Valley of death? Tech giants are tangled in a princely web
The disappearance of a Saudi journalist sparks questions about the kingdom's deep financial ties with Silicon Valley
It was October 2016 when Masayoshi Son, the billionaire founder of Japanese technology giant SoftBank, sealed a deal with Saudi Arabia’s Crown Prince Mohammed bin Salman to create the world’s biggest buyout fund.
At the time, the formation of the new Saudi-backed $100bn investment arm was seen as a huge coup that was set to cause a fissure in the global tech playing field. Two years later, the disappearance of Jamal Khashoggi, a critic of the regime, at the Saudi consulate in Istanbul has raised fresh questions about SoftBank’s Saudi links – and the deep financial ties the kingdom now has with some of Silicon Valley’s biggest companies including Tesla, Uber and Arm Holdings, Britain’s biggest listed tech company.
Characteristic of Son, a man who quotes Yoda from the Star Wars films and has talked openly about 300-year business plans, the Vision Fund was always enigmatic. It was devised as a pot of money that would be used to invest in tech companies working to transform and shape the future – and to help transform Saudi Arabia’s economy for an era beyond oil.
“Over the next decade the SoftBank Vision Fund will be the biggest investor in the technology sector,” Son said at the time. “We will further accelerate the Information Revolution by contributing to its development.”
Armed with vast firepower from Saudi petrodollars, it was hard for technology companies to resist the onslaught as the Vision Fund embarked on a series of investments. And who could blame the companies it targeted. Son is a legendary investor, having taken early but successful bets on Alibaba and Yahoo. Since its launch, the Vision Fund, which operates out of London’s Mayfair, has attracted investment from the likes of Abu Dhabi’s Mubadala Investment Company and billions of dollars from American firms such as Apple, Qualcomm and Oracle.
Most notable, however, is its five-year $45bn pledge from the Public Investment Fund of Saudi Arabia, led by the 33-year-old crown prince, who harnessed the “strategic partnership” with SoftBank to great effect, casting himself as a reformer who could introduce innovation and technological flair to a kingdom whose economy remains overwhelmingly reliant on oil revenues.
In April, bin Salman embarked on an international tour to meet Silicon Valley heavyweights. Apple’s Tim Cook, Amazon’s Jeff Bezos and Google’s Sergey Brin were all on his checklist. This month he announced Saudi’s sovereign wealth fund would pump an additional $45bn into SoftBank’s Vision Fund. Next week, the kingdom’s Future Investment Initiative, a three-day programme hosted by bin Salman dubbed the “Davos in the Desert”, is due to take place. But its bold panels hoping to explore “a collective vision for the future” and “fundamental technological transformation” are at risk of falling apart.
Attendees were set to include Uber chief executive Dara Khosrowshahi, JP Morgan boss Jamie Dimon and Google Cloud head Diane Greene. A host of finance and technology companies were invited but most have withdrawn following the Khashoggi incident.
Two years since the launch of the Vision Fund, SoftBank’s ties with bin Salman’s PIF have come into hyperfocus. SoftBank’s shares have tumbled 7% in recent days. Son defies logic, with many of his quirks and decisions difficult to understand. But as it stands, SoftBank, the backer of technology companies from the US and India to the UK and China, still plans to attend. It will surely leave associates puzzled.
SoftBank declined to comment when contacted.
A grand strategy
Saudi Arabia’s Public Investment Fund (PIF) was established in 1971 to provide strategic financing for projects of significance for the nation. Industrial mining and infrastructure ventures would lead to megastructures such as desalination plants and power stations springing up. But over the years, the fund’s role has grown as it races to innovate and diversify Saudi Arabia’s economy, with the sovereign investment vehicle taking on new life after King Salman took the throne in 2015.
The prince took control of the fund from the finance ministry in March 2015 so it could be under his watchful eye at the Council of Economic and Development Affairs.
“The remit was the PIF ... needs to be the vehicle for the grand strategy of Saudi Arabia, which is ‘we go out into the world and we take positions in industries of the future’,” says David Butter, an associate fellow for the Middle East and North Africa programme at Chatham House. “You can imagine if you’re in the company of the great visionaries like Masayoshi Son, this is the way they talk.”
Advised by an army of Western advisers, a roadmap has been drawn up to steer Saudi Arabia’s economy away from oil by 2030, with technology – and particularly SoftBank – its global redeemer. According to Butter, bin Salman’s bets on technology could see the country successfully pivot away from oil as its primary driver.
The PIF has a 5% stake in Tesla – made well known in chief executive Elon Musk’s failed plan to take the electric car company private – and is involved in more experimental companies such as augmented reality start-up Magic Leap. But bin Salman’s history with critics should have cast early doubts on his true capacity for reform.
In 2017, Lebanese Prime Minister Saad Hariri was confined under house arrest and stripped of his cellphones upon a visit to Saudi Arabia, a move that required intervention by French President Emmanuel Macron. Also, hundreds of people were locked up in the Ritz-Carlton hotel in Riyadh in an alleged purge of dissenters.
In 2015, Saudi Arabia intervened in Yemen, with bin Salman leading an air strike campaign. “When things have gone too far, there is a reaction. If you look at what happened, it’s pretty gruesome,” says Butter. “There is a question of if we just slap him on the wrists – this splendid guy who’s doing all these wonderful things who’s going to reform Saudi Arabia – is he actually a little bit dangerous?”
There is a very real question about what happens next. It is still unknown whether Son plans to attend the event in Riyadh next week, or whether the conference will happen at all. The crown prince has hedged his bets on the powers that be in the tech sphere coming to his aid. But rejections of the Future Investment Initiative by global tech leaders in light of the Khashoggi mystery are sure to signal plummeting confidence in bin Salman.
“He set up advisory boards for future investments with all of these great big names ... but if that’s no longer the case then that is quite a dent in his credibility,” says Butter.
There is every indication from bin Salman that his plans to march Saudi Arabia’s economy forward are just getting started, with plans for Neom, a technologically savvy city, being drawn up for the north west. SoftBank could well stay on for the ride.
– © Telegraph Media Group Limited (2018)