Saudi outreach will aid economy
The month-long visit of King Salman to Asia testifies to a newfound determination in Saudi Arabia to explore all possible channels to enhance the kingdom’s economic prospects. The trip took him to key trading partners like China and Japan.
Concurrently, Deputy Crown Prince and Defence Minister Mohammad Bin Salman met US President Donald Trump while King Salman was touring Asia. Much to President Trump’s delight, talking points included possible Saudi investments in America’s infrastructure.
Saudi Arabia has the means to make major investments in the US and Asia. Latest statistics by the Sovereign Wealth Fund Institute put the value of Saudi SWF at a notable $775 billion, with only those held by Norway, China and the UAE ahead of the tally.
Yet, Saudi officials led by Deputy Crown Prince and Defence Minister Mohammad Bin Salman remain determined for a possible sale of Saudi Aramco through a global IPO. Understandably, Tokyo Stock Exchange is looking for this prize.
The desire is to raise more than $100 billion through the offer. The IPO generated funds will help upgrade and develop infrastructure like airports, ports and road networks.
The 2017 version of the Quality of Living Rankings, produced by Mercer, gives unfavourable scores for two Saudi cities.
Rankings for major cities within the Gulf are as follows: Dubai (74), Abu Dhabi (79), Muscat (106), Doha (108), Kuwait (126), Manama (134), Riyadh (166) and Jeddah (169). Clearly, Saudi cities have a long way to go to improve their rankings.
Most likely, the intention is not to use IPO funds to help bridge the budgetary deficit. The authorities are addressing fiscal shortfalls through rationalising expenditures and improving revenue sources. With regard to expenditures, PricewaterhouseCoopers has been hired to review projects worth $69 billion with the aim of cancelling a third of the schemes awarded by the housing, transport, health and education ministries.
Cutting costs
In addition, the contract calls for advising on ways to cut project costs and where viable, privatise them.
The authorities keep finding new means to generate additional non-oil revenues like increasing prices for fuel, utilities and other public services. The budget deficit amounted to $98 billion in 2015, or the first full fiscal year following the collapse in oil prices in mid-2014.
The deficit fell to $79 billion in 2016 while the projected figure for 2017 stands at $53 billion.
Not surprisingly, there is no shortage of interest on the part of institutional and other investors for securities issued by the kingdom. In October, Saudi Arabia raised $17.5 billion of Eurobonds in capital markets, the biggest issuance for an emerging-market, and exceeding that raised by Qatar. The package was oversubscribed, with total bids amounting to $67 billion. The experience amounted to a vote of confidence in prospects for the economy notwithstanding the plunge in oil prices.
The economy is undergoing change for the better via Vision 2030. Introduced in 2016, the vision envisages a less oil-dependent economy. The national transformation plan 2020 is helping by transforming the economy and opening up to investors and visitors.