EU policy could ice out closest trading partners

0:02Good morning from the Financial Times. Today is Friday, August 28th, and this is your FT News briefing. Saudi Arabia's sovereign wealth fund is shaking things up again, and convertible bonds with no interest are having a field day. Plus, EU trade restrictions are hurting other European countries. It's definitely painful because EU is their biggest market. I'm Sonia Hudson, in for Mark Filipino, and here's the news you need to start your day.

0:43Saudi Arabia's Sovereign Wealth Fund is replacing the CEO of one of its flagship mega projects. It's part of a wave of changes across a massive portfolio of subsidiaries owned by the Public Investment Fund, or PIF. Many of those projects have suffered cost overruns in recent years. I'm joined now by the FT's Middle East editor, Andrew Englund, to talk more about what this means for the country's ambition to modernize. Hi, Andrew. Hi, Sonia. So tell me about this project called New Maraba and its new leadership. Yeah, New Maraba was launched by Crown Prince Mohammed bin Salman in 2023. It's kind of another one of the highly ambitious mega projects, giga projects that he's spearheading to transform and modernize Saudi Arabia.

1:33His big thing for the past decade is trying to prepare it for a non-earable future um new maraba was designed or is intended to create a whole sort of new downtown in riyadh and riyadh is this kind of massive sprawling city of about 10 million people do you know it's highly ambitious this particular project included creating building one of the world's biggest man-made structures now as we approach the three-year mark Mike Dyke, who was hired in December 2023, has been replaced by a PIF veteran, Sabah Barakat. And he seemed to be somebody that the Crown Prince, the PIF trust. He's a veteran with the PIF.

2:13He's already acting CEO of another PIF entity, Rosson, and now he's going to be acting CEO of this. What do we know about why PIF swapped CEOs for this project? David Pérez, Ph.D.: People tell me that, like other projects, it's been hit by budget overruns, delays. What I'm told what I get is that they weren't happy with the progress, and they want to shake up the leadership, and they're reassessing and reprioritizing just generally the whole portfolio of projects. I think the PIF itself is under pressure. I mean, the PIF has to deliver returns. After 10 years of spending, people are saying, okay, what are we getting out of this?

2:53And I think that pressure is very real. And what did New Morabah itself have to say about the move? We approached New Morabah about this story, and they told us that Mr. Barakat's appointment had happened in accordance with the company's government's framework and is consistent with its long-term strategic plans. Now, PIF has for years been spearheading the country's vision 2030 to diversify and modernize the economy. But there's been a lot of recalibration going on at different PIF subsidiaries. What other changes have we seen? The big one is obviously a change of the CEO at Neon, which is the Crown Prince's flagship project.

3:36And, you know, that included the idea of creating a 170 kilometer linear city called The Line. There's going to be a ski resort, multiple other things as well. But now they're publicly talking about scaling down these projects and not just scaling them out, but basically shuttering them. We haven't seen wholesale, you know, across every portfolio company, but we've seen certainly changes in several companies. And, you know, it looks like they're going to tried and trusted veterans of the PIF. Well, Andrew, it seems like Saudi's Vision 2030 is really at a pivot point right now. What are you going to be looking out for going forward?

4:15Yeah, I mean, I think we're in a different phase of Vision 2030. And I think, you know, And you've got to remember that these kind of mega projects that grab a lot of headlines, they're one part of Vision 2030. Now, if you speak to Saudi officials, they'd say, look, you know, we've achieved a huge amount since Vision 2030 was launched 10 years ago. Unemployment is down to 7%, which is a record low. Female participation in the labor force has gone above 30%. Tourism has increased, all these kind of things. But the question is, I think, are they creating sufficient private sector jobs for a young population?

4:52Will some of these projects be white elephants? Will they deliver a return? And I think there's still a long way to go before we can really judge what the result for the 21st year is going to look like. Andrew England is the FT's Middle East Senator. Thanks, Andrew. Thank you very much.

