Saudi Arabia and SoftBank: How MBS's $35bn gamble on future tech backfired

SoftBank’s Vision Fund was to be the vehicle for the kingdom's economic transformation. With billions wiped off its value, has Riyadh sunk its money into a hole in the desert?

 

Middle East Eye: When Saudi Arabia’s Public Investment Fund was brought under the direct control of Crown Prince Mohammed bin Salman in 2015, and the fund’s programme was announced in 2017, it was under a mandate to invest at home and abroad to be a financial enabler of the kingdom's economic diversification efforts. 

 

One of its earliest and biggest splashes was in Tokyo-based SoftBank’s $100bn Vision Fund, which invested in high-profile technology companies and, in keeping with its name, aimed to bankroll futuristic developments in artificial intelligence, robotics and gene-sequencing.

Saudi Arabia, along with Abu Dhabi’s sovereign wealth fund, Mubadala, contributed almost two-thirds of the fund’s capital, with PIF investing some $35bn.

The investment with the Japanese conglomerate seemed a perfect match for the kingdom’s Vision 2030, outlined in 2016, with SoftBank making a commitment to enable diversification efforts through involvement in technology, renewable energy and in MBS’s $500bn Neom mega-city project on the Red Sea coast.
SoftBank’s links to Saudi and MBS, by then the kingdom’s crown prince, came under scrutiny in October 2018 following the murder of journalist Jamal Khashoggi, but it largely managed to ride out the negative publicity.

Just a year ago, the media gushed about SoftBank being a major disruptor on the start-up and venture capital tech scene, while a second Vision Fund was announced. Riyadh was initially keen on getting involved but backed away last year as problems emerged with the first fund, according to Rory Fyfe, managing director of Mena Advisors, a regional research and consultancy company in London.

In late 2019, financial issues started to surface at US workspace company WeWork, in which SoftBank had invested $18.5bn, as well as other investments. The year ended for SoftBank with a $13bn loss.

Then in 2020, problems started to mount across its portfolio as the economic fallout of the Covid-19 pandemic spread. Companies in which it had invested, such as in Uber, where it had put in $9.3bn, saw their share prices drop, along with scores of other firms, wiping out a further $18bn for the Vision Fund in the first three months of the year.

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Coronavirus: Turkey and Egypt garment manufacturers squeezed by global brands

As the world went into lockdown mode, manufacturers found major global brands and retailers had gone 'incommunicado'

 

 

 

 'Made in Egypt' - brands have left manufacturers in the lurch after cancelling orders (Paul Cochrane)

 

 

 

Middle East Eye: The Turkish and Egyptian garment manufacturing sectors employ millions of people, but big brands have left them in the lurch with cancelled orders and millions of completed items not dispatched in the wake of the coronavirus pandemic.

Towards the end of 2019, the Egyptian government and export associations hosted a sourcing event in Cairo, called Destination Africa, to bring together buyers from the West and manufacturers in Egypt and from around the continent.

Such trade events are held around the world at convention centres or high-end hotels, featuring gala dinners and spectacles to woo buyers, and seminars that discuss sustainability, modernising the supply chain and the future of the $2.7tn fashion industry.

After several rough years in the wake of the 2011 uprising, Egyptian manufacturers were keen to drum up business, increase the $3bn in garment and textile exports in 2019 and double the number of employees in the industry to two million by 2025.

Over in Turkey, the world’s fifth largest garment and textile exporter had hosted similar events throughout the year to tout its manufacturing prowess and increase its $26bn in exports.

Such outlays were paying off, with solid order books for 2020 and exports on the rise in the first few months of the year.

Turkey and Egypt were also riding high on buyers increasingly diversifying their sourcing from China due to the US-China trade war and wanting closer proximity to the European market.

Cancelled until further notice

 

Up until March, some one million Egyptian and 1.5 million Turkish workers were busy spinning, dying, cutting and sewing garments for the summer season, which accounts for around half of annual sales.

Then Covid-19 started to sweep across Europe and North America which, along with Japan, account for around 80 percent of global fashion consumption.
Countries went into lockdown mode, and to the manufacturers’ surprise, major brands and retailers went “incommunicado”, said a Turkish manufacturer who wanted anonymity over concerns about future business relationships with leading brands.

“At first there was no communication at all from corporate buyers," he told Middle East Eye by phone from Istanbul.

"They were not saying, we will pay you late, or we’ll take the goods at some point. There was complete silence, even about goods delivered weeks or months before.”

While 80 percent of Turkish factories closed in the first several weeks of the lockdown - around 60 percent are open today - the sector was left with over $2.5bn in ordered inventory and a further $1bn in orders in production, or already produced, that were cancelled until further notice, said Hadi Karasu, President of the Turkish Clothing Manufacturers’ Association (TGSD).

“Factories were forced to cover the fabric and accessories they bought from brand-designated raw material suppliers," Karasu told MEE.

"These manufacturers operate at single-digit margins while they are being asked to keep the materials for an unforeseeable future.

"Around 50 to 60 percent of a product’s cost is raw material.”

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