Monday, June 14, 2021

Saudi Arabia pulls off bold moves to power domestic recovery

LONDON/RIYADH–Striving to support its economy at a difficult juncture marked by crises and the repercussions of the coronavirus pandemic, Saudi Arabia made a couple of bold moves on the economic front this weekend.

The kingdom replaced its central bank governor and said it would more than double the size of its sovereign wealth fund by 2025 as Crown Prince Mohammed bin Salman bin Abdulaiz sets the stage for a flagship investment conference this week.

According to a decree by the king, Ahmed al-Kholifey was removed from his position heading the monetary authority and replaced by Fahad al-Mubarak, who was central bank governor from 2011 to 2016.

Mubarak, the new governor, had most recently been a minister of state and served as the kingdom’s representative during its presidency last year of meetings of the Group of 20 industrialised economies. He was also previously chairman of Morgan Stanley’s Saudi Arabia unit.

The central bank and the $400 billion Public Investment Fund are set to play an increasingly important role in powering Saudi Arabia’s domestic recovery, experts say. This comes as the government looks to boost an economy hit by the twin shocks of the coronavirus pandemic and low oil prices. The central bank’s mandate was recently expanded to include supporting economic growth, while the crown prince has said the wealth fund would invest $40 billion a year domestically.

The Saudi crown prince said on Sunday the kingdom’s Public Investment Fund (PIF) has a plan to double its assets to 4 trillion riyals ($1.07 trillion) by 2025, a move that would make it one of the world’s biggest sovereign wealth funds.

The fund would invest 3 trillion riyals in new sectors over the next 10 years, said the prince, who is Saudi Arabia’s de facto ruler and chairs the fund’s board.

A new five-year plan would make the fund “the leading catalyst for Saudi Arabia’s economic transformation and diversification,” the prince added in a speech on state TV.

The prince has long pushed the Public Investment Fund as a central plank in his plan to find ways of driving growth while weaning the economy off its dependence on oil. Crude exports still account for more than half the kingdom’s income.

Sunday’s announcements highlighted “the fact that developments in Saudi Arabia are going to be PIF-led. But external funding will remain critical given the size of its objective,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

Foreign investment inflow to the kingdom was affected by the drop in oil prices and the negative impact of COVID-19.

The prince said the fund, which has already increased its assets under management to 1.5 trillion riyals by 2020 from 150 billion riyals in 2015, was on track to meet its goal of having more than 7.5 trillion riyals of assets under management by 2030.

The five-year strategy would see the fund creating 1.8 million direct and indirect jobs by 2025, from 331,000 by the end of the third quarter of 2020, he said. To boost the domestic economy, the fund planned to inject at least 150 bln riyals annually in the local economy until 2025, Prince Mohammed added.

The PIF and its companies aimed to contribute 1.2 trillion riyals to non-oil gross domestic product (GDP) by the end of 2025, he added.

“The Fund’s role as a separate channel to support the economy at the time of volatile oil prices is of major importance. It will help build savings, secure financing and attract investments,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

The fund has become a more active investor since 2015, taking a $3.5 billion stake in Uber Technologies and contributing $45 billion in Softbank’s inaugural $100 billion technology fund.

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