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RPT-Saudi economy vulnerable as corruption probe hits business old guard

RPT-Saudi economy vulnerable as corruption probe hits business old guard
From Reuters - November 6, 2017

(Repeats from Monday without changes)

* Crackdown targets problem that has plagued economy for decades

* May dismantle systems of illicit patronage and kick-backs

* But some of Saudis most prominent business families being hit

* This could freeze investment in already-weak economy

* Some see risk of an asset grab from vulnerable firms

By Katie Paul

RIYADH, Nov 6 (Reuters) - Two weeks ago the glitzy Ritz Carlton hotel in Riyadh was the site of an international conference promoting Saudi Arabia as an investment destination, with over 3,000 officials and business leaders attending.

Now the hotel is temporarily serving as a luxury prison where some of the kingdoms political and business elite are being held in a widening crackdown on corruption that may change the way the economy works.

By detaining dozens of officials and tycoons, a new anti-corruption body headed by Crown Prince Mohammed bin Salman is seeking to dismantle systems of patronage and kick-backs that have distorted the economy for decades.

But it is a risky process, because the crackdown is hurting some of the kingdoms top private businessmen - leaders of family conglomerates who have built much of the non-oil economy over the past few decades.

Many industries could suffer if investment by these families dries up in coming months, at a time when the economy has already fallen into recession because of low oil prices and austerity policies.

Meanwhile, a new breed of state-backed companies is rising to compete with the old guard; many of the new enterprises are linked to the Public Investment Fund (PIF), the kingdoms top sovereign wealth fund. But it is not clear how smoothly the transition to these firms will happen.

The rules of the game are changing. But theyre changing indiscriminately, said one financial analyst in the region, declining to be named because of political sensitivities.

Even people who thought they were within the rules dont know if they will still be within those rules tomorrow. Theres just uncertainty.

STATE CONTRACTS

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