The Riyadh investment forum got off to a bad start on Tuesday with Saudi Arabia's energy minister, Khalid A. Al-Falih, noting that the kingdom was living through "difficult days" following the killing of Jamal Khashoggi.

"These are difficult days for us in Saudi Arabia. We are going through a crisis," he told the Future Investment Initiative (FII) conference.

Some high-profile figures have pulled out of the conference, dubbed "Davos in the desert," after the Khashoggi affair started, for example JPMorgan Chase's Jamie Dimon and Siemens's Joe Kaeser.

Falih praised Patrick Pouyanne, the CEO of French oil group Total for showing his "mettle" by attending. Masayoshi Son, SoftBank's chief executive also attended but would not be speaking.

Grand plans in the dust?

Saudi Arabia has grand plans, exemplified by its Vision 2030 strategy and driven by Crown Prince Mohammed bin Salman, to boost foreign direct investment with an eye on a post-oil era and mega projects like the futuristic city of Neom.

So will the Khashoggi effect derail these best laid of plans?

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Most analysts contacted by DW declined to proffer an opinion publicly, though those that did were frank enough to admit that when money talks, it tends to drown out chat about the death of a journalist.

Joice Mathew, head of research at United Securities, a financial advisory services firm in Oman, believes that the money being withdrawn from Saudi Arabia right now should come back by the first half of 2019, when some of the country's stocks are planned to be included in the global MSCI index. "So portfolio outflows might continue as long as the Khashoggi issue remains active, and a potential reversal once the dust settles," she told DW.

Saudi Arabia's efforts to modernize its financial markets were recognized this June by index compiler MSCI, which added it to its group of emerging markets. MSCI said it would reclassify Saudi Arabia in June 2019. It is unclear if that is still on the table.

Vision 2030 aims to increase foreign direct investment (FDI) into Saudi Arabia from 3.8 percent to 5.7 percent of GDP. Ibrahim Al-Omar, governor of the Saudi Arabian General Investment Authority (SAGIA), said FDI was growing in Saudi Arabia. Official figures from the World Bank show FDI net inflows were $7.45 billion (€6.49 billion) in 2016 while net outflows were $8.93 billion. 

The country also wants to improve its ranking on the World Bank's "ease of doing business index" — currently it is 92nd in the index of 190 countries.

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"We are working with the World Bank and best practice across the world and have identified over 400 reforms and achieved 40 percent of them," SAGIA's head Ibrahim Al-Omar said. Vision 2030 also aims to increase the private sector's contribution from 40 percent to 65 percent of GDP.

The $500-billion industrial zone of Neom is one of the country's mega-projects. It is planned to be located on the northwestern coast by the Red Sea, linking Saudi Arabia, Egypt and Jordan.

Pullouts

However, after it emerged that Saudi Arabia had murdered Khashoggi, a number of high-profile business leaders have pulled out of the investment conference opened in Riyadh on Tuesday. 

Billionaire Richard Branson said he was suspending talks with the Saudis, calling Khashoggi's disappearance a "potential game-changer" for companies doing business with Saudi Arabia. 

When the dust settles

Joice Mathew said the Khashoggi case is likely to cast "a temporary shadow on the excitement" shown by large investors, and that investment decisions are likely to slow down until more clarity emerges on the issue. "But I don't think that the investments into the kingdom are likely to stop over the medium term. I expect investors to return once the dust settles," she added. 

For others there is no dust to settle. Saudi Arabia reportedly signed 25 deals worth $50 billion on Tuesday alone in the oil, gas, industries and infrastructure sectors with Trafigura, Total, Hyundai, Norinco, Schlumberger, Halliburton and Baker Hughes, while Saudi Aramco said it had signed 15 memoranda of understanding worth $34 billion.

The first set of data from the Saudi government after the event shows that foreign investors pulled out $1.1 billion from Saudi Tadawul stocks — about 11 percent of total portfolio investments excluding strategic ownership by foreigners in Saudi listed companies, and 4.4 percent of total foreign investments in the market.

Sticking it out

The Khashoggi incident raises questions about the way Saudi authorities continue to handle their dissidents, Mathew said, adding that despite all the efforts to diversify the economy away from oil, the government would still aim to "keep a tab on certain aspects."

Other analysts, speaking to DW on condition of anonymity, echoed Mathew's view, saying that they expect some portfolio outflows from Saudi Arabia in the short term, but over the medium to long term, the Saudi economic diversification story should lure investors back to the kingdom.

Meanwhile, Pouyanne said his company had in effect invested too much in Saudi Arabia to think about pulling the plug now. "I would like to make it clear that I fully understand and share the emotions sparked by the death of Jamal Khashoggi under circumstances that must be clarified," Pouyanne said in a statement sent to DW explaining his decision to attend the FII conference in Riyadh. 

"Some business leaders have decided that the circumstances do not allow them to visit Riyadh. I respect their choice," his statement went on. "Total believes it is preferable to engage in frank, assertive dialogue, in which we make our values clear, with our partner countries."

Some banks are sending delegations in the hope of minimizing the damage to ties to the House of Saud. HSBC, Societe Generale and Credit Suisse Group sent senior investment bankers, even after their CEOs backed out. SoftBank Group founder Masayoshi Son, meanwhile, said he planned to invest in the new city and potentially acquire a "substantial" equity stake in state-controlled Saudi Electricity Co. He is one of the few business chiefs who hasn't pulled out of this year's event.

"Saudi Arabia is too big and too important an economy for the Middle East and rest of the world, and hence is unlikely to be ignored by investors for too long a period," said Aarthi Chandrasekaran, a financial analyst at Shuaa Capital PSC in Dubai. "While investors are possibly in a pause mode for now, they will eventually step in when the dust settles."

Filling the gap

Furthermore, Asia and Russian investors are likely, Mathew said, to jump into the investment space left by Western firms

"This year we are seeing a large number of Asian and Russian investors actively participating in the Riyadh event and my estimate is that they might attract/announce total investments of somewhere around $50 billion during it," Mathew said. "This clearly indicates that there are investors who are ready to grab the opportunities presented by the kingdom."

A delegation of Russian CEOs are in Riyadh this week, led by Kirill Dmitriev, CEO of the state-run Russian Direct Investment Fund and a leading player in President Vladimir Putin's push to engage Saudi Arabia.