Saudi Arabia in investment spree mode
In the recent conference, the Saudi government has envisioned to strengthen the Public Investment Fund (PIF), which is the engine behind the economic diversification of Saudi, in order to achieve the objectives of Vision 2030.
The newly released PIF programme is meant to prepare the economy for a post-oil era through economic and public sector investments, encouraging private sector and foreign participation, and gradually opening up the local economy and increasing its competitiveness.
The PIF programme (2018-2020) includes 30 new initiatives, with an aim to increase the assets to $400 billion (Dh1.4 trillion) by 2020 (from the $224 billion September 2017).
The idea is to unlock the potential in new sectors such as military (SAMI), industrial (Dussur), eCommerce platform (Noon.com), entertainment, real estate/infrastructure and recycling/ waste management.
PIF further aims to localise the technology and knowledge-know-how by creating 11000 high — skilled direct jobs by 2020, and building strategic economic partnership, thus attracting $5.3 billion in foreign direct investments in the next three years.
Additionally, the programme also includes investments in Giga- projects namely Neom ($500 billion investment; and potential market listing), The RedSea project and The Qiddiya Project.
The key source of funds come from a) capital injections from the government b) government assets transferred to PIF c) loans and debt instruments d) retained earnings from investments.
Ambitious target
PIF has structured its investment plans under six broad categories namely: Saudi Equity Holdings, Saudi Sector Development, Saudi Real Estate and Infrastructure development, Saudi GigaProjects, International Strategic Investments and International Diversified Pool.
PIF has set an ambitious target of average annual returns to range 6.5-9 per cent for these investments. Furthermore, PIF is also seeking global ties through strategic partnerships — Softbank Vision Fund (Technology focus), US Infrastructure Investment Program (in collaboration with Blackstone) and Russian Direct Investment Fund (RDIF) among others. It has plans to diversify its international investments through Saudi Arabian Investment Co (Sanabil), an entity which is expected to play a major role in PIF’s plans for international investments.
One of the key initiatives is to maximise the value of PIF’s current investments in Saudi, by building competitive advantage and leveraging PIF’s scale and network.
We note that PIF is a key investor into major listed companies operating in the Saudi across various sectors such as Petrochemicals (SABIC), Banks (NCB/SAMBA/RIYAD/ALINMA), Telecom (STC), Utilities (SEC/GASCO), Mining (Maa’den), Consumers (Almarai, Savola, NADEC/SFICO), Cement (SPPC/Qassim/Yanbu/Saudi Cement/ EPCC) and Transport (SAPTCO).
Besides the listed entities, PIF also has investments in the sectors which could eventually get offloaded for larger investor participation (such as Flour Mills, SALIC/MARAFIQ etc).
Furthermore, PIF is a key investor in the Saudi Stock exchange (Tadawul) which itself is in an IPO process, and will play a key role in privatisation initiatives of the kingdom.
All these investments are interestingly into the Saudi non-oil sector and are in line with Saudi Arabia’s vision 2030 of developing its non-oil economy.
All in all, it is envisioned that these new investments will directly contribute to 6.3 per cent of total GDP by 2020 (4.4 per cent as of 2016).
Golden era
We believe the economy is at the most crucial junction of taking a bold step in the right direction for diversification, and it could well be termed as a “Golden Era” of Saudi that could create profitable business models.
We view these policy measures positively, however the quality and timing of executions remains pivotal. For embarking on such a huge and far reaching initiative, it is critical for the economy to stick to its planned reforms and diversification plans despite short term pain and challenges.
We note that social drivers are being addressed at the right podium — with more than half the population under 30, job creation particularly the skilled employment is vital for the economy.
It is also inspiring to see institutional mindset in the planned strategy of Saudi Arabia, which encourages more independent thinking and entrepreneurial spirit.
Given the vast amount of availability of human and capital resources the future looks bright and better, especially given the dynamism and determination appears stronger than before.
The author is a vice-president with Shuaa Capital, and can be reached at im@shuaa.com.