Saudi Arabia is preparing for the end of the oil era. Riyadh will create the world’s largest sovereign wealth Fund, said Prince Mohammed, the son of king Salman and Deputy crown Prince, i.e. the third person in the Kingdom.
Of course, 2 and a half trillion dollars in public investment Fund (PIF) will appear not at once but over time. Now in PIF assets by 5.3 billion dollars, according to the Sovereign Fund Institute. The Fund already owns large stakes in several major companies, including Saudi Basic Industries Corp., the second world’s largest producer of ethylene glycol, and the largest lending Bank of the Kingdom, National Commercial Bank. Works PIF and abroad. In July of last year he, for example, bought for $ 1.1 billion 38% share of the South Korean company Posco Engineering & Construction Co. It is PIF intends to invest in the Russian economy $ 10 billion.
The first step to transforming PIF into megafund should be, according to plan of authorities of the Kingdom, to become part of the sale of the shares in the oil company Aramco and its transformation from the oil giant industrial conglomerate. IPO Aramco, said Prince Mohammed in a five-hour interview to Bloomberg, may be implemented next year. It is planned to put less than 5% of the company’s shares. The remaining shares will be transferred to PIF.
Prince Mohamed chairs the Council of economic Affairs and development, created by king Salman last year specifically for it. In addition to the Ministry of defence, and he directs a number of other important ministries, including economy, Finance and oil. PIF is also subject headed by Mohammed to the Council.
Prince Mohammed hopes that within 20 years the CSA will get off their oil addiction and turn into a state, the main source of income which will not oil.
In these dizzying plans to establish the economy of the 21st century, devoted considerable space to megafonu. It will be so powerful that will be able to buy four of the largest companies in the world: Apple Inc., Alphabet Inc., parent company Google; Microsoft Corp. and Berkshire Hathaway Inc.
Structural changes will take place after last year’s measures aimed at reducing gosrashodov, amid budget deficit in excess of 15% of GDP. The so-called national plan for change may be announced in late April. It is expected that the focus will be on raising non-oil revenues.
For “sleepy” of the Kingdom, which for many years believed Saudi Arabia, such rapid, and not only by Saudi standards, the changes can be a shock. But many economists the question arises: was not late in Riyadh with the reforms?
It should be remembered that Prince Mohammed undertakes a very difficult task. In 2014, the IMF economists conducted a study and came to the conclusion that the failures of attempts of failure from excessive dependence on energy is much more than success. The oil monarchies of the Persian Gulf have missed the window of opportunity for reducing dependence on oil, when the price exceeded $ 100 per barrel. To hold such a deep and serious reform at the price of 40 dollars for barrel will be much more difficult than a few years ago. However, Prince Salman is sure that oil prices will rise in the next two years regardless of whether the decision in Doha to freeze the production of raw materials. It’s only a matter of time.
“Clearly, Saudi Arabia needs reforms to diversify and give new impetus to the economy,- said the Professor of Economics and political science, Georgetown University Paul Sullivan, but one of increasing investment in non-primary sectors will not be enough. Just order reform, how it can be done with the lunch of many dishes in the restaurant, will not work”.