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Saudi deputy crown prince paves path for kingdom’s post-oil era

Saudi Arabia's Deputy Crown Prince Mohammed bin Salman reacts upon his arrival at the Elysee Palace in Paris, France in this June 24, 2015 file photo. (Reuters)

Saudi Arabia’s ambitious Deputy Crown Prince Mohammed bin Salman has emerged as the symbol of Saudi Arabia’s quest to reshape its policies within an ever changing region plagued by geopolitical rivalry, changing alliances and dwindling energy revenues.

On Friday, the deputy crown prince announced plans to dedicate a $2 trillion budget for a post-oil economy, in an interview with Bloomberg. The Public Investment Fund aims to help reduce the kingdom’s dependency on oil, its most valued resource.

To achieve this, the fund is considering foreign opportunities and will seek a variety of investments. “So within 20 years, we will be an economy or state that doesn’t depend mainly on oil,” the prince said.

“Undoubtedly, it will be the largest fund on earth,” he added.

Read also: Saudi Aramco IPO signals serious economic reform prospects

Responsibilities

As crown prince, his responsibilities also include serving as the chair of the newly established Council for Economic and Development Affairs as well as defense minister, two portfolios proving to be particularly challenging given that he oversees the Arab coalition’s war against Yemen’s Houthi rebels while facing the impact of dwindling energy prices on the Kingdom’s economy.

Mohammed Bin Salman, Saudi Arabia's Deputy Crown Prince, interviewed in Riyadh, Saudi Arabia, on Wednesday, March 30, 2016. (Photo courtesy: Saudi Royal Court)

Prior to news of the fund’s plans, Prince Mohammed had given landmark statements in January to the Western media on Saudi Arabia’s economic prospects.

In his interview with The Economist, Prince Mohammed discussed issues ranging from how to prepare the country for its post-oil economy to how the Kingdom sought to shape regional security policies, including on Syria, Iran and Yemen.

But most significantly, he indicated the Saudi government was considering whether to sell shares in oil firm Aramco as part of a privatization drive to raise money in an era of cheap oil.

Now the deputy crown prince has signaled that an IPO for Aramco, which will put 5 percent of shares on the market, could happen in 2017.

“IPOing Aramco and transferring its shares to PIF (public investment fund) will technically make investments the source of Saudi government revenue, not oil,” he told Bloomberg.

“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,” he added.

Aramco's value has been estimated at anywhere between $1.25 trillion and $10 trillion. And while the full plan to restructure the Saudi economy is yet to be released, Prince Mohammed’s announcement has revealed the crux of it.

In a curtain-raiser to the announcements, Saudi Aramco’s chairman Khalid Al Falih had told Al Arabiya News Channel in January that the company was preparing a study due for release in April or May on its options for the listing.

Activity

Meanwhile, the Public Investment Fund has already started to become more active abroad.

In July, it acquired a 38 percent stake in South Korea’s Posco Engineering & Construction Co. for $1.1 billion and the same month agreed to a $10 billion partnership to invest in Russia with the Russian Direct Investment Fund.

An official of the Saudi oil company Aramco watches progress at a rig at al-Howta oil field near Howta, Saudi Arabia. Picture: (AP)

Ultimately, the fund aims to increase the proportion of foreign investments to 50 percent of the fund by 2020 from 5 percent now, said Yasir Al-Rumayyan, secretary general of the fund’s board, adding that the fund has been hiring specialists for markets, private equity and risk management.

The plans have been described as a “clear direction” for the kingdom by Sadad Husseini, a former executive vice president of Saudi Aramco.

“A lot of young people at home are feeling excited that there is a clear direction and leadership … It makes you wonder why no one else did it before.”

Infographic: Saudi’s $2 trillion megafund: How to move on from oil

(Design by Farwa Rizwan/ Al Arabiya English)


The young prince, through his wide-ranging interviews with Western media, not only suggests that King Salman continues to entrust him with significant responsibilities, but that he seeks to change the kingdom’s attitude towards its most valuable resource and transform Saudi Arabia’s clout.

Simultaneously, on the security front, Prince Mohammed has been tasked to ensure an international military coalition comprised of 34 Muslim-majority countries “coordinate” anti-terrorism efforts in Iraq, Syria, Libya, Egypt and Afghanistan. The prince is seemingly paving a path for Saudi Arabia to become an assertive power that shapes both regional security and global markets.

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Sigurd Neubauer is a Non-Resident Fellow at the Arab Gulf States Institute in Washington. Follow him on Twitter @Sigimideast
 

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Last Update: Monday, 25 April 2016 KSA 10:26 - GMT 07:26
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On Friday, the deputy crown prince announced plans to dedicate a $2 trillion budget for a post-oil economy
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