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Saudi Arabia draws on British expertise in quest to become next Dubai

Saudi Arabia is trying to transform into a global destination using vast oil funds
Saudi Arabia is trying to transform into a global destination using its vast oil funds - xavierarnau/E+

Sir Rocco Forte is planning a trip to Saudi Arabia next year to scout for hotel locations.

The tycoon, whose £1.2bn group includes Brown’s Hotel in Mayfair and the Balmoral Hotel in Edinburgh, is eyeing a Middle Eastern expansion after inking a deal with Saudi Arabia’s sovereign wealth fund.

Under the tie-up, the Public Investment Fund (PIF) is taking a 49pc stake in Rocco Forte Hotels, with Sir Rocco and his sister Olga Polizzi retaining the other 51pc.

The deal does not require any new hotels to be opened in Saudi Arabia itself.

But doing so may end up being a prudent investment: the kingdom is seeking to wean itself off a dependence on fossil fuels by morphing into a global tourist destination instead.

“Although I have no obligation to do anything there, I’m going out to have a really good look around,” the 78-year-old says.

Sir Rocco says Saudi Arabia will have to reconsider it’s alcohol ban to expand tourism
Sir Rocco says Saudi Arabia will have to reconsider it’s alcohol ban to expand tourism - Andrew Crowley

With net zero looming, Saudi Arabia’s de facto ruler Crown Prince Mohammed bin Salman, who is known as “MBS”, knows that Saudi Arabia must prepare for a world after oil.

The Crown Prince has drawn up an official plan called Vision 2030 that sketches out plans to build a dizzying array of schemes across the country, which only opened to general tourism in 2019.

The Gulf state is now racing to build the infrastructure and attractions needed to draw visitors.

PIF’s investment in Sir Rocco’s group comes against this backdrop and is just one example of Saudi cash washing up on Britain’s shores as the Kingdom seeks to diversify.

Other recent investments have included a 10pc stake in Heathrow Airport, a fund that owns 50pc of department store Selfridges and £80m of stock in luxury car maker Aston Martin, which races in Formula One under the sponsorship of Saudi state oil company Aramco.

A fund insider insists the investments in Sir Rocco’s empire and Heathrow are purely financial and unrelated to the push into tourism. But they at the very least dovetail with those ambitions.

The Heathrow investment is especially notable after the Crown Prince announced the launch of a new flag-carrying airline, Riyadh Air, in March.

The Crown Prince has drawn up an official plan called Vision 2030 that aims to to build an array of schemes across the country
Mohammed bin Salman has drawn up an official plan called Vision 2030 that aims to to build an array of schemes across the country - AFP

The PIF is understood to be open to further investments in Britain that could further its Vision 2030 goals.

“Britain is seen as a world leader in tourism, restaurant and hospitality management,” says Kate Nicholls, of trade group UKHospitality. “Therefore, there’s a real appetite in that part of the world when they’re looking at developing their tourism offer, to come and get the best of British know-how and brands.”

Investments in brands such as Rocco Forte Hotels not only bring credibility but also the potential to share tried-and-tested western hospitality experience. They can also clearly encourage investment.

Possible hotel locations Sir Rocco is considering include: the capital, Riyadh; the coast of the Red Sea; desert locations such as the oasis AlUla; and even a proposed futuristic city in the northwest known as “The Line”.

“Of course I can’t speak yet, because I haven’t seen it. But people talk about the Red Sea area as having the most amazing coral, largely untouched.”

The Saudis want the private sector’s contribution to GDP to jump from 40pc to 65pc. That will require large amounts of foreign investment of the kind Sir Rocco is now considering.

The Rocco Forte Hotels, which includes the Balmoral Hotel in Edinburgh (pictured), is eyeing a Middle Eastern expansion
The Rocco Forte Hotels, which includes the Balmoral Hotel in Edinburgh (pictured), is eyeing a Middle Eastern expansion - John Lawson, Belhaven/Getty Images Contributor

In many respects, the Saudis are following a playbook already demonstrated by the rulers of Dubai who have likewise sought to transform their city into a global destination using vast oil funds.

Nicholls says: “The Saudis have looked across at Dubai and want a slice of the action. Their aspiration is to get 70 million visits a year – so they’re going to have to look at ramping up hospitality infrastructure very rapidly, and developing those skills.”

According to Sir Rocco, interest from the PIF came after he hired advisers at Schroders to quietly probe the appetite for investment in his business about a year ago. As a result, plans for a competitive auction were quickly shelved.

Other British brands that have already gone to Saudi Arabia include InterContinental Hotels subsidiary Holiday Inn, which has two franchise hotels in Jeddah, and Mayfair seafood restaurant Scott’s, which has opened an outpost in Riyadh.

Celebrity chefs such as Wolfgang Puck and Jason Atherton have also announced plans to open restaurants in the kingdom.

One chief executive at a major restaurant business says he knows of lots of conversations happening between British firms and Middle Eastern investors. However, most come to nothing, he says.

“In my experience, nine out of every 10 fail before they get anywhere,” the executive says. “There’s a lot of potential opportunity, which then falls over when it comes to dotting the i’s and crossing the t’s.”

Most go nowhere because Middle Eastern investors want restaurateurs to open just one or two branches in the region, something that is not financially viable.

Those who do take the plunge are taking a gamble. They are betting on Saudi Arabia becoming a tourist destination, which is by no means assured.

The kingdom is spending lavishly, most eye-catchingly building an entirely new city in the desert called NEOM.

Yet this spending spree is stretching even Saudi finances. The kingdom is heavily reliant on oil and crude must sell for at least $86 per barrel to balance the national budget, according to the International Monetary Fund. The commodity has mostly stayed below that level this year and was selling for around $75 per barrel on Thursday.

Riyadh is forecasting budget deficits until 2026 and officials this week pushed back the timeline for Vision 2030 in response to the heavy cost of the investment programme.

“The delay, or rather the extension of some projects, will serve the economy,” finance minister Mohammed Al Jadaan told reporters.

Even if all the grand plans in Vision 2030 come to pass, there is still no guarantee that tourists will come.

The Kingdom is spending large amounts of funds on building the futuristic megacity called NEOM
The Kingdom is spending large amounts of funds on building the futuristic megacity called NEOM - AFP

The kingdom’s human rights record is poor and visitors still face a stern culture.

The Foreign Office says men and women should refrain from any public displays of affection, such as holding hands.

Although modest dress codes are not mandatory for travellers, they are strongly recommended, particularly within government buildings, airports, health care facilities or shopping centres.

The advice says: “If you do not dress modestly, you may be asked to leave or be denied entry to these locations.”

It also notes that it is against the local laws to post anything on social media that “could be seen to criticise, insult or ridicule” the Saudi government, royal family or culture.

On a more prosaic note, Sir Rocco points to another issue that will almost certainly deter many Western holidaymakers: the country’s continuing alcohol ban.

“If they really want to expand tourism, that’s something they’re going to have to do,” he says.

For now, Sir Rocco will have to do without a cocktail on his adventure to the Red Sea.