Saudi Inc. is being rebranded by Mohammed Bin Salman.
As Crown Prince Mohammed bin Salman attempts to diversify Saudi Arabia’s oil-dependent economy, the $620 billion PIF he leads is taking centre stage. In a country that is quickly changing, it is displacing a prestigious corporate elite to become one of the most influential organisations.
An American CEO visits Saudi Arabia in a few years might get off a jet built by the country’s sovereign wealth fund, call an Uber, and pay for the ride. Currently, the sovereign wealth fund owns 4% of Uber.
After being transported across the city, the CEO may check into a boutique hotel in a historic palace that the Public Investment Fund also owns.
At PIF’s annual conference, they signed a deal with a defence business owned by the fund while sipping coffee produced as part of a project the fund is overseeing.
The executive has dinner and a movie in a building designed by the PIF’s entertainment division before boarding a flight home without ever speaking to a single company that is not a PIF member.
The old conservative Islamic state, which lived off oil earnings and distributed lucrative state contracts while prudently investing in safe US treasuries, is now in decline. Such is Saudi Inc. Additionally, its so-called Founder is dismantling the manual.
What is the Public Investment Fund of Saudi Arabia?
Saudi Arabia’s Public Investment Fund (PIF), which was founded in 1971, is its sovereign wealth fund. It offers to fund profitable businesses that are strategically crucial to the growth of the Saudi Arabian economy. The fund provides additional expertise and financial support to provide efforts made by the private sector.
The Fund was initially instrumental in establishing businesses that were fundamental to the Saudi economy, including many “national champions,” when it was established in 1971 under Royal Decree No. M/24.
PIF underwent a “rebirth” in March 2015 with the issuance of Resolution 270 by the Kingdom’s Council of Ministers, which placed the Fund under the management of the newly established Council of Economic and Development Affairs (CEDA), with the Crown Prince, HRH Mohammed bin Salman bin Abdulaziz, serving as chairman.
This significant measure increased PIF’s autonomy and clarified its national strategic responsibility.
With this transformation, Saudi Arabia’s economy was able to develop more quickly, and PIF was placed in a strong position to contribute to the realisation of Vision 2030’s goals for constructive, long-lasting economic and social reform.
The Public Investment Fund has provided funding for several initiatives in key areas of the Saudi Arabian economy, such as petrochemical and oil refineries, pipelines and storage, transportation, energy, minerals, desalination of water, and infrastructure projects. Additionally, it has taken part in the capital financing of several bilateral and Pan Arab enterprises.
In line with the goals of its Vision 2030, Saudi policymakers started taking action in 2015 to give the PIF more power. The Board of Directors and smaller Board committees make up the fund’s present governing structure.
Strategy and planning, governance, regulation, recruiting and remuneration, reporting and monitoring, and investment are some of the functions and responsibilities of the board.
Making investment selections is based on creating a diverse portfolio for Saudi Arabia to achieve attractive, long-term risk-adjusted returns.
A diversified portfolio that generates appealing, risk-adjusted returns over the long term is the goal of the Public Investment Fund’s formed procedures and standards for investment selections. The PIF managed $430 billion in assets as of October 2021, encompassing public and private Saudi corporations as well as foreign interests.
PIF announced plans to “invest $40 billion in infrastructure projects, largely in the U.S.,” during the 2017 Saudi-US CEO Forum, which was a part of President Donald Trump’s official trip to Saudi Arabia.
The PIF agreed to a non-binding memorandum under which Blackstone, whose CEO and founder, Stephen A. Schwarzman, is a prominent Trump supporter, committed $20 billion to the project.
As part of the “$6 billion agreement for Black Hawks,” it was stated during the CEO Forum US-Saudi that 150 Lockheed Martin Black Hawk helicopters would be assembled in Saudi Arabia, creating 450 employment there.
To restore Saudi Arabia’s damaged reputation following the assassination of Jamal Khashoggi, it was discovered in March 2019 that PIF had paid the New York PR firm Karv Communications $120,000 each month.
They acquired shares in Electronic Arts, Take-Two Interactive, and Activision Blizzard, three American video game developers, in 2021. They invested $1 billion to achieve a 5% stake in Nintendo, a Japanese video game firm, in May 2022 and an 8% share in Embracer Group the following month.
