’re moving projects or people outside of Israel, that’s a whole different ball game, both in the investment and effort needed to do it as well as the investment and effort needed to bring it back.”

The fact that some 90% of investment in Israeli tech startups comes from foreign sources indicates the pressure under which the company executives operate, said Hasson, formerly Israel’s chief scientist at the Ministry of Economy.

“The foreign capital is neither Zionist nor anti-Zionist,” he said. “It came to Israel based on the unique ideas, talent and ecosystem that are here and it will equally move out if it doesn’t feel that it has the conditions to generate exceptional returns.”

In its April 15 statement, Moody’s said downgrading the credit outlook “reflects a deterioration of Israel’s governance” under the coalition led by Prime Minister Benjamin Netanyahu that won election in November. “While mass protests have led the government to pause the legislation and seek dialogue with the opposition, the manner in which the government has attempted to implement a wide-ranging reform without seeking broad consensus points to a weakening of institutional strength and policy predictability,” Moody’s said.

Netanyahu, on the other hand, has sought to provide assurances that his government won’t harm the investment climate, pointing to his record as an economic reformer whose policies played a large role in building Israel’s reputation as a technology powerhouse. He minimizes the impact on the economy of the mass street protests against his proposed changes to the court system.

“Look, here’s what I think,” Netanyahu said in an April 19 interview with CNBC. “I think the future… belongs to those who innovate. I think the momentary fluff, the momentary dust that is in the air is just that — dust. The fundamentals of the Israeli economy are very powerful.”

Based on 1,142 responses from companies, investment firms and multinational corporations, the survey, published on April 13, demonstrated how operating abroad is increasingly seen as an option. It was conducted in the last week of March before Moody’s changed its outlook from “positive” to “stable” and warned that its credit rating may be cut if government policy becomes more unpredictable.

Among the findings, 46% of companies that responded are planning to move cash reserves outside of Israel, and 58% of those plan to transfer more than 50% of their money. About a quarter of the companies are considering plans to relocate employees out of Israel, and 42% are looking into changing their registration to another country.

Regarding current sentiment, 84% of investors and 80% of startups said they believe the judicial changes will have a negative effect on them and their portfolio companies. Similarly, 84% of investors expect the changes to have a negative effect on the ability of companies to raise capital from abroad, and  77% of companies believe it will be difficult to raise capital from foreign investors. Some  65% of the multinational companies polled expect a negative impact on their interest in piloting, buying or commercializing Israeli technology products.

Hasson expressed satisfaction with the pause in government efforts to push its judicial plan through the Knesset, Israel’s parliament, and said he hopes negotiations underway with opposition leaders will lead to a compromise that doesn’t deter investment.

“People are still developing products and selling them and so on,” he said. “I think the recovery capabilities of the ecosystem are really, really strong.”

Weekly Circuit: GA scouts Israeli startups + Trendy urban hotels

👋 Good Monday morning in the Middle East!

With the new year taking shape, Saudi Arabia is asserting itself not just as the region’s biggest market, but as likely to overtake India as the world’s fastest-growing economy with a GDP increase projected at 7.6%. Fortified by oil prices that reached a 14-year peak, the kingdom’s sovereign wealth fund extended its spending spree in 2022. Besides pouring money into Crown Prince Mohammed bin Salman’s $500 billion Neom megaproject, the Public Investment Fund bankrolled the new LIV golf tour, which poached Phil Mickelson and other star players from the PGA. Now the $600 billion fund is reportedly considering the purchase of pro wrestling’s WWE franchise and has set a target to more than triple its assets under management by 2030 to $2 trillion. The fund’s big spending has deepened a power struggle between the crown prince, who is also prime minister, and government financial professionals, the Wall Street Journal found.

Across the Red Sea, Israel’s vaunted startup ecosystem is struggling to recover from the world economic slowdown that crimped venture capital funding last year and led to a widening stream of layoffs. Global venture funding in 2022 declined 35% to $445 billion from the $681 billion invested in 2021, according to data compiled by Crunchbase. Funding for Israeli startups sank by 45% to $13.9 billion. Right out of the gate in 2023, Israeli video cloud platform Kaltura, which trades on Nasdaq, announced that it plans to lay off 11% of its workforce.

Among the bright spots for Israel has been Mobileye Global, the Intel-controlled maker of self-driving car systems that sold shares in an IPO last year and has seen its market value rise to $25 billion. Appearing in Las Vegas at the mammoth annual CES conference last week, Mobileye CEO Amnon Shashua said the company is confident that sticking to its strategy of pioneering autonomous vehicle technology will yield consistent profit growth without selling cars or managing fleets. “Mobileye has no intention of becoming a robotaxi operator,” Shashua said.

Michael Granoff, founder of the Tel Aviv-based Maniv Mobility venture capital fund, was also at the consumer electronics show, where he called attention to one of his portfolio companies, Harbinger Motors, which recently unveiled the first ground-up electric vehicle system for medium-duty trucks. Speaking to Jewish Insider, Granoff said he looks forward each year to the party thrown by the “Autonocast” podcast. “It’s basically prom for a mobility industry geek,” he said.

Welcome to the 2023 edition of The Weekly Circuit, where we cover the Middle East through a business and cultural lens. Read on for the stories, deals and players at the top of the news. Please send comments and story tips to [email protected].

