Saudi wealth fund bets big to remake oil-based economy
riyadh — With the stock market listing of its national oil company postponed, Saudi Arabia is racing to boost the sovereign wealth fund spearheading a plan to diversify its economy.
The Public Investment Fund had sought to raise billions of dollars through the initial public offering of Saudi Aramco — dubbed as potentially the world’s biggest stock sale — to finance the kingdom’s transformation from a petro-state to a tech-focused economy.
But with the flotation postponed, the PIF is taking major steps to boost its treasure chest to finance a slew of non-oil investments — from hi-tech startups to a new mega city.
“Much of the ambitious economic and social plan to diversify the Saudi economy, jump-start its private sector and create jobs for young people relies on the PIF as an orchestrator of economic growth,” said Karen Young of the Arab Gulf States Institute in Washington.
“In fact, the PIF is so central to the government’s growth strategy that finding resources to feed the PIF has become a national economic priority,” she wrote in a report for the institute.
Pivoting the kingdom’s economy away from oil is a key priority for Crown Prince Mohammed bin Salman. The PIF, which aims to raise its assets from roughly $230 billion to more than $2 trillion by 2030, is aggressively pushing a host of big-ticket investments — from Uber to the planned $500 billion Neom mega city on the Red Sea coast.
The fund has also invested in British tycoon Richard Branson’s space tourism company Virgin Galactic and pledged tens of billions of dollars to funds run by SoftBank and Blackstone.
Some analysts have voiced concern over the PIF’s “spend to grow” strategy.
Since 2016, the PIF has made external investment commitments worth 360 billion riyals ($95 billion), according to the International Monetary Fund, including stakes in tech firms such as electric car company Tesla. The PIF did not respond to requests for comment.
Meanwhile, the postponement of the Aramco IPO is seen as a reflection of the kingdom’s stronger fiscal position following a recent rise in oil prices.
“The postponement of the IPO implies that the economic diversification envisaged by the government will either need to be scaled back or financed by higher direct or indirect public-sector debt issuance,” ratings agency Moody’s said on Monday.
The PIF last month raised an $11-billion loan from international banks, its first commercial advance, in order to finance the kingdom’s transformation plans, the Riyadhbased Al Rajhi Capital said.
“If the PIF is to fulfil its plans in the coming years, it will need additional financing,” the IMF said in a recent report.
To raise money, the PIF is mulling the sale of a “strategic stake” in Saudi petrochemicals giant Sabic to Aramco.
Much of the ambitious economic and social plan to diversify the Saudi economy, jump-start its private sector and create jobs for young people relies on the PIF as an orchestrator of economic growth
Karen Young, Arab Gulf States Institute