“From Oil Economy, this relationship is now moving to strengthen India’s New Oil (Data-driven) Economy, as is evident from PIF’s investment into Jio Platforms. I have greatly admired the defining role PIF has played in driving the economic transformation of the Kingdom of Saudi Arabia,”
- Mukesh Ambani
The Scoop:
Saudi Arabia’s Public Investment Fund (PIF) is a state-owned investment fund that has around $320 billion worth of assets under management and they aim to increase that number to $400 billion by the end of 2020. This sovereign fund has over 200 investments in its portfolio. Since 2015 PIF has started investing in a broader array of companies/projects in various sectors in alignment with the goals of Vision 2030 under the leadership of Crown Prince Mohammad Bin Salman. After the assassination of Jamal Khashoggi in 2018, PIF has seen some negative publicity. From a premier league football team to Reliance Jio, let’s take a look at how PIF has fared over the years.
Diving Deep:
Oil:
Saudi Arabia is an oil-driven economy. Oil and gas contribute to 50% of their GDP and account for 70% of export earnings (https://www.opec.org/opec_web/en/about_us/169.htm). Generally, the oil demand has been consistent and Saudi Arabia has 18% of the global petroleum reserves has reaped its benefits, plus the geography of the state is such that the cost of oil extraction is comparatively lower as the oil much closer to the surface. In 2014 when oil prices plummeted (https://www.macrotrends.net/1369/crude-oil-price-history-chart) and 90% of the income of Saudi Arabia was coming from oil, the IMF predicted the kingdom would go bankrupt by 2020.
Family:
Mohammed Bin Salman became the Crown Prince in 2017 succeeding his father. While growing up when his elder siblings were in other countries pursuing their education MBS stayed in KSA and grew up by his father’s side. The bond between MBS and his father got so strong that his father made him king and not his elder brother Muhammad bin Nayef. It was his goal to gradually decrease the dependence of the economy on oil and PIF has been instrumental in getting closer to this goal.
Brief of Investments:
Since 2015 PIF has diversified its investments, it has invested in sectors ranging from telecommunication to energy. Saudi Arabia is investing a lot of funds towards their Giga projects aimed at putting Saudi Arabia on global tourism as a part of Vision 2030. The four Giga projects are multi-billion dollar affairs and they are- Qiddiya in the capital city of Riyadh, Neom in the southwest of Saudi Arabia, Amaala - Red Sea Riviera, and the ambitious Red Sea Project. These Giga projects are meant to be luxury tourism attractions and will harness technology, innovation, and culture to create an experience for the millennial generation.
Washington Post journalist Jamal Khashoggi was killed by 15 agents of the Saudi government in Saudi Consulate in Istanbul on 2nd October 2018. Since then the Saudi administration has faced a lot of criticism and the event tarnished the image of MBS in a way, they have been trying to make socially strategic investments to help with rebuilding the image.
How could we forget Softbank! PIF had invested $45 billion in Vision Fund to invest in tech-based companies as the returns in the tech sector were unmatched. They invested over $20 billion in Uber, Tesla, and WeWork. PIF has 10% of its assets that are held international and they hope to get that to 50% by 2030.
Jio and Telecom:
Yassir Al Rumayyan when discussing the PIF’s Jio investment said- “We are delighted to be investing in an innovative business which is at the forefront of the transformation of the technology sector in India. We believe that the potential of the Indian digital economy is very exciting and that Jio Platforms provides us with an excellent opportunity to gain access to that growth. This investment will also enable us to generate significant long-term commercial returns for the benefit of Saudi Arabia’s economy and our country’s citizens, in line with our mandate to safeguard and grow the national wealth of the Kingdom.” Recently, PIF invested $1.5 billion in Jio Platforms for a 2.32% stake. PIF has been very opportune in trying to build its stake in blue-chip companies by buying shares in this pandemic when the stocks can be bought at a bargain. PIF has been recently building its stake in the UK telecommunications company BT by buying shares at one of the lowest prices in the history of the company. These investments clearly show PIF is betting on the potential of 5G and they do not want to miss out on the BT acquisition.
