While it's working hard to diversify and modernize its economy, Saudi Arabia is stumbling in its effort to establish a financial center in the kingdom. Emblematic of the problem is the fact that Riyadh's King Abdullah Financial District, begun a decade ago, has more skyscrapers than tenants. Crown Prince Mohammad bin Salman's Vision 2030 plan to turn the kingdom into an investment powerhouse, ballyhooed at first, is meeting more skepticism as MBS, as the crown prince is known, launches ever larger visions. Investors are beginning to question not only the $2 trillion valuation of Saudi Aramco but whether the IPO of 5 percent of the shares of the state-owned oil company will happen at all.

The construction site of the new King Abdullah Financial District on June 20, 2018, in Riyadh. The development is part of the Vision 2030 series of reforms and projects aimed at diversifying the Saudi economy. Sean Gallup | Getty Images News | Getty Images

Last year Riyadh fell backward a notch on rankings of global financial centers, according to the London-based Z/Yen Group's Global Financial Centres Index, which is based on surveys of professionals working in the market. What makes the story in Riyadh interesting is why establishing a financial sector is turning into such a struggle. After all, the Kingdom has massive wealth — the most recent display of it being the possibility, reported by Elon Musk, that Saudi Arabia's sovereign wealth fund has approached him to invest enough money to turn Tesla into a private company. A look at the city in the Middle East that has succeeded in establishing a financial center, Dubai, offers some clues to where Riyadh might be falling short. The keys are delivering on the small, steady steps of reform; the changes in tax and legal codes that enable business and finance; and building a culture and society open enough to draw a global expat community.

Top-Ranked financial centers in the Middle East and Africa Location Rank Move up or down in rank/2016-2017 Dubai 18 7 Abu Dhabi 25 3 Tel Aviv 34 (-2) Casablanca 35 (-5) Doha 45 (-6) Johannesburg 48 11 Bahrain 51 6 Mauritius 69 2 Riyadh 77 (-1)

"If I had to sum up in one word what I have learnt about financial centres over the past 15 years of studying them, that word would be 'trust,'" said Mark Yeandle, the lead author of the Financial Centres Index, by email. "Dubai have built up a good track record. Riyadh does not yet have this."

The Saudi stock market is booming

Of course, Saudi Arabia's stumbles may be momentary. The country's financial sector got a boost late this spring when MSCI announced in June that it would include Saudi Arabia in its emerging markets index, which means billions in institutional investors' capital will flow into the stock market, already the region's largest. The change came after Saudi regulators enabled foreign investors to own up to 49 percent of listed securities. The iShares MSCI Saudi Arabia ETF (KSA) is the No. 1 performer among all single-country funds in 2018. Even as the recent slide in crude oil has lowered its year-to-date return from over 20 percent to 12 percent, it remains the top-performing stock market in the world, and one of only about a dozen that are generating positive performance this year. MBS needs to diversify the economy rapidly if the country is to avoid what the World Bank called a "looming poverty crisis" brought on by lingering low oil prices and rich state benefits. The World Bank is forecasting a 1.8 percent growth in GDP this year, with more than 2 percent expected for next year, based on the continuing commitment to reform and a recovery in oil production. More than $1 trillion of the $3.5 trillion GDP comes from the oil sector.

Saudi officials did not respond to multiple requests for comment. A financial sector that can finance domestic deals and serve as a bridge for external investment is crucial. But Riyadh's path to transformation is seeming much rockier than that of Dubai. In less than two generations, Dubai went from a trading post with no paved roads to the top financial center in Africa and the Middle East. It also became one of the five fastest-growing cities between 2010 and 2015, according to the Brookings Institution. It is still rising in stature as it draws blockchain investment and finishes preparations for the World Expo in 2020.

Whilst Saudi has massive and undisputed wealth, there is a sense of being an untried centre, which in a pretty autocratic country is beholden to their leader. Mark Yeandle lead author of the Financial Centres Index

In some ways, Saudi Arabia is borrowing pages from Dubai's playbook. Both countries, for instance, have been tax havens for foreigners and the native-born population, as neither have personal income taxes. But while Dubai moved aggressively to establish a reputation as a place friendly to foreign businesses by creating dozens of special zones with tax incentives and special regulations, Saudi Arabia has been slower. It has established a bankruptcy law, but not the codes that would lay out how the law will be implemented. In 2015 it was working on about a half-dozen economic zones, according to PricewaterhouseCoopers. Saudi Arabia this year established a VAT to help make up its budget shortfall. Ten years ago, when Riyadh first started working on diversification, announcing a $10 billion investment in the King Abdullah Financial District, it was envisioned as a sort of mini Dubai. MBS's 2030 plan calls for Riyadh to be an investment powerhouse and, like Dubai, a bridge between three continents. The district was built but has struggled to attract tenants, according to Yeandle and others. PricewaterhouseCoopers, which reportedly was planning to take space in the district, said through a spokeswoman that it couldn't comment on the reports. Dubai has become an expert in guerilla tactics to establish its reputation as a hub for fintech. For instance, it offers targeted investments and government contracts to top start-ups worldwide to lure fast-growth companies to the emirate.

Fintech will be key to the Saudi transformation

Saudi Arabia likewise plans to invest heavily in fintech and innovation, but it is leveraging its own wealth. For instance, state-owned company Alhamrani Group is investing in blockchain and has established a company called Ateon, a solutions provider and systems integrator in the fintech space that focuses on blockchain and cybersecurity. One of the company's initiatives was automating the record-keeping for the VAT, which is designed to be collected in Saudi Arabia at every step of a product's life cycle, said Husam Yaghi, Ateon president. "A big chunk of that Vision 2030 is that digital transformation in fintech," said Yaghi. Saudi Arabia's central bank has also joined Ripple, the cryptocurrency that major banks, including Santander, Bank of America and UBS, are using to make global financial transactions easier. Saudi Arabia is also using a tactic other petrochemical states, like Kuwait, have tried: investing in companies abroad, or becoming a co-investor with leading foreign companies, to spur industry at home. Before the Tesla headlines — which the Saudis have so far been quiet on — MBS announced back in March a deal with SoftBank's Vision Fund to develop a $5 billion solar project, the world's largest, though the fund didn't name a location. The project, for which SoftBank is investing $1 billion, is expected to have the capacity to produce 200 gigawatts of energy by 2030. Saudi Arabia, meanwhile, invested $250 million in the Vision Fund from the Saudi Public Investment Fund. (The Financial Times recently reported that the Public Investment Fund may be falling short on some of its infrastructure investment goals, perhaps because of the delay in the Aramco IPO.) What Saudi Arabia hasn't been able to do is establish rapid trust and innovation like Dubai did. It turned itself into a city that tourists wanted to visit, expats wanted to live in and where the native-born population wanted to work. It's estimated that 70 percent of its population is from other countries. To the extent that those transplants were professionals with established networks to their home countries or regions, Dubai has benefited. The emirate has also leveraged its status as an underdog to inspire its native-born population. Dubai is getting set to hold the World Expo in 2020, which is expected to draw more than 17 million people. The leftover infrastructure is expected to offer another economic boost to the city. Siemens, for instance, has committed to moving its global logistics headquarters to office space in the Expo, which will also have a 5G network. The Dubai government is well aware of the well-financed efforts a few hundred miles away. "We look around us every day very carefully," said Marjan Faraidooni, head of legacy at Expo 2020 Dubai. "It just fuels us to be more creative. If other cities want to be more competitive, it will drive us more. Dubai does not have oil reserves. We were driven to be competitive globally."