AUSPC 2012: View from Riyadh – Amb James Smith

21st Annual Arab-US Policymakers Conference – AUSPC 2012
Washington, DC
Friday, October 26, 2012

SAUDI ARABIAN – U.S. RELATIONS: A VIEW FROM RIYADH
Speaker:
Ambassador James Smith - U.S. Ambassador to the Kingdom of Saudi Arabia.

[Remarks as delivered]

[Patrick Mancino] In keeping with our time commitment with CSPAN, it’s a great pleasure to welcome back Ambassador James B. Smith, United States Ambassador to the Kingdom of Saudi Arabia. Ambassador Smith was sworn in on September 16, 2009 as the United States Ambassador to Saudi Arabia. Prior to his appointment, Ambassador Smith had served in a variety of executive positions with Raytheon Company involving corporate strategic planning, aircraft manufacturing, and international business development.

Ambassador Smith was a distinguished graduate of the United States Air Force Academy’s class of 1974, and received the Richard I. Bong Award as the outstanding cadet in military history. He received his masters degree in history from Indiana University in 1975, and is also a distinguished graduate from the Naval College, the Air Command and Staff College, and of course the National War College here in Washington.

Interesting about Ambassador Smith and his career as a U.S. Air Force pilot, he spent a 28 year career in the United States Air Force. He trained as a fighter pilot, 4,000 hours of flight time in F-15s and T-38s. He served around the world in a variety of operational assignments, and flew combat missions from Saudi Arabia at Dhahran Air Base during Operation Desert Storm. He commanded the 94th Fighter Squadron, the 325th Operations Group, and the 18th Fighter Wing out of Okinawa.

In addition, Ambassador Smith served in a variety of staff assignments involving coalition partners, served as Air Force Chair and Professor of Military Strategy at the National War College. During his final assignment at U.S. Joint Forces Command he led “Millennium Challenge.” He was promoted prior to retirement as Brigadier General in 1998, retired from the Air Force in 2002. We’re absolutely delighted that Ambassador Smith’s wife, Dr. Janet Breslin Smith – Dr. Smith, thank you for joining us, it’s always a pleasure to have you here too – who came with him from Saudi Arabia is here with us. Let’s give her a round of applause, she’s extraordinary.

Without further adieu, ladies and gentlemen I welcome you again to the conference, and I turn this over to Ambassador James Smith. Ambassador Smith. And thank you, CSPAN.

[Ambassador James Smith] Thank you for that kind introduction, and for your passion for the region and its people.

Eid Mubarak, all. Good morning. It’s a pleasure to be with you. It’s been a great privilege for me to represent the United States in the Kingdom of Saudi Arabia. We have worked to rebuild a relationship along an important, long-standing relationship, one that was scarred by the events of 9/11, by policy differences in the decade between, and often strained by the many misconceptions between our two cultures.

Now, I’ve had a unique career, at least by the standards of diplomats. I spent my first career in uniformed service, and in that career I was surrounded by heroes that were willing to go into harm’s way on a moment’s notice. In my second career in service, I’m again surrounded by heroes, heroes who live in uncertainty, who often live in harm’s way, and they do that without a second thought. It is an understatement, but I’ll say it anyway – I’m honored to be in their presence.

But first let me take a step back. When I graduated from the Air Force Academy, I joined my comrades in arms to meet the threat of a competitive global power with ships, planes, and fielded armies. I pulled “Zulu alert” in Europe. Our focus was on the Fulda Gap. The Soviet Union was not only a military power, it was an aggressive economic ideology that competed with market capitalism. So for the 40 or so years of the Cold War we tried to anticipate Soviet moves.

Since I joined my colleagues in diplomacy, I find myself on the frontlines again. Actually, I have a front row seat trying to anticipate an evolving and profound shift in Middle East thought. That shift does not respond to our ships, planes, and armies. In fact in many ways this shift has little to do with us at all. We are watching an internal debate, a struggle for definition and redefinition, and a changing political dynamic in the region. It is a puzzle even for those of us who watch it every day.