Yassir Al Rumayyan when discussing the PIF’s Jio investment said- “We are delighted to be investing in an innovative business which is at the forefront of the transformation of the technology sector in India. We believe that the potential of the Indian digital economy is very exciting and that Jio Platforms provides us with an excellent opportunity to gain access to that growth. This investment will also enable us to generate significant long-term commercial returns for the benefit of Saudi Arabia’s economy and our country’s citizens, in line with our mandate to safeguard and grow the national wealth of the Kingdom.” Recently, PIF invested $1.5 billion in Jio Platforms for a 2.32% stake. PIF has been very opportune in trying to build its stake in blue-chip companies by buying shares in this pandemic when the stocks can be bought at a bargain. PIF has been recently building its stake in the UK telecommunications company BT by buying shares at one of the lowest prices in the history of the company. These investments clearly show PIF is betting on the potential of 5G and they do not want to miss out on the BT acquisition.
Sports:
PIF is also in talks to take over Newcastle United, a football club that plays in the Premier League, and if this deal goes through it could be transformative to the trajectory of the club. It is no secret that clubs that are more successful than others, in the long run, have more resources. PSG and Manchester City are two big football clubs that are owned by the Qatari ruler’s sports investment firm and Sheikh Mansour the deputy Prime Minister of UAE. After takeovers both the clubs have really transformed and have taken a turn for the better. Keep an eye out to see how this pans out.
Speculation:
The PIF is the centrepiece and primary investment vehicle of the kingdom of Saudi Arabia to drive forward the economic goals of the Crown Prince in alignment with Vision 2030. Vision 2030 is MBS’s framework, a tactical plan to reduce the reliance of the economy on oil and diversify the economy. Vision 2030 is aimed at modernizing KSA and improving the lifestyle of the Saudi citizens and progressing the country forward. PIF being under the purview of MBS represents the centralization of both money and power and consolidates the authority of the Crown Prince. From a political standpoint, the PIF made several strategic investments to diversify the economy. Because of the oil wealth that Saudi Arabia has the citizens enjoy free healthcare and subsidized housing, as the economy moves away from oil, it will be interesting to watch how the life of the citizens is affected.
The PIF plays a vital role and as a result of the diversified nature there suddenly is a lot of money chasing deals in various sectors. Could this be an alternative to Chinese investors for large deals given the Anti-China sentiment that is looming in India, only time will tell?
The Saudi government was linked to the assassination of Jamal Kashoggi and after some denial, Saudi accepted that its officials were behind the murder but MBS has denied ordering the assassination. After this, the Saudi administration faced a lot of criticism globally and Uber CEO, Google Cloud, and other big companies withdrew from the FII investment conference in Riyadh. US-based firm Endeavor returned a $400 million investment from the PIF because of the killing. In the wake of the murder PIF also hired a PR firm to “clean” the public image of MBS. The assassination of Jamal Khashoggi has put the government in a bad spotlight but MBS did meet with foreign envoys and the Trump administration to mend ties in this regard. This incident hampered the impression of PIF among investors and since then PIF has also made social investments to refurbish its image amongst consumers and the general public.
On December 11, 2019, 1.5% of Aramco began trading on the Tadawul (local stock market of KSA) at a valuation of $1.88 trillion, short of the $2 trillion valuations that was initially claimed in 2016. The IPO was historic but did not meet the expectations and was dubbed a “hollow win”. The IPO and overall valuation are indicative of what the market believes in the viability of the transformation ie. Vision 2030. The liquidity generated from the IPO will be pumped into the PIF and is indicative of the confidence of the Saudi population in Vision 2030.
Verdict:
The reforms which MBS has put in place through the PIF and more broadly Vision 2030 are very progressive and transformative. This entire transition that KSA is going under hasn’t happened in its history and at such a magnitude. The PIF is yet to reach a stage where calling it a success or a failure with conviction wouldn’t be possible and by extension Vision 2030. Vision 2030 is like a house of cards either it will build up or it could all come falling down, there is no in-between, and how the world and the citizens view it could make or break this project. How do you think PIF and Vision 2030 will unfold over the years? Comment below!