Smiling benignly from the stage was Prince Mohammed bin Nawaf, the Saudi Arabian ambassador. His presence, and that of a clutch of other top Saudi government officials, was the reason for the crowd, and for McConnell’s lightning visit.
Nawaf was about to dangle before the saucer-eyed Scots the prospect of almost unbelievable riches — $624 billion (£350 billion) worth of business opportunities over the next 15 years.
Awash with oil money, the Saudis had arrived to enlist British help to transform the Islamic kingdom. The Edinburgh event, and another in Manchester, heralded what could be a historic rapprochement.
September 11 weakened the long-standing ties between the countries as Saudi Arabia retreated from the world stage. The relationship was further strained by terrorist attacks on expatriates, which led to an exodus of British workers, and by rows over the activities of Saudi dissidents resident in Britain. And last year, in a move that was seen as symbolic of deteriorating trade and political relations, British Airways scrapped its flights to the kingdom.
Now Saudi Arabia wanted the Brits back, said Nawaf. And the Arabs are prepared to back their words with actions. In December, the same month the country finally gained membership of the World Trade Organisation, Saudi Arabia signed a blockbuster deal with Britain, agreeing to buy up to £10 billion of new Eurofighter Typhoon combat aircraft and other defence equipment.
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It was a reprise of the famous Al-Yamamah weapons-for-oil deal struck by Margaret Thatcher, and it sent the shares of BAE Systems, the main commercial beneficiary, soaring to a three-year high.
According to Nawaf, there is even more on offer. King Abdullah, who came to the Saudi throne last year, wants to push ahead with investment and reform, and has laid plans for a ground-breaking wave of privatisations in oil, gas, water, electricity and telecoms.
“We are going to invest $624 billion. This is an enormous amount of money by any standard, and we need your help to spend it,” Nawaf told his audience. “There is something for everyone. We are building the future for our children.”
The signs of a warming of relations are evident to Gulf watchers. Richard Thompson, managing editor of the Middle East Economic Digest, said the Typhoon deal, and the decision by BMI to pick up the BA routes, were positive signs.
“There has also been a steady series of trade delegations to Britain, and British ministers have been making an increasing number of visits to Saudi Arabia. Companies from India, China, Russia and other countries have flooded into the gap left by Britain and America, but now the Saudis realise they need them back.”
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British companies no longer need to be fearful for the safety of their workers, Nawaf said. “I know there will be those among you who have a niggling fear of terrorism. But we have conducted a joint anti-terrorist operation with the British authorities. We have captured almost all those on our most-wanted list, and sealed our borders. You should remember that 25,000 British workers looked the terrorist threat in the eye, and decided to stay on.”
Although British business has in recent years been more captivated by the rapid growth of China, India or nearby Dubai, Saudi Arabia is in the middle of an extraordinary economic boom, one exemplified by the phenomenal performance of the local stock market.
High oil prices and large inflows of Saudi money returning from overseas in the expectation of the privatisation bonanza have made the Saudi exchange, the Tadawul, a phenomenon in global equities.
The Tasi index, which tracks the market, finished 2004 at 8,206. Last week it was hovering around 18,200. The increase means the Tadawul, with just 77 listed companies and almost no foreign investment, is worth more than $600 billion, making it the 11th-largest stock market, ahead of powerhouse emerging economies such as China, India, Taiwan and South Korea.
The surge of funds into Saudi equities has left valuations sky-high. The Tasi trades at 35 times earnings, compared with the FTSE 100’s 14.2. Sabic, the Saudi petrochemical company, trades at 44 times earnings, compared with 11 times for Dow Chemical, a comparable American company.
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“By any international measure of valuation, this market is overvalued,” said Anais Faraj, global strategist at Nomura, the Japanese bank. “But this is a special situation — there has been a large repatriation of private capital in the anticipation of large privatisations and economic liberalisation.”
Saudi individuals — in particular members of the extended royal family, which some Arab watchers put at about 22,000 — have been stung by fickle western equity markets and the dotcom crash, and want to keep their money closer to home.
The offshore assets of wealthy Saudis are put at $700 billion — roughly twice the country’s entire annual gross domestic product — and even for ordinary Saudis, investing in equities has become a popular pastime. Last week the education ministry issued an edict warning headmasters to be vigilant against teachers using school time to indulge in day-trading.
But the economic boom is matched by a potentially challenging demographic one. Saudi Arabia has one of the world’s fastest-growing populations — it is expected to jump from 22.7m now to about 33m in the next 15 years. And a staggering three-quarters of Saudi citizens are under 25.
The booming population has made water and power investment a priority. The scale of some of the projects is mind-boggling: to provide more water to Riyadh, the kingdom envisages the construction of a 2,500MW combined power and desalination plant. Tenders for the $3 billion project are expected to be invited in April.
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The demographic surge is also prompting the Saudi authorities to look beyond the physical infrastructure. Princess Loulwa Al-Faisal, one of the most influential female Saudi royals, said extensive effort was being put into education reform, and that British schools and universities had a role to play. “We are working on a programme to give every Saudi student a tablet PC, for example. We realise that the wealth of our country is in our people — not what is in the ground. We need to diversify our economy.”
These efforts cannot come soon enough, according to some doing business in the kingdom. Jeffrey Culpepper, chief executive of Deutsche Bank’s Saudi operations, complains that it is difficult to find Saudi nationals with the right type of qualifications. “You used to be able to find a lot of Saudis with technical degrees from American universities. Now almost all CVs we get are from people with religious-studies degrees from local universities.”
Education is not the only opportunity for the British service sector. The government is seeking help from bankers, lawyers and consultants to set up the regulatory and legal framework needed for the privatisations and market reforms.
“We are having to revisit our plans to set up a local office,” said Stephen Parish at the City law firm Norton Rose. “And I imagine all the big City firms are thinking the same thing.”
Parish said British companies had approached Saudi Arabia with some trepidation in the past. “It’s a more difficult sell than Dubai, for example — it is a conservative Arab state and you have to bear that in mind.
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“But it does reward those who are prepared to make long-term partnerships. The Saudis want people who will stick it out through good times and bad.”