Saudi Arabia plans $2tr megafund for post-oil era

Saudi oil minister Ali al-Naimi is the closest thing the oil industry has to a celebrity. His walks through Vienna during OPEC meetings have become a public spectacle, drawing journalists and industry observers. Photo: AP.

Saudi oil minister Ali al-Naimi is the closest thing the oil industry has to a celebrity. His walks through Vienna during OPEC meetings have become a public spectacle, drawing journalists and industry observers. Photo: AP.

Saudi Arabia is getting ready for the twilight of the oil age by creating the world’s largest sovereign wealth fund for the kingdom’s most prized assets.

Over a five-hour conversation, Deputy Crown Prince Mohammed bin Salman laid out his vision for the Public Investment Fund (PIF), which will eventually control more than $2 trillion and help wean the kingdom off oil.

As part of that strategy, the prince said Saudi will sell shares in Aramco’s parent company and transform the oil giant into an industrial conglomerate. The initial public offering could happen as soon as next year, with the country currently planning to sell less than five per cent.

“IPOing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil,” the prince said in an interview with Bloomberg, at the royal compound in Riyadh.
He added that “what is left now is to diversify investments. So, within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”

Almost eight decades since the first Saudi oil was discovered, King Salman’s 30-year-old son is aiming to transform the world’s biggest crude exporter into an economy fit for the next era. As his strategy takes shape, the speed of change may shock a conservative society accustomed to decades of government handouts.

The sale of Aramco, or Saudi Arabian Oil Co., is planned for 2018 or even a year earlier, according to the prince. The fund will then play a major role in the economy, investing at home and abroad. It would be big enough to buy Apple Inc., Google parent Alphabet Inc., Microsoft Corp. and Berkshire Hathaway Inc. — the world’s four largest publicly traded companies.

PIF ultimately plans to increase the proportion of foreign investments to 50 percent of the fund by 2020 from five per cent now, said Secretary-General of the fund’s board, Yasir Alrumayyan.

The blueprint for structural change follows a series of measures last year to curb spending and prevent the budget deficit from exceeding 15 per cent of gross domestic product. At the end of December, authorities raised the prices of fuel and electricity and pledged to end wasteful budget spending after oil prices plunged.

More will follow those “quick fixes” as part of a “National Transformation Plan” to be announced within a month, including steps to raise non-oil revenue steadily through various measures including fees and value-added taxes.



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