5:15Convertible bonds with zero interest are on track for a record year. Globally, companies have issued$72 billion worth of them since January. That's according to DealLogic. AI-linked groups are leading the charge on issuing this type of debt. It helps them raise the billions of dollars they need for building things like data centers. Convertible bonds, in effect, give investors the option to exchange their debt for shares in a company at a certain price. That's attracting investors that are fine with foregoing interest if it means they get some exposure to the very fast-growing AI sector.

6:01The EU's closest trading partners are worried. Brussels has been increasing its protectionist trade policies, and some neighboring non-EU countries think that could isolate them from the bloc. Joining me now to discuss the latest is the FT's Andy Bounds. Hi, Andy. Hey, Sonia. So why has the EU's trade policy become so much more protectionist in recent years? Well, I guess like many other countries, it's been prompted by Donald Trump's attitude and a huge surge in Chinese exports. So the EU industry is being battered by cheap imports from China on one side with this hugely increasing trade deficit with China.

6:48And on the other side, they're finding it harder to send their exports to the US, which is still the biggest market. So they're sort of squeezed and they're looking to erect some barriers to enable them to compete. So what they've done is they've sort of come forward with a raft of made-in-Europe policies. That includes targets, and certain products should be made in Europe. At least a certain percentage of them should be made in Europe in order to qualify for incentives and maybe even to be allowed at all. So they're sort of tilting the playing field towards European-made products. Okay, so these new protectionist measures have primarily been designed to shut out Chinese and American competition.

7:30But you report that these made-in-Europe policies are actually affecting other European countries that are outside the bloc. Who are we talking about and what kind of impact are the policies having? Yeah, well, what we spotted really was that these countries, Norway, Switzerland, Iceland and Liechtenstein, they're effectively in many ways have always been treated as EU members in trade policy because they're so interlinked. And they all pay into the EU budget for the right to access this market of 450 million consumers. And what started to happen is these measures the EU is taking is tending to prioritise EU production rather than this single market group, which is known as the European Economic Area.

8:16So these countries, despite paying in, they're getting a slightly worse service than they did a few years ago. It's definitely painful because for all these countries, the EU is their biggest market. So if your access to that market is being restricted, it's going to have an impact. Andy, do you think there's a situation in which these non-EU neighbor countries raise enough of a ruckus that maybe the EU carves out an exemption for them? Yeah, I think in some cases they have. So there's slightly different treatment. For example, you know, they put big tariffs on steel and Norway was allowed sort of inside the tent on that one.

8:51but this is also right a means by which the debate is starting these countries of well should we just join the eu i mean iceland is having a referendum this weekend on whether to reopen talks with the eu norway's having a big debate in a way the eu may also be seeing this as a means by which these countries might decide well look if we're paying into the system and we're getting second class treatment why don't we just go the whole hog and join andy bounds is an eu correspondent for much.

9:27UK Prime Minister Andy Burnham said he is, quote, acutely conscious of the difficulties that businesses across the country are facing. I'm coming into this role thinking, how do I make life easier for people? How do I take pressure off? In an interview with the FT, Burnham tried to calm corporate nerves ahead of the autumn budget in late October. Some senior business leaders are worried that the government will tax the private sector to fund defense spending and ease the cost of living crisis. We're always talking about the challenges that people are facing. I talk a lot about the cost of living, but a theme you'll hear a lot from us both going forward is the cost of business.

10:10Burnham declined to say whether there will be higher business taxes in the budget, but he did acknowledge that all the speculation could chill investment. To hear more from Burnham's interview with the FT, check out the newest episode of the Political Fix podcast when it runs later today. There's a link to that in the show notes, along with all the other stories from this episode of the FT News Briefing. Check back next week for the latest business news. The FT News Briefing is produced by Safia Efmed, Victoria Craig, and me, Sonia Hudson. Our show is mixed by Kelly Gary and Sam Giovinco. We get help from Peter Barber, Michael Lello, David DaSilva, and Gavin Coleman.

10:49Our executive producer is Topher Forges. Flo Phillips is the FT's global head of audio. And our theme song is by Metaphor Music.

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