Germany attempts ′face-saving′ resolution to Saudi drugs boycott | Business| Economy and finance news from a German perspective | DW | 24.08.2018
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Germany attempts 'face-saving' resolution to Saudi drugs boycott

Diplomats are seeking to resolve a conflict that has led German drugmakers to miss out on orders from Saudi Arabia. Along with Canada, Germany is struggling to react to Riyadh's new-found foreign policy assertiveness.

The human rights row between Saudi Arabia and Canada made international headlines in recent weeks, when the Riyadh government suddenly suspended new trade and investment to the Great White North.

The punitive measures were in response to a simple tweet by Canada's foreign minster, calling for the release of two jailed Saudi activists.

Receiving less attention has been the diplomatic spat between Europe's No. 1 economy and the oil-rich kingdom — also sparked by a minister's comments; this time Sigmar Gabriel, Germany's then-foreign minister.

During the political crisis in Lebanon last November that saw Prime Minister Saad al-Hariri resign and later rescind his decision, Riyadh was widely accused of forcing his departure, which Gabriel alluded to as "adventurism."

'Shameful' remarks hurt ties

Riyadh immediately recalled its ambassador to Berlin, telling the German government the comments were "shameful." In May, it went further and froze all new business with Germany.

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Don't insult the Saudis

Over the subsequent months, several German pharmaceutical and medical technology firms, including Siemens Healthineers, Bayer and Boerhringer Ingelheim, have been excluded from public healthcare tenders in the kingdom.

A pharmaceutical industry source told DW, on condition of anonymity, that Saudi authorities had not given any written explanation about the exclusion, and that there was no clear path for Germany to resolve the issue.

Efforts by German diplomats to mediate with Saudi authorities were delayed, initially, by the Holy Month of Ramadan, and the summer break, as Gulf countries stop work in July and August due to the extreme heat.

Read more: Saudis insist Aramco IPO not scrapped

Already large losses

The source said losses to German companies were already in the hundreds of millions of euros, and that products produced and even distributed through Germany were being impacted.

The Reuters news agency, this week, reported that the snub is so far-reaching that European and US trade associations have written personally to Saudi Crown Prince Mohammed bin Salman.

The dispute could now threaten other sectors of the German economy if diplomats can't find a face-saving way to rebuild relations.

"If it is not resolved and Saudi Arabia continues to snub German firms, then lucrative contracts could be lost to other countries," warned Jörg Kronauer, editor of the German Foreign Relations website.

Kronauer described how German companies are hoping to bid for projects within Saudi Arabia's ambitious new megacity, known as NEOM — to be built by 2025 near to the border area with Egypt, at a cost of $500 billion (€431 billion).

"The German government now wants to settle the dispute without losing too much face," he went on. "Both sides agreed to a joint statement in May, but little has happened since."

Riyadh's new confidence

Germany is clearly a casualty of Saudi Arabia's more assertive foreign policy stance since 2015, which has seen Riyadh intervene in Yemen's civil war, and stand up to what it sees as Iran's attempts to destabilize the region.

Berlin, meanwhile, is among several governments trying to save the 2015 nuclear deal with Tehran, while Saudi Arabia supports US President Donald Trump's decision to pull out of the landmark accord.

Germany's ban on arms exports to those involved in the Yemen conflict didn't exactly improve ties with Riyadh.

"The [Saudi] leadership feels it cannot count on old allies as much as it used to and that it is, to some extent, on its own in the region," associate professor Steffan Hertog from the London School of Economics told DW.

The Gulf and Middle East politics expert noted a "stronger sense of nationalism that has made the kingdom's leaders more sensitive to foreign criticism, especially at a time when they seek to project a reformist image."

"There is also probably a sense that the liberal international consensus regarding democracy and human rights is much less solid than it used to be, so it has become easier to slap down foreign critics," Hertog added.

Read more: Saudi women's rights activist Madeha Alajroush: 'Finally, I am celebrating'

Recognize the reforms

As concerns mount about lower profits, the Association of German Chambers of Industry and Commerce (DIHK) told DW-TV that Berlin must acknowledge that social reforms are taking place in Saudi Arabia.

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"Saudi Arabia has a big project, Vision 2030," noted DIHK Chief Economist Volker Treier. "Besides economic developments, it also incorporates societal changes ... the participation of women in the labor force, and hopefully more respect for human rights."

Treier said Germany should be seen to be encouraging the kingdom's social progress, while also addressing the issue of human rights "in the right way."

German foreign policy specialist Kronauer said some contracts, affecting other industries, appeared to have gone ahead in recent weeks.

"Bilfinger Middle East recently received an order from Saudi Aramco, and repaired Eurofighter and Tornado turbines are being delivered to Saudi again," he noted.

Reply awaited

The pharmaceutical industry, which is still awaiting a reply from the crown prince, believes it was an easy target because the import of drugs to Saudi Arabia is handled centrally.

Saudi Arabia is a key trading partner for Germany, which in 2017, exported some €6.5 billion of goods and services to the kingdom. That figure, however, has dropped by a third, which the DIHK told DW was mostly the result of lower oil prices weakening the Saudi economy.

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