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Saudi’s 3 trillion riyal investment pledge an economic double edged-sword for the GCC

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Following Saudi Arabia’s announcement this week that its Public Investment Fund (PIF) will invest three trillion riyals over the next 10 years, there could be both positive and negative impacts for the wider GCC region, an economist told Al Arabiya English.

Scott Livermore, the chief economist from Oxford Economics Middle East, said that the impact is through two channels that pull in the opposite direction.

“A stronger Saudi economy will benefit other countries in the GCC and if PIF can significantly boost the domestic economy in Saudi Arabia then this provides a boost for the whole region,” Livermore said.

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Competition increasing between the Gulf nations with all attempting to secure investment and attract international companies, offers a downside, Livermore said.

“It also signals an increase in ‘vision-competition’ - with Saudi Arabia trying to attract investment and companies that may have been destined for, or are currently based elsewhere in the GCC, such as Dubai or Bahrain,” he explained. “This is likely to encourage the reform agendas in other parts of the region.”

Saudi Arabia’s Crown Prince Mohammed bin Salman announced on Sunday the Kingdom’s strategy for its Public Investment Fund (PIF) for the next five years.

The Crown Prince estimated that the total assets of the PIF will exceed 7 trillion and 500 billion riyals in 2030, adding that the government’s commitment will see it pump 150 billion riyals annually into Saudi Arabia’s economy from the fund itself.

The Saudi national flag flutters at the historical site of al-Tarif in Diriyah district, on the outskirts of Saudi capital Riyadh, on November 20, 2020.
The Saudi national flag flutters at the historical site of al-Tarif in Diriyah district, on the outskirts of Saudi capital Riyadh, on November 20, 2020.

The PIF also listed the following six targets set to be achieved by the sovereign wealth fund by 2025: Doubling Assets under Management (AUM) to reach $1.07 trillion, creating 1.8 million jobs, both directly and indirectly, focusing on 13 strategic sectors, investing at least $40 billion annually in the local economy, contributing $320 billion to non-oil GDP, and raising the local content contribution to 60 percent in PIF and its Portfolio companies.

Livermore said that the Kingdom will have revisited and refocused priorities following the fallout from the coronavirus pandemic.

“The Saudi economy, like almost every economy in the world, has been hit hard by Covid-19, but the repercussions of low oil prices probably had a more telling impact on Vision 2030,” he explained.

“It is unlikely the government will step back from mega projects such as NEOM and Qiddiya, and the key targets of Vision 2030 are likely to remain in place, but some scaling back and slowing down of plans is likely.”

The crisis did underscore the importance of a diversified economy and diversified source of government revenues, Livermore said. “This will reinforce the drive behind Vision 2030.”

Saudi Arabia unveils masterplan of its Qiddiya entertainment city project
Saudi Arabia unveils masterplan of its Qiddiya entertainment city project

Livermore believes the new funding reinforces PIF’s role in supporting private sector growth and advancing towards realizing Vision 2030’s goals with the megaprojects becoming more central.

“It had already been reported that the PIF will inject US$40bn (SAR150bn) into the domestic economy in 2021 and 2022 to foster growth,” Livermore noted. “It now seems clear that this active role in the domestic economy will continue beyond 2022 and probably increase.”

Fast Facts: Five things you need to know about PIF

1) The Public Investment Fund (PIF) is Saudi Arabia’s sovereign wealth fund, and with over $300 billion worth of assets under management, it is the largest in the world.

2) It drives economic diversity in the Kingdom, and has investments covering various sectors, including aviation, renewable energy, banking, technology and entertainment

3) The PIF targets large scale investments that will maximize future revenues for Saudi Arabia’s Vision2030 strategy. Holding a stake in Uber Technologies, it also acquired a $100 billion shareholding in Softbank’s technology fund.

4) Often keeping their investment portfolio secretive, it has revealed in the past stakes bought in Facebook, the Walt Disney Co, Boeing and Marriott.

5) PIF is the key investor at the center of the $500 billion, 26,500 square kilometer high-tech NEOM project. Announced in 2017 it will include, towns, tourist destinations and research centers of excellence.

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