Now as I began my assignment in 2009, I took what the military calls as mission-type orders from President Obama’s vision of a new beginning in the Islamic world. One that’s based on shared interests, mutual trust, and mutual respect. I can tell you that expression has been my guiding concept over these last three years, and I can say definitively that the President is right. There are many more things that bind us than separate us. I would add to the President’s statement that is true even when it’s hard to see.

In the context of the relationship between the United States and Saudi Arabia, for the past three plus years we have directed our approach based on shared interests. And the results – well they speak for themselves. We now have over 60,000 Saudi students studying in the United States, and over a quarter of them are women. U.S. universities and colleges have professional relationships with every university in Saudi Arabia. Every Saudi medical center has some sort of partnership with an American medical center or teaching hospital. Our non-defense exports to Saudi Arabia have climbed double digits in each of the last three years. Agricultural exports alone increased one hundred and three percent last year. Over 240 American companies have exported to Saudi Arabia for the very first time in the last two years. Our “mil-to-mil” relationship is sound, it is expanding, and U.S. military exports are at a record level.

Moreover, we came out of the Arab Spring with a deeper understanding of ourselves and each other. The concept of mutual trust and mutual respect has paid great dividends. The U.S.-Saudi bilateral relationship is sound.

Now the first element of shared interest is business and trade. And it has been a singular focus of mine over these last three plus years. I must single out the U.S. Commercial Service and our Commercial Councilor, Amir Kayani, his dedicated team of professionals, and the Foreign Commercial Service. During 2012 they will lead 18 trade missions back to the United States, and we will host a like number of reverse trade missions of American businesses back to Saudi Arabia.

I recently returned from leading a delegation to MINExpo International, the largest mining and mineral show, as U.S. businesses are keenly focused on this emerging sector in the Saudi economy. Further, we were heavily involved in two high-profile commercial events in Chicago and Atlanta, and we will continue our effort to bring businessmen and businesswomen together from the United States and the Kingdom.

But that engagement is more than just trade numbers, as impressive as they are. Fully eighty percent of the American companies exporting to Saudi Arabia for the first time in these last two years are small to medium enterprises. They bring with them the skill set to engage small and medium enterprises in the Kingdom, and that knowledge transfer will certainly benefit the growing private sector.

Many people here in the states do not realize that American companies do have a competitive advantage, and that advantage is in the relationship, and in knowing what problems Saudi Arabia is desperately trying to solve. In both of our countries it’s all about jobs, jobs, jobs.

American companies bring with them a lifelong commitment to training and education. They are well schooled in the principles of program management and program leadership, and they generally understand the disciplines of lean and Six Sigma for staying competitive. These are the skills that Saudi companies are thirsting for in their desire to become competitive so as to create new jobs for this new generation of highly educated young people.

The youth bulge is real. In Saudi Arabia sixty to sixty-five percent of the population is 25 years of younger. The real spike is in the ten to fourteen year group. So the Saudi government and industry has about five years to find solutions for job creation and youth empowerment. This generation has grown up watching the youth of the region make demands on their governments – demands for responsiveness, for transparency, and accountability. If governments do not find solutions they could be in trouble. If you as a business have a value proposition that helps Saudi Arabia solve this employment challenge then you will be in a competitive position.

This is not a theory – it works. I had the opportunity last week to congratulate the CEO of EMD, Electromotive Diesels. It’s now part of Caterpillar Company on a recent contract win for diesel locomotives. A little over two years ago, a previous executive was in my office bemoaning the reality that he was about to lose a competitive bid to another country based on cost. Even though we had provided advocacy to the Ministry on his behalf, he was sure that the contract award would be on price. When I asked him for his value proposition he had little to offer other than our locomotives are better than theirs. They lost.

Fortunately the Saudis agreed to take the winning entry on an approval basis for two years, so EMD had a chance. A new team came forward and we discussed at length what it takes to win. And the principles are fairly straightforward.

First, find a partner in Saudi Arabia you can do business with for the next 30 years. Business in Saudi Arabia is a little like golf – your best chance of a winning score is in finding the right partner. Not someone who claims to have the “wasta” to win you a contract, someone who’s going to be in business with you for the long-term.

Second, anchor a footprint in the Kingdom. Now many entities have tried to do this from Dubai, Abu Dhabi, even from the States. But the best model is to have a physical presence in the Kingdom around a joint venture partner. The Saudi economy is larger than all of the other economies in the Gulf combined. If you follow the money, which you are taught to do in business, the path leads you to Riyadh.

