Photographer: Waseem Obaidi / Bloomberg
Photographer: Waseem Obaidi / Bloomberg
$ 400 billion from Saudi Arabia The sovereign wealth fund will find it difficult to repeat the success of recent years, when it left its mark globally as a source of cash for asset managers, technology entrepreneurs and tycoons.
Before the kingdom’s main investment conference this week, Saudi Prince Mohammed bin Salman exposed the strategy until 2025. It will spend at least $ 40 billion a year at home, creating new cities and industries, along with 1.8 million jobs. It plans to more than double the assets it controls to more than 4 trillion rials ($ 1.1 trillion), which equates to the current size of Norway’s sovereign wealth fund, the largest in the world.
But as investors tune in at the annual meeting – held as a virtual-physical hybrid event due to Covid-19 – many will remember that Saudi Arabia’s track record on ambitious projects is uneven.
Upward Trajectory
Saudi Arabia’s PIF plans to have its assets in excess of $ 1.1 trillion by 2025
Source: Sovereign Wealth Fund Institute, global SWF data
Since the de facto ruler revealed his broad economic transformation plan in 2016, Saudi Arabia has doubled non-oil revenue, opened up until tourists, created an entertainment industry and saw a jump in the number of women entering the job market. For the conservative Islamic country, these changes are monumental.
But Prince Mohammed also presided over two economic crises, with unemployment reaching record levels and foreign direct investment 37% lower than in 2016 – partly due to the coronavirus and lower oil prices.
What the Bloomberg economy says …
“Part of the increase in Saudi Arabia’s non-oil revenue stems from single settlements after the government’s declared campaign against corruption. This process will be concluded at some point, making this revenue unsustainable. “
– Ziad Daoud, chief economist for emerging markets. For more, click On here.
That did not stop him from announcing new megaprojects and trillion-dollar targets before the existing targets were met.
“The main challenges for the development of the local economy revolve around implementation and the overly ambitious scale of change,” wrote the Eurasia Group in a report. “Transforming economic structures in a quick period of time is not simple, even if the political direction is clearly defined.”
Rather a discrete local entity, PIF is becoming an economic engine, job creator, public prosecutor and partner of foreign companies. Your next phase can take you into almost every corner of the kingdom’s economy. The fund owns most of the megaprojects the Crown Prince defended, including the futuristic city Neom.
It has more than doubled its assets in the five years since Prince Mohammed assumed the presidency of some 1.5 trillion rials, creating 331,000 jobs directly and indirectly, he said on Sunday. Their return on investment increased from about 3% between 2014 and 2016 to 8% from 2018 to 2020, according to the PIF website.
The Riyadh-based investment bank, NCB Capital, estimates that wealth fund investments in 2021 will bring global capital expenditures – including spending by government-related entities – to 8.8% of gross domestic product, compared to an average 6.2% in the last five years.
Blackrock, Goldman
The PIF and its investment conference attracted some of the biggest figures in global business. BlackRock Inc. established a Saudi office and banks, including Goldman Sachs Group Inc. and Credit Suisse Group AG expanded its presence, looking forward to part of the action.
Saudi Wealth Fund is optimistic about business for local manufacturing
The goals for the next decade are even higher: new projects worth up to 1 trillion rials by 2025 – and an additional 2 trillion rials by 2030.
Closing the gap
Saudi reserves have declined in recent years, while PIF assets have increased
Source: Saudi Arabian Monetary Agency and PIF data
With few details on how the new ventures will be financed, however, analysts are cautious.
Bank of America Corp estimates that PIF assets could reach $ 500 billion by 2028, based on historical and Aramco disbursements for the Purchase of Saudi Basic Industries Corp.
“The goals seem narrow, partly due to the broad nature of the various objectives of the PIF,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “Financing and foreign investments will also be important for meeting these goals.”
The PIF said it will be financed with retained earnings from existing investments, transfers of government assets and loans. This includes a $ 40 billion transfer from central bank reserves last year and nearly $ 30 billion in revenue from Aramco’s initial public offering in 2019.
Saudi Arabia Returns to Dollar Debt Market to Boost Finance
If the scale is ambitious, even unreal, it is no accident. In an interview with Bloomberg in 2018, Prince Mohammed said he sets deliberately high goals to motivate authorities to go further.
“If we reach 100%, great,” he said. “If we reach 50%, great! Better than nothing. “
(Updates with the NCB Capital estimate in the 10th paragraph)