Where Saudi $billions worth of investments are going and why

October 8, 2018 3:51 pm


Saudi is increasing its investments locally and internationally, spending the cash wisely and taking full aim to raise more via privatization.

2030 Saudi Vision-born transformation has already unveiled investments like the $500bn NEOM by the Red Sea, and sports and entertainment plans which Ahmad Al-Khatib, Chairman of the General Entertainment Authority (GEA), recently said the Kingdom would spend $64bn in over the coming decade.

Sport 24 reported that Rafael Nadal, Novak Djokovic agreed to play each other in an exhibition in Saudi at Jeddah’s King Abdullah Sports City on December 22.

Saudi Arabia has hosted a series of international sports events in recent months, including the first women’s professional squash tournament in January, while last month saw Britain’s Callum Smith knock out compatriot George Groves in a World Boxing Association super middleweight boxing bout in Jeddah.

But where else is Saudi investing and pursuing a strategic agenda of growth?

Read: Saudi’s entertainment sector takes a front-row seat with new visa

Softbank Vision Fund

The Saudi government’s Public Investment Fund (PIF) is prepared to pour an additional $45 billion into funds operated by Japan’s Masayoshi Son, who is planning on setting up additional investment vehicles alongside the existing $100 billion SoftBank Vision Fund established in 2017, indicating that the Middle Eastern kingdom will likely continue to be an investor in these endeavors, The Asian Review reported.

Saudi Crown Prince Mohammed bin Salman told Bloomberg in an interview published last Friday that the PIF will make the investment.

“We have a huge benefit from the first one,” he is quoted as saying. “We would not put, as PIF, another $45 billion if we didn’t see huge income in the first year with the first $45 billion.”

The Vision Fund invests in growth companies around the world and is the top shareholder in ride-hailing pioneer Uber Technologies. Son told Nikkei in an interview that he envisions “setting up second, third, fourth $100 billion vision funds at 2-3 years intervals.”

Saudi Crown prince Mohammed Bin Salman said that its investment in the first Vision Fund will help PIF achieve its new target of $600 billion in assets by 2020, up from the almost $400 billion it currently holds.

Related: Saudi denies delaying $200bn project, vows future spending

Downstream petrochems

Saudi oil giant, Aramco, is soon to enter the international financial markets for a $50 billion loan, reported oilPrice.com

International sources are reporting that the world’s largest oil company will look for around $50 billion from international banks, largely to be used to finance a majority stake in Saudi Basic Industries Corporation (SABIC) in 2019, stakes currently held by the Saudi sovereign wealth fund Public Investment Fund (PIF).

According to Arab News, Saudi crown prince Mohammed Bin Salman recently reaffirmed in an interview with Bloomberg the commitment to sell shares in Saudi ARAMCO by 2021, but he made it clear that part of the reason for the longer time frame was the need to protect and enhance SABIC, the Kingdom’s premier industrial conglomerate.

“The prospect of ARAMCO and SABIC competing in downstream petrochemicals was not an attractive one for Saudi policymakers, so a strategic decision was taken to merge the two companies some time next year,” said Arab News.

“That deal will have the added benefit of freeing up around $70 billion (price of SABIC shares help with PIF) for the Public Investment Fund to further PIF’s aim of becoming the biggest sovereign wealth fund in the world.

This simultaneously bolsters the value of Aramco whose shares are also owned by PIF, ahead of an intended IPO.

“The investor will decide the price on the day. I believe it will be above $2 trillion. Because it will be huge,” Saudi Crown Prince Mohammed Bin Salman told Bloomberg, who added that the IPO would go ahead by early 2021 after reports emerged the plan had stalled.

Expert opinion: The bullish case for Saudi Tadawul index 

Spare oil production capacity

Saudi will invest $20 billion in the next few years to maintain and possibly expand its spare oil production capacity, Saudi Energy Minister Khalid al-Falih said on Thursday, Reuters reports.

Saudi Arabia is the only oil producer with significant spare capacity on hand to supply the market if needed. The kingdom has a maximum sustainable capacity of 12 million barrels per day (bpd).

saudi Crown Prince Muhammad Bin Salman revealed that the Kingdom is producing currently around 10.7 million oil barrel per day, while for the next few months he said: “We have spare capacity of 1.3 million without any investment. So in Saudi,  we have 1.3 million to go if the market needs that. And with other OPEC countries and non-OPEC countries, we believe we have more than that, a little bit more than that. And of course, there is an opportunity for investment in the next three to five years.”

“The next 1 million bpd of Saudi capacity is going to cost us over $20 billion. It costs us $2 billion a year of operating expenses to staff and maintain these facilities,” Falih said.

Aramco has said it plans to spend close to $300 billion over 10 years in upstream oil and gas projects.

Read: Hajj just got more affordable: New Saudi rail system launched

Industrial

Saudi Arabia has invested $133.3 billion in industrial, service and logistics projects and contracts, as the Kingdom demands industrial investments after intensified efforts by the Saudi Industrial Property Authority (MODON) and other government agencies, reports Arab News.

Al-Falih said MODON’s new strategy enables the Kingdom to provide employment opportunities for young Saudis, where investments in 6,271 industrial, service and logistics projects and contracts in the Kingdom have gone so far.

MODON has established 35 industrial cities with total industrial land exceeding 196 million m2 and
include 3,380 productive factories and 6,271 industrial, service and logistics contracts with a total workforce that exceeds 500,000 employees.

Read: Can Saudi’s new seaside Amaala project be a match for Côte d’Azur?

Renewables

The $500bn fully renewable future city of NEOM requires parallel investments in renewable energy.

NEOM location

Saudi’s PIF has built a less than 55 stake in Tesla worth about $2 billion, but has recently invested over $1 billion in American electric car manufacturer, Lucid Motors, a Tesla competitor, after CEO Elon Musk ran into trouble with the US Securities and Exchange Commission, over unsubstantiated claims Tesla had secured investments ahead of a plan to take the company private.

Related: How Saudi’s PIF rep meeting with Tesla led to Musk’s downfall

Defense

Saudi Crown Prince Mohammed bin Salman said that “when President Trump became president, we’ve changed our armament strategy again for the next 10 years to put more than 60 percent with the US. That’s why we’ve created the $400 billion in opportunities, armaments and investment opportunities, and other trade opportunities. So this is a good achievement for President Trump, for Saudi Arabia. Also included in these agreements are that part of these armaments will be manufactured in Saudi Arabia, so it will create jobs in America and Saudi Arabia, good trade, good benefits for both countries and also good economic growth. Plus, it will help our security.”

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Hadi Khatib
By Hadi Khatib
Hadi Khatib is a business editor with more than 15 years' experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about it.



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