Third, focus on a domestic capability rather than simply delivering a product sale. In the case of EMD the value proposition was not about selling the best locomotive, it was all about helping Saudi Arabia develop its domestic rail infrastructure and mature through training and education, a system to manage that rail system through the creation of a Saudi-ized career in rail and transportation.

Fourth, think about growing Saudi talent, not hiring Saudis. EMD was aggressive in seeking out Saudi students here in the United States for summer-hire programs. Now as they graduate, EMD will bring them on for training with their company with the intent of starting them out as entry-level managers and engineers in the Kingdom. They are starting a career, not just hiring on for a job. EMD did all of this. They beat the competition. They won.

Now other American companies are making a significant impact not just on their businesses but on the future of Saudi Arabia. ExxonMobil has a long tradition in the Kingdom, and among their successes is a huge refinery in Yanbu, about two hours north of Jeddah. The workforce of this refinery is 92% Saudi, stretching across senior management all the way down to traditional, blue-collar employees. ExxonMobil was into Saudization before Saudization was required. And I anticipate they will bring the same degree of professional management to the new refinery they are building in “Jubail 2.”

Similarly, Dow Chemical has teamed with Aramco on the Sadara Project in Jubail, and they – like ExxonMobil – are focused on creating a cadre of businesses that can take some of these derivatives and turn them into products. This, by the way, is the key to the Kingdom’s strategy called a knowledge-based economy. Start with something you know, which in the case of Saudi Arabia is upstream petroleum, then move downstream to refining – and SABIC has performed magnificently here – then onto product development where you create intellectual property, start businesses by taking the derivatives and making products, and all of this creates jobs.

The Kingdom is employing this model in other areas, and none so impressive as the joint venture between Alcoa Aluminum and Maaden Mining. On the twelfth of December, I will attend a ceremony in Ras Al-Khair in the northern part of the Eastern Province, where Alcoa and Maaden will pour the first hot aluminum in just over three short years from the signing of a joint venture agreement. It’s a massive facility including a smelting plant and rolling mills that will turn bauxite from the mines of northern Saudi Arabia into sheet aluminum.

In addition, they’re lining up companies to take that sheet aluminum and turn it into products in the Kingdom. To their great credit Alcoa has focused from the very beginning on corporate social responsibility, and their example – echoed by many other American companies – is making a difference in the future of the Kingdom.

A similar success story can be found in our agriculture trade where our agriculture trade officer, Dr. Tawheed Al Safi, did a magnificent job of opening markets for U.S. wheat exports and breaking down long barriers for entry into products like seed potatoes and beef. As a result our agricultural exports have doubled in the last year, and due to long term contracts I expect continued success.

Our “mil-to-mil” relationship has always been strong, owing to the decades-long successes of both USMTM and OPM-SANG. In addition, the stand up of OPM-MOI three years ago has established a third leg in this important relationship, but this time focused on first, the facility security force, but later on a myriad of initiatives in the Ministry of Interior to mature process and procedures for engaging with the various agencies of our own government.

Now certainly the success of our military sales especially in the last year speak to the closeness of this relationship, but I remind the audience that Saudi Arabia has always been a reliable customer for sophisticated military equipment, and it supports our strategic objectives as well as theirs. Nowhere has the vision of shared interest been more present than in education. As I mentioned earlier we have around 60,000 Saudi students in the United States, and I take pride in partnering with Dr. Mody– who you’ll see later today – and the other professionals at the Saudi Arabian Cultural Ministry for their tireless effort in the support of these students and their families.

I would also give a special shout out to the mission here for their efforts in opening medical training and education here in the states, which have often been closed. And by the way, education does not count in our trade numbers, but it is important, and while I’m reluctant to do math in public, if you multiply 60,000 by 100,000 a year stipend per year, that represents an annual investment of about $6 billion into our education system. It is good for us as well as the Saudis. On our end our education office works tirelessly to prepare students for their experience here, and to educate potential students on the opportunity. As I’ve often said to Ambassador Adel al-Jubeir, I know of no area where two embassies work closer together.

