Saudi Arabia sets its sights on Britain’s military jewel to flex its manufacturing muscle

Oil pumps have long dotted Saudi Arabia’s desert landscape, but they could soon be joined by a raft of factories. 

Crown Prince Mohammed bin Salman wants to turn the country into the Gulf’s manufacturing powerhouse as it moves away from oil and gas. 

The heir to Saudi Arabia’s $2 trillion throne wants to increase industrial exports to $148bn (£116bn) by 2030, tripling factory numbers to 36,000 by 2035 which will churn out everything from warships to cars. 

So far, he has poured investment into Lucid, a US-based electric car maker which plans to build a factory in the country, while also striking a planned joint venture with Navantia, the Spanish state-owned builder of naval vessels.

Now, he has his sights set on another lucrative, albeit expensive and notoriously complex market – fighter jets.

It was announced last week that the controversial ruler is set to visit the UK in autumn, which came after a flurry of speculation around Saudi Arabia joining one of Britain’s largest military projects.

Downing Street reportedly wants to make the Kingdom part of the £72bn Tempest programme, initially, an Anglo-Italian effort which Japan joined last year.

Saudi’s deep pockets will be welcome, but industrial insiders are concerned about the nation’s technological offering, as well as its political baggage.

The Tempest project aims to bring a sixth-generation fighter jet into service by the middle of the next decade, replacing the Eurofighter Typhoon.

Notably, Saudi reportedly wants to become a formal partner in the programme rather than simply buying the finished product as a customer, as it has with the Typhoon. 

Any partnership will need large capital investment, but it will secure Saudi new local jobs and a hand in designing Tempest, delivering the technological expertise the ruler craves.

However, speculation around the state’s involvement, alongside the planned visit, has reignited concerns over the Kingdom’s human rights record and its approach to gay rights.

Homosexuality is still a criminal offence punishable by death, while the country is also involved in a years-long war in Yemen.

It will also be Mohammed bin Salman’s (MBS) first UK visit since the murder of Washington Post journalist Jamal Khashoggi, who was killed and dismembered on the orders of the Crown Prince, according to analysis by the CIA. 

He has denied any involvement.

From a financial perspective, the huge cost of building ever more complex military hardware makes the country an attractive bet with its wealth and keen stance. 

But bringing on such a controversial partner has already caused reported discomfort among Japanese officials.

Another question raised by insiders is what the country can add in terms of high-end jet design, with only a handful of countries in the world capable of building supersonic aircraft.

Under MBS, however, Saudi Arabia has supercharged its investment and ambitions in industry, technology and defence as part of the Vision 2030 programme, as the ruler aims to wean the country off oil.

“Through the national industrial strategy and in partnership with the private sector, the Kingdom will become a leading industrial powerhouse that contributes to securing global supply chains and exports high-tech products to the world,” MBS said last year.

The country already has a manufacturing champion in Saudi Arabia’s Basic Industries Corporation, known as SABIC.

With prominence in the chemical sector, it also makes car parts, cosmetics ingredients and metals, bringing in $53bn in sales last year.

The country is also liberalising at pace, says Roxana Mohammadian-Molina, a former investment banker and finance technology entrepreneur, who has done business in Saudi Arabia.

“When you go there it is completely unexpected compared to the preconceived idea that people have,” she said. “It is very open. I have travelled there alone many times, you really feel very safe.

“They are very open to doing business. They are really keen to partner with other countries, particularly the UK universities that can attract talent.”

She pointed to the recent success of Tamara, a payment platform based in Riyadh which picked up a $150m loan from Goldman Sachs in March.

“Ambitions are very high. I think this is a very long process, you’re not going to become a tech hub overnight,” she says. “But the thing is in Saudi Arabia, things move very quickly.”

Liberalisation is among the changes taking place in the country, she added. 

“You have big cities like Riyadh that are very advanced and progressive and have a young population, but you also have smaller cities and towns that are still very traditional, it is a fine balance for those interests.”

Saudi Arabia is likely to employ a broad spread of investments before focusing on areas it can excel, said Ayham Kamel, head of Eurasia Group’s Middle East and North Africa research team.

“I think it requires them to have experimented with different sectors for a while before they double down,” he says. “It’s really a wide net. I would expect it to be more focused in the future, but we are not there yet.”

The country’s investments today range from stakes in Nintendo, Uber and Boeing, to Newcastle United FC and its controversial takeover of Golf’s PGA tour through its LIV Golf rival.

Saudi also wants to become a leader in artificial intelligence and is hoovering up the specialist computer chips necessary to develop an AI economy, according to recent reports

Mr Kamel says Riyadh is “ambitious to get into the high-tech industry and migrate part of the production in Saudi Arabia”, he adds.

Riyadh’s plan to increase its defence industrial knowledge is already underway. 

In December, the Kingdom signed its deal with Spanish shipbuilder Navatia to form a joint venture to build warships. The final details of the deal will be ironed out next year, but the agreement allows for all of the construction to be done in Saudi shipyards.

The deal allowed the country to “localise military industry” defence minister Prince Khaled bin Salman said at the time.

UK investment chiefs are now keen to snap up more of Saudi’s income rather than see it go to rivals like Spain.

One City veteran who has experience investing in the country expressed frustration about the poor perception of Saudi Arabia in press coverage. 

He said: “Saudi Arabia is changing for the good at a stunning speed and to be honest the parts of the press coverage here have been almost profligate in their jaundiced, biased reporting.

“Saudi is far more than Khashoggi. And British business is considered good business. Saudi is the UK’s primary trading partner in the Middle East and the UK is Saudi Arabia’s closest European ally.”

The country was the UK’s 10th-biggest export customer for services last year and Britain enjoys a £7bn trading surplus with Saudi.

But in the eyes of outside investors and potential customers, its human rights record must improve. The country executed 196 people last year, the highest number since Amnesty International started recording the numbers 30 years ago.

Polly Truscott, Amnesty International UK’s foreign policy adviser, said MBS “must be properly held to account for abuses by Saudi officials, including Khashoggi’s murder, the widespread use of torture in Saudi jails and the indiscriminate bombing of civilians in Yemen.”