December 28, 2017 / 8:58 AM / 8 months ago

Exclusive: Apple and Amazon in talks to set up in Saudi Arabia - sources

RIYADH (Reuters) - Apple and Amazon are in licensing discussions with Riyadh on investing in Saudi Arabia, two sources told Reuters, part of Crown Prince Mohammed bin Salman’s push to give the conservative kingdom a high-tech look.

A third source confirmed that Apple was in talks with SAGIA, Saudi Arabia’s foreign investment authority.

Both companies already sell products in Saudi Arabia via third parties but they and other global tech giants have yet to establish a direct presence.

Amazon’s discussions are being led by cloud computing division Amazon Web Services (AWS), which would introduce stiff competition in a market currently dominated by smaller local providers like STC and Mobily.

Riyadh has been easing regulatory impediments for the past two years, including limits on foreign ownership which had long kept investors away, since falling crude prices highlighted the need to diversify its oil-dependent economy.

Luring Apple and Amazon would further Prince Mohammed’s reform plans and raise the companies’ profile in a young and relatively affluent market, which already boasts some of the highest internet and smartphone use in the world.

About 70 percent of the Saudi population is under 30 and frequently glued to social media.

A licensing agreement for Apple stores with SAGIA is expected by February, with an initial retail store targeted for 2019, said two sources familiar with the discussions.

Amazon’s talks are in earlier stages and no specific date has been set for investment plans, they said.

Apple already holds second place in the Saudi mobile phone market behind Samsung, according to market researcher Euromonitor.

Amazon acquired Dubai-based online retailer Souq.com earlier in 2017, opening access for Amazon retail goods to be sold in the kingdom.

Both companies declined to comment, while SAGIA was not immediately available to answer questions about the discussions.

FILE PHOTO: A man speaks on the phone as he walks past the Kingdom Centre Tower in Riyadh, Saudi Arabia, November 5, 2017. REUTERS/Faisal Al Nasser - /File Photo

LENGTHY COURTSHIP

While Saudi reform plans call for luring foreign investment broadly across sectors, officials have courted Silicon Valley players especially strongly over the past two years to complement their high-tech ambitions.

Prince Mohammed is an avowed technophile and has styled himself a disrupter in the model of Steve Jobs, Mark Zuckerberg and Bill Gates.

During an official visit to the United States last year he met executives at Facebook, Microsoft and Uber, in which the sovereign wealth fund he chairs later took a $3.5 billion stake.

Since then, he has also set up a $45 billion technology investment fund with Japan’s SoftBank and announced plans to create a futuristic $500 billion mega-city with more robots than humans.

Apple and Amazon have both been on a Saudi priority list of foreign firms which officials hope to attract to further their reforms, one of the sources said.

“Many tech multinationals now in Saudi Arabia are either vendors to the Saudi government or, in the case of Uber, have benefited from a sizable Saudi investment,” said Sam Blatteis, who heads Dubai-based tech advisory MENA Catalysts Inc.

“Amazon entering the Saudi market would be a step-change.”

For Amazon, the move underscores how AWS is looking to take an early lead in selling data storage and computing services to customers in the Middle East.

AWS, the world’s biggest cloud business by revenue, has embarked on a slower global expansion than No.2 Microsoft, which now offers cloud services in twice as many regions.

However, Microsoft has yet to announce plans for data centers in the Middle East, with three regions in India serving as its closest operations.

AWS said in September it would set up data centers for the region in neighboring Bahrain.

The kingdom has been streamlining its many overlapping laws which could apply to cloud computing for more than a year in order to attract service providers.

If completed, a cloud deal could pave the way for an expansion of Amazon retail warehouses in Saudi Arabia.

Although Amazon operates its diverse business units separately, it has rolled out its near-full suite of retail, third-party marketplace and cloud services in countries of operation over time.

FILE PHOTO: A woman speaks on a mobile phone in a cafe in Riyadh, Saudi Arabia October 6, 2016. Picture taken October 6, 2016. REUTERS/Faisal Al Nasser - /File Photo

Apple stores would raise the profile of the company’s products and offer repairs and community events in line with its strategy to brand its stores as “town squares”.

Reporting by Katie Paul; Additional reporting by Jeffrey Dastin and Stephen Nellis in SAN FRANCISCO; Editing by Saeed Azhar and Philippa Fletcher

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