But the shared interest in education goes well beyond the students. Saudi Arabia is building new universities for men and women all over the Kingdom. They have gone from eight to twenty-six universities in the last decade, and there are many U.S. universities engaged with each of these Saudi universities. We have professional exchanges, there’s a boom-market for the teaching of English, and we’re beginning to see more in the way of student exchanges.

Modern technology has made interactive education a reality, and I saw this first hand in an engineering competition between Dar al-Hekma University, an outstanding women’s college in Jeddah, and the University of Colorado. American companies are actively involved in the Kingdom’s effort to improve K-12 curriculum. Now keep in mind that Saudi Arabia is spending 26 percent of their budget on education. It’s fair to say that American educators and American businesses are supporting in a big way this modernization effort.

And there is in the Kingdom a trend toward carefully managed reform. Saudi Arabia took note of the Arab Spring, and the government moved quickly, first with a $138 billion package in programs, all targeted towards the needs and concerns of its population. Now I realize that there was criticism in some circles that saw the Saudi response as buying off the population with increased subsidies. But I have to say that the government response was much more sophisticated than that.

At the time we in the Embassy, we listed the top issues facing the Saudi population were jobs, housing, corruption, civil society, and the security apparatus. After the economic package was announced the government responded publically on each of these key issues, and in my view they demonstrated a keen understanding of their own population and responsiveness to the concerns of that population. Indeed they continue on a course of measured modernization.

There does seem to be a genuine understanding that change is inevitable, but this is still an extremely conservative society, one steeped in tradition and cultural constraints, and the government is attempting to manage the rate and pace of that change. But like all governments in the region it continues to struggle with the forces of inertia that are intrinsic in traditional governing systems.

Nonetheless, when there is a shared interest in modernization, we are quick to bring resources to assist. When the Ministry of Justice announced a plan to codify commercial law, we supported that effort with judicial training from here in the United States. I led a rule of law forum with the Minister of Justice back to the states last January, all aimed at assisting the evolution of their judicial system.

As the Saudi Foreign Ministry has moved out on a number of areas we have supported their efforts. In Yemen, Saudi Arabia played a significant role in brokering a GCC-led political transition agreement, and continues to provide a leadership role in the friends of Yemen and support to President Hadi’s government.

There has been in the last few years a trend towards multi-lateralism. Now, I say that with some reservation, because I do not know if it’s an experiment or a genuine move in that direction. Certainly the GCC and the Arab League have been active in the last two years in ways not previously seen. Most recently, Saudi Arabia has pushed the idea of a GCC Union patterned after the EU. The Saudi support for Secretary Clinton’s Security Cooperation Forum – first in Riyadh last spring, and last month in New York – provides the venue for collaborative security discussions with all of the GCC nations.

But something has changed, and it was reflected in the recent OIC Summit called by King Abdullah last August. I spoke with many of the attendees, and some of them spoke of a difference in the atmosphere during the meetings. One individual in particular described it this way: the attendees had constituent concerns, and these concerns were expressed. They were not just representing their governments; there was a keen sense that they were representing their people. Plus they had to go back home and explain their role to their people.

The Arab Spring has produced a very real sense of accountability on the part of the leadership in the region. The key difference in the region is that whole populations are searching for dignity. They are beginning to see themselves as citizens not subjects, and certainly are demanding that their governments be responsive. Plus, they want their governments to be transparent in the process. These populations are connected and they are engaged. Governments now have to respond to the concerns of their populations.

For at least since the end of World War II, the operative word for governments was “control.” You control the media and the message, you control the population inside the borders, and you control local and regional events. It was true for the governments in the region. It was true for U.S. policy, as reflected in our outsized focus on military capability.

But today information is ubiquitous. A generation ago in Saudi Arabia you got your information from one or more of four sources – parents, teachers, imams, or tribal leaders. Today every teenager we meet has at least one Blackberry or iPhone with every app known to mankind. They are studying abroad or attending Saudi colleges with brand new dorm rooms, living with students from other villages with different views. We have gone from the dark days of the Cold War in Eastern Europe where people would listen to their transistor radio to an era where Saudis get 24 hour newscasts and receive constant Twitter feeds. You cannot control the message any longer. You can only influence.