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GROWTH CAPITAL

General Atlantic doles out $1 billion to Israeli startups 

When Max August was a Harvard undergraduate, he scraped data from 8,000 startups and 11,000 of their founders to complete a senior thesis on Israel’s fast-maturing tech scene that was supervised by former U.S. Treasury Secretary Lawrence Summers. Three years later, many of those same Israeli entrepreneurs are vying for the attention of the young investor, who has helped distribute close to $1 billion on behalf of General Atlantic, one of the world’s biggest private equity funds, Shoshanna Solomon reports for The Circuit. Most prominent of nine companies in the firm’s Israel portfolio is Mobileye Global, the Intel-controlled maker of self-driving technology that held an IPO in October and is currently valued at about $25 billion.

Bigger visions: After starting as an intern at the Park Avenue firm, August was sent to Tel Aviv as an associate last year to scout investment opportunities, opening an office in the 61-story Azrieli Sarona Tower where he gazes over the Mediterranean coast. Alongside Alex Crisses, a managing director from New York who shuttles to Israel to meet with strong prospects, General Atlantic last month recruited Yoram Teitz, who was managing partner in Israel at accounting powerhouse EY, as a senior adviser. “Israel is moving from a venture-capital-only market to a later-stage market, where you’ll find bigger companies [and] entrepreneurs who have bigger visions,” Crisses told The Circuit in an interview. “As a global investor, we wanted to pick the locations that over the next five years will have the most innovative technology. And we really do believe that Israel will be that.”

Global presence: With $73 billion in assets under management and 16 global offices from London to Shanghai, General Atlantic came late to the game in Israel, a tiny Middle Eastern country that has spawned the greatest number of technology startups per capita in the world. Termed a growth equity firm, General Atlantic held back until it saw a growing pattern of Israeli companies raising $100 million and more in a funding round, an indicator of business strength. Similar criteria have drawn other global investment leaders including Blackstone, SoftBank and Koch Disruptive Technologies. According to the Tel Aviv-based IVC Research Center, the number of Israeli companies valued at over $1 billion – dubbed “unicorns” in Silicon Valley – rose from two in 2018 to 42 in 2021. And if Israel was once known primarily for being a powerhouse in cybersecurity and software, he said General Atlantic is looking at the next generation of entrepreneurs in fields ranging from financial services and healthcare to climate technologies.

Mobileye investor: In 2020, the firm led a $210 million fundraising round for AppsFlyer, which uses data analytics to help marketing firms grow. The firm led two $150 million rounds for HiBob, which assists midsized companies in managing human resources. In 2021, it co-led a $543 million funding round for Transmit Security, which authenticates users without employing passwords. Mobileye, which Intel bought for $15.3 billion in 2017, is a model for what brought General Atlantic to Israel. It’s “really defining the next chapter of the maturation of Israeli technology,” August said. The firm agreed to buy $100 million of Mobileye shares as part of the IPO. 

Arab market: General Atlantic also sees opportunity in Israel’s growing connections with Arab countries, paved by the 2020 Abraham Accords that were signed with the United Arab Emirates, Bahrain, Sudan and Morocco. “Israel has amazing technology to export,” Crisses said, making it “a real beacon in the area.” General Atlantic launched its BeyondNetZero fund last month, allocating $3.5 billion to support entrepreneurs who deliver innovative environmental solutions while creating durable growth businesses. “We’re deeply focused on climate in Israel,” August said.

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PLACE IN THE SUN

Tel Aviv white elephant is transformed into trendy, affordable beach hotel

From the outside, the Tel Aviv Textile and Fashion Center looks like a standard Israeli office building. Built starting in the 1960s in the era’s Brutalist architectural style, the center boasts six high-rise towers and a common space with a sprinkling of cheap stores and workman’s cafés that serve basic Israeli fare. Architecturally daring for its day, this hulking whitewashed structure – one of the most iconic landmarks along the city’s coastline – has long been in decline both as an industry hub and an office option for emerging companies. Much of the expansive, concrete complex overlooking the Tel Aviv beach now stands peeling and neglected. Cue the arrival of the Brown Hotel Group. One of the country’s fastest-growing hotel chains, its motif is setting up shop in unlikely places and in the process regenerating and reimagining some of the more down-and-out locations as sustainable and affordable tourist hubs, Ruth Marks Eglash reports for The Circuit.

Brutalist boutique: Among its latest offering is Brut – a play on Brutalist – a 222-room boutique hotel that sits interspersed throughout various floors in Gaon House, one of the Textile and Fashion Center’s towers. The hotel opened last April with just 182 rooms, but as business and companies ended their leases in the crumbling building, Brown took over the space, renovating and opening more rooms and facilities as travelers began to return to Israel amid relaxed COVID-19 restrictions.

Affordable tourism: It’s part of the hotel operator’s urban renewal philosophy, Shahaf Segal, PR manager and spokeswoman for the Brown Hotel Group, explained to The Circuit. She listed a similar process for the group’s 13 other hotels dotted around the city (there are also now Brown Hotels in Jerusalem, Eilat and in Athens, Greece), as well as some now under construction in other iconic landmarks, including one slated to open in the historic former Histadrut worker’s union building. Each hotel, some with just a handful of rooms and others more expansive like Brut, has a slightly different vibe, but the overall goal is to convert existing buildings, as well as the areas around them, into reasonably priced lodgings and tourist centers in expensive cities.

Eclectic mix: The intriguing and intricate process of renewal and replacement can be seen throughout the hotel. Brut’s rooms now occupy the first, second, third, seventh and 14th floors, and are still interspersed with a medical clinic, a car rental office, insurance brokers and accountants. And there is a range of different room styles, spanning from a basic “urban room” to an executive suite with a breathtaking sea view to a two-room family suite replete with a kitchenette. All the rooms are simple in design and practical, and all incorporate unique elements of the building’s original architecture with many of the signature features of a Brown Hotel: wire metal shelving, ecologically friendly soaps and a coffee maker.

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