In just five years, the PIF has become a key global investor, buying US blue-chip businesses like Uber and investing in electric cars. In the sphere of sports, it has also invested $200 million in a global golf project and bought Newcastle United of the English soccer league.
As Western leaders look to the largest oil exporter to help contain growing inflation and pour petrodollars into a sputtering global economy, MBS, as the de facto ruler is known, suddenly has more sway on the international stage.
US President Joe Biden will visit Riyadh in the middle of July after being forced to rethink his promise to designate MBS a “pariah” over the 2018 murder of Washington Post columnist Jamal Khashoggi.
Elaboration of Saudi Arabia’s PIF Influence
However, the PIF’s influence has been seen most strongly at home, where the economy has been completely transformed by its distinct brand of state capitalism.
With a target investment of at least $40 billion per year in Saudi Arabia, the PIF has already established 54 new companies in sectors like real estate and opulent cruises.
The 36-year-old Prince Mohammed has allegedly taken control of security, domestic, and foreign matters while incarcerating critics and silencing independent voices as part of a greater consolidation of power, according to critics.
Initially stating they felt outcompeted by a group that was so affluent and connected that few could compete, Saudi CEOs also aired a
MBS “does not care too much for the inherited structures of either the Saudi state or Saudi industry and aspires to construct a new Saudi Arabia,” claims Steffen Hertog, an associate professor at the London School of Economics.
He completely reworked (the PIF) and relied on it as the main tool for carrying out his diversification plan, mostly shunning the existing government and, more plainly, the current private sector.
The PIF’s initial responsibility when it was created in 1971 as a section of the Finance Ministry was to provide funding for economic expansion.
Although it had little notoriety outside of Saudi Arabia, it also owned a sizable share in the Saudi stock market. The fund was “reborn” and placed under MBS in March 2015, according to the website for the firm.
MBS saw himself as a disruptor in his restricted world of thousands of princes. When his father became king, he was only 29 years old.
MBS, commonly referred to as Mohammed bin Salman, was born on August 31, 1985. He is a member of the Saudi royal family and has served as crown prince since 2017 and defence minister since 2015. He is the offspring of Saudi King Salman bin Abdulaziz’s third wife, Fahdah bint Fal ibn Suln.
Salman became the new monarch of Saudi Arabia after the death of King Abdullah in January 2015. Mohammed was selected right away to serve as his defence minister. Mohammed launched an immediate and forceful military participation in the Yemeni civil war. A campaign called Operation Decisive Storm was launched to support Yemeni President Hadi’s government.
Mohammed wasted little time in pursuing his audacious goals following his appointment as crown prince in June 2017. Only a few days later, he presided over a multi-nation blockade against Qatar due to that nation’s support for rival non-state organisations in the region, such as the Muslim Brotherhood, as well as its friendly stance toward Iran.
Qatar experienced some short-term difficulties as a result of the blockade. Still, the country took advantage of its resources to reorient its economy away from reliance on other Gulf nations.
His efforts to boost tourism in the kingdom resulted in the opening of movie theatres and the acceptance of female athletes. He loosened the tight clothing regulations in 2018 by stating that women are no longer required to wear an abayah, a long black cloak, in public.
Later that year, women were permitted to seek driver’s licences, enabling them to travel independently to work or school or to do errands.
However, it appeared that these efforts at liberalisation were motivated more by economic gain than by a love of freedom. New options were made available to women so they may earn and spend money without requiring the constant permission of their male guardians or having access to transportation, yet.
In 2016, he told Bloomberg that he was inspired by tech entrepreneurs like Steve Jobs and Mark Zuckerberg. He wondered what he would produce if he used their skills at the time?
As the prince actively expanded his influence, the PIF became a critical tool that allowed him to run the new Saudi Arabia more like a software corporation than the burdensome bureaucracy it had previously been.
He picked Yasir Al-Rumayyan, a Saudi banker, to be the governor. When MBS launched its Vision 2030 plan to restructure Saudi Arabia’s economy and lessen its reliance on oil a year later, the PIF was at the forefront.
MBS estimates that it will have assets of over $2 trillion by 2030, making it the world’s largest sovereign wealth fund.
Since MBS deposed an elder cousin to win the king in 2017, the PIF has expanded in size, in part because of transfers from the central bank and the IPO of a stake in the state oil company Aramco.
As a result, it has steadily taken over as the main engine of the country’s economic growth, unseating former power centres, including the finance ministry, economics ministry, and central bank.
