The economic plan unveiled by Deputy Crown Prince Mohammed bin Salman, second deputy premier and defense minister, is aimed at diversifying the economy away from oil, which would ensure the country’s prosperity over the long term.
This is according to a report published by Bloomberg on Monday under the headline “Four Things We Learned About Saudi Arabia From the Deputy Crown Prince.”
The report follows in the wake of a five-hour interview the business news agency conducted with Deputy Crown Prince Mohammed at the royal compound in Riyadh last week, where he outlined plans to place the country’s most valued assets into a massive $2 trillion sovereign wealth fund.
The report stated that the Kingdom is clearly “thinking past oil” with the “center piece of the 30-year-old prince’s vision for a revamped Saudi Arabia is a plan to turn the Kingdom’s Public Investment Fund into a sovereign wealth fund billed as the largest on the planet, a fund so large that the country will eventually rely more on investment income than oil income.”
“For decades, the world’s largest oil exporter has kept most of its wealth at the Saudi Arabian Monetary Agency, ignoring calls from economists at home and abroad to create a separate sovereign fund. But with the slump in crude prices, the status quo can remain no more,” the report stated.
“While an eye-grabbing figure, the fund’s $2 trillion of assets would mainly be due to Aramco. The plan is to transfer most of the oil giant to the fund to sit alongside holdings in commercial and financial companies,” the report stated. The report stated that the prince has billed it as one of the largest funds on earth, which would be capable of buying the world’s four largest companies by market value, which includes Apple $602 billion, Alphabet (Google) $514 billion, Microsoft $434 billion and Berkshire Hathaway $348 billion.
Bloomberg also reported that apart from one megafund, the Kingdom has to deal with other challenges, including its budget deficit that was almost 15 percent of the economy last year and unemployment among Saudis aged 30 or under at 29 percent.
“So Prince Mohammed also proposes finding other ways to raise money, with plans to generate $100 billion per year in additional non-oil revenue by 2020. Measures range from cutting the cost of subsidies for household bills, taxes on consumers and a Green Card-style program for expatriates,” the report stated.
The initial public offering of shares in Aramco could come as soon as next year and would be “one of the biggest in corporate history” with 5 percent of the mother company offered to the public as well as a number of its subsidiaries and the rest going to the megafund.
“A back-of-the-envelope calculation puts the value of Aramco at about $2.5 trillion, using a conservative $10 per barrel for its reserves. But what foreign investors are willing to pay is unclear, given the fact the company has never published financial details. Based on the estimate, the IPO could raise as much as $125 billion.”
The report stated further that these changes to subsidies and new taxes and fees would be good for government coffers, “but they also mean that Saudis, foreign residents and companies will need to cough up more money in a country where the population has grown accustomed to government largesse.”
“In the first reduction of energy subsidies announced in late December, the price of 91 octane gasoline rose 67 percent, though it is still among the cheapest in the world. Saudis rushed to the pumps to fill their tanks before the midnight price rise. The increase in water tariffs led to a flurry of complaints this month when Saudis received their new bills. Inflation accelerated to 4.3 percent in January,” the report stated.
Source: Arab News