So the real question of the day: does the United States, and do the governments of the region have the necessary tools to be successful in an age of influence?

Let me close by thanking the National Council for their leadership role in the great dialogue of the day. Janet and I have had the privilege of serving these last three years in an extremely dynamic region, uncertainty surrounds us, the Arab Spring certainly has yet to give way to an Arab “Spring Break” – but America’s presence remains vital.

Thank you very much.

[Dr. John Duke Anthony] We have just a few minutes. Is the microphone on, can you hear me? Ambassador Smith says he can hear me.

Before Ambassador Smith took up his posting in Saudi Arabia he had an extended period of preparation in going to visit corporate leaders, former diplomats or existing diplomats who had served in Saudi Arabia. He was an avid student as was his wife Ms. Janet Breslin Smith, an educator in her own right.

In the three that we were involved of these pre-departure briefings we asked about an idea that’s been around for some 20 years but only recently seized in particularly so by Ambassador Smith. You mentioned it in passing about various points regarding the finding of Saudi Arabian students here in the United States before they return home and providing them with practical, actual, hands on, empirical work experience to take them from the classroom, the lectures, the briefings, the textbooks and the learning on university campuses to inside a corporate headquarters, a branch office or some other aspect of the reality of the American partner to Saudi Arabian commercial enterprises.

This is more than a no brainer and its costs are minimal. There are some challenges with the aerospace and defense industries where classified material is to be protected, but in the engineering field, and the banking field, and the telecommunication field, in the education field, in the consulting and providing of services and maintenance and operations and logistics fields, the opportunities are limited only by the imagination. Could you elaborate a little bit on how this is going in your view and I applaud Boeing in particular for seizing this opportunity and taking Saudi Arabians as students before they return to the kingdom where they are expected to know a lot more than actually they would know unless they had this practical hands on experience.

[Ambassador Smith] It’s going well and given the initiative and leadership of American firms we are seeing some success. You mentioned Boeing, and Boeing has a landed presence as MRO facility there in King Khaled Airport. So they have a foothold to do that and I mentioned EMD. Raytheon this last summer had an across the company summer hire program for Saudi students, they’ve had a 60 plus year presence there so. Bill Swanson CEO of Raytheon clearly understands the value.

But here’s the issue. Saudi Arabia requires in the Saudization Nitaqat program the hiring of Saudis. So you can either sit back and complain because you can’t find any Saudis or you can go find them. And they’re right here. Offer them, as we did in the industry, between the sophomore and junior years a summer hire program and then you cull that down to about half, the second time, and by the time summer hire between junior and senior year, you pick the two or three that you really like working for you and then you offer them a job. You say when you graduate show up here at the front door and we will go through a three, six-month program to understand the culture of this company and then I’ll send you back home to Riyadh, Jeddah, Damman wherever, at our facility on the ground floor as an entry level engineer or manager. And “Oh by the way” this is the career you have to look forward to.

Any student finds that appealing so we found good response and we’re doing it in the Kingdom as well. Once again you can either sit back and complain about women’s empowerment or you can hire women. So we’ve got a great push with American companies, Johnson Controls in Jeddah, the General Motor’s dealership in Jeddah, GE engines out in Dharan. I mentioned Alcoa. These companies are all coming in as a part of the theater design of their program is centered around the hiring of professional Saudis and the hiring of women. And again its something that we bring because we are comfortable in that environment, and as soon as you understand the rules and set it up that way it is easily defendable.

“Oh by the way” as Parsons Engineering has figured out, you get the pick of the litter. The motivated ones, the dedicated ones, the smart ones, the creative ones. So the companies that have figured this out are making great inroads. It’s exciting to watch, it’s a magnificent young generation. They’re excited, they’re connected, they’re educated, they’re motivated and they want to do something for their country. So we have to take advantage of that.

[Anthony] Yes, I commend as you do, Parsons Engineering which has been a pioneer from the beginning and the way in which that relationship began shows how much the personal touch matters. In 1945 when the United Nations was being founded and the meetings were being held in San Francisco , three of Saudi Arabia’s ruling family members were at those proceedings and on the weekends Parsons Engineering, a corporation based in California would take the Saudi Arabian delegations to its construction sites and its infrastructure achievements. And over the course of time doing this together these Saudi Arabians asked might you come to our country and show us how to build these kinds of things because we need them, and we need a partnership with people like you. Something as basic as that informal person-to-person led to this relationship, first of comfort, first of habit and then routine in regiment and from that to trust and to confidence and to mutuality of benefit.