The growth has angered the business elite.
Saudi Arabia has always been a monarchy, but a decade ago, there was more decentralisation of power, and influential businesspeople had more sway.
The old economic elite suffered a serious hit when Prince Mohammed launched a divisive anti-corruption campaign in 2017, arresting a large number of royals, businesspeople, and former officials in Riyadh’s Ritz-Carlton hotel.
The majority were accused of acting improperly, forced to hand over assets, released, and barred from leaving the country.
A lack of transparency regarding what had happened to Prince Alwaleed bin Talal’s wealth led to his removal from Forbes’ list of billionaires in 2018.
Prince Alwaleed bin Talal had previously been regarded as one of the world’s richest people. Previously a flashy traveller, he hasn’t left the neighbourhood since being let go from the Ritz. He told Bloomberg shortly after that he didn’t harbour any resentments. His Kingdom Holding received a 16.87 per cent capital investment from the PIF in May.
He was building a tower that was supposed to be the tallest structure in the world, but it appears to have stopped. Its shell, which is only partially finished, serves as a reminder that MBS’s priorities have shifted as a result of the PIF’s launch of new megaprojects.
The most challenging of those is Neom, a futuristic new city he is building on the Red Sea.
A new elite has developed, including Al-Rumayyan. Still, because it is dependent on MBS and largely adheres to him in lockstep, it lacks even the slightest degree of independence from the former elite.
The Saudi government aims to promote “the spirit of capitalism among the people, but they don’t necessarily desire a healthy, independent private sector,” according to Andrew Leber, a researcher at Harvard University who specialises in political economics in the Middle East.
More people are beginning to understand the private sector’s genuine significance. Why do we need to wrangle with these outdated family businesses when we may make direct investments in certain enterprises?
“A top-down strategy is nothing new in Saudi Arabia, where family businesses have long relied on big government contracts. When he unveiled Vision 2030, MBS argued in favour of a market-driven change, which was backed by management experts and investment bankers who were hired as key advisers.
Since then, Saudi Arabia has implemented capital market reforms, taken down obstacles to foreign investment, and started the process of privatising state-owned companies. The PIF, however, is driving the car.
At a forum in Davos as early as 2018, Kuwaiti retail magnate Mohammed Alshaya questioned Saudi officials about whether they were supporting private businesses or competing with them.
Professionals are leaving the private sector in droves in favour of the PIF and affiliated businesses, which provide uncompetitive benefits packages.
A representative for the PIF wrote the following response to a query about the organization’s tactics: “It entails creating businesses and industry sectors that do not yet exist. Such a change in the private sector is being assisted by and facilitated by PIF.”
One Saudi executive who spoke on the record under the condition of anonymity said he initially felt concerned, if not outraged, as the PIF expanded and spent billions of dollars he could never hope to match. Saudi Arabia is a country where even mild criticism is not tolerated.
In the statement, he said that his opinion had changed and that the fund had resurrected a struggling economy and a system that was unsuited to the globalised and digital age.
While lounging by the pool of his modernist Riyadh home, the billionaire compared the recent years to “surfing a tsunami,” adding that he had to manage his corporation more aggressively but had adapted and survived.
Finance Minister Mohammed Al-Jadaan responded to Alshaya at Davos in 2018 by saying that the fund was creating a climate where the private sector could join.
He claims that the government is looking into industries, businesses, and specific projects that are either too dangerous for the private sector to embark on or that are relatively new.
A common example of how the PIF is promoting non-oil sectors that might not otherwise take off is its acquisition of a majority interest in US electric vehicle manufacturer Lucid Motors. In February, Lucid and Saudi Arabia reached a deal to do just that, potentially opening the door for other automakers to consider establishing operations there.
The PIF asserted in an email that it was supporting the private sector by serving as a “cornerstone investor” and “crowding-in” capital. The fund declared that it was investing in 13 sectors that it had determined could give the kingdom a competitive edge both domestically and abroad, generate returns, and localise employment, which gives rise to the pace of information entering the nation.
The state had a significant role in the growth of economies all across the world, especially powerful ones such as China and South Korea. However, economists claim that both began as poorer countries with larger populations and less expensive local labour.
Because Saudi Arabia is already a middle- to high-income nation, there is no model for restructuring an oil-dependent economy while preserving living standards in that nation.
Edited by Prakriti Arora