I left out two of the categories where the opportunities are the same but perhaps in some cases even greater, namely pharmaceutical companies and law firms. One of the pharmaceutical firms told me it would be willing to take 40 Saudi Arabians over a period of four years, ten a year to give them internship training in their headquarters. And the theory was that out of the 40 within the next decade perhaps one, perhaps two, perhaps three but even if only one, would have signature authority for procurement, for design, for engineering, for construction, of a venture that stemmed from their initial internship here in the United States before the students went back home.

The same thing for law firms. In terms of drafting in the language and the specificity of the attention to detail, and the exactitude and the precision, the use of language in contracts, this kind of trust and confidence can be built before these Saudi Arabians return to the kingdom. So I commend the Ambassador for taking this idea and building upon it and refining it and strengthening it and expanding it. Both sides have won in the process.

We thank the Ambassador for this. I’ll ask one last question then we will proceed to the next session. That is, the range of what you hear from Saudi Arabians about America’s “handling” of the issues pertaining to Iran and the Israeli dynamic within this dynamic. The range of Saudi Arabian concerns or the prioritization of Saudi Arabian concerns, so that we hear from you and others more than we hear from the American media, their concerns, their needs, their issues, their interests, their objectives.

[Ambassador Smith] Well it is key that you listen to all sides. The “street” in that part of the world has long been convinced that we don’t listen to the other side of the story. The challenge of course is translating that into an executable policy. But certainly in Saudi Arabia there is a, you know its interesting to note that in three years I have never heard a disparaging word against an Israeli or a Jew. That’s not the issue.

The issue is the government-to-government policy, which on again on the “street” is perceived as being imbalanced. In 2002 Crown Prince Abdullah spent a lot of “capital” pulling 42 countries together in what’s called the “Arab Peace Initiative” that essentially laid out if you can just resolve these issues all 42 countries are on board to open up relations with Israel because there is a deep sense in our part of the world that the resolution of the conflict is the key and enduring challenge. And it is a strategic issue for Saudi Arabia just like it is for the United States because in the absence of a settlement every extremist group gets to use the Palestinian issue to its advantage, even though not one of them has ever given a dime to a Palestinian to help their plight.

It puts, for the United States, us at a strategic risk and Americans at risk. So I would not speak for King Abdullah but I would say that the “Arab Peace Initiative” is a great place to start. And under his leadership he’s got that part of the world lined up to move forward with a settlement if that is in fact to be our destiny.

[Anthony] In regard to Iran?

[Ambassador Smith] Iran is a great challenge. Now Saudi Arabia looks at Iran a little differently than traditional American thinking. We look at threats as being outside threats facing the Saudis when you would use the word “threat” it’s inside out.

Saudi Arabia in its role of the Custodian of the Two Holy Mosques and the keepers of the holy places of Islam we have to understand the last week during the Haj the whole government shut down. The whole government of Saudi Arabia shut down to support the 3.5 million pilgrims that were coming to Mecca and Medina. This is two hundred Super Bowls four days in a row. That’s what they do and as a government deeply committed to ensuring that every Muslim in the world when they come for their religious responsibility can satisfy that without interference, without pressure, without political interference. That’s there role in that religion.

In Iran they see a challenge to the legitimacy of the oversight of that. It’s a governance issue, its not a Sunni-Shia issue and with Iran’s government they see essentially death by a thousand razor cuts as Iran has a coherent strategy for destabilization in the region starting in Baghdad, extends to Damascus the support of the Muslim Brotherhood, Hamas, Muslim Brotherhood in Yemen, Bahrain the Eastern Province, wherever they can take an issue and turn it into a sectarian issue, that is the strategy that they see that Iran is pursuing. So Iran is a very real threat to them. It is the existential threat in the region.

[Anthony] Thank you Mr. Ambassador for enlightening us in this opening session of the second day of this 21st annual conference on Arab-US policy issues.