How Saudi Arabia’s Wealth Fund and MBS Aim to Build a Post-Oil Future

Saudi Arabia is in a race to build a post-oil future, and its sovereign wealth fund is spreading around the oil-rich kingdom’s largess as never before. The Public Investment Fund, better known as the PIF, has emerged as the main vehicle for the expansive ambitions of Crown Prince Mohammed bin Salman, the de-facto leader, who is reshaping the country with his own brand of state capitalism. The drive includes big bets in global sports including golf and soccer, which fits with a strategy to promote tourism, improve Saudi Arabia’s image abroad and enhance the quality of life for citizens who’ve only recently been freed from some of the country’s most onerous religious restrictions. The size of the fund and the scope of its spending spree – assets are nearly $800 billion – has made the PIF both a force for modernizing Saudi Arabia and a tool for so-called soft power on the global stage.

1. What is the PIF?

Set up in 1971 as oil revenue was pouring in, the PIF provided development loans and held the state’s passive interest in publicly traded companies. Then, in March 2015, the fund was “reborn,” according to its website, and placed under Prince Mohammed, its chairman. Soon after, the prince, who is known as MBS, expanded his authority and embarked on an effort to remake the traditional Muslim country of 36 million people. Saudi watchers say the PIF operates like a family office, enabling MBS to direct the state’s funds more like a venture-capital firm, bypassing a slow-moving bureaucracy.

Assets Rising

PIF assets have soared as it looks to become the world’s largest sovereign fund

Source: GlobalSWF

2 What is its goal?

The PIF aims to lure foreign money into the country by kick-starting new industries. One focus is tourism: In a country that until recently was largely closed off to foreign holidaymakers and regarded entertainment as a taboo, it’s building luxury resorts, cinemas and amusement complexes to attract visitors. Since 2017 – when the prince pushed aside an older cousin to become heir to the throne – the PIF has tripled in size. It has been handed tens of billions of dollars that would normally have gone to the Finance Ministry or the central bank, along with land grants and an 8% stake in state oil giant Saudi Aramco, the world’s biggest crude exporter. Its goal is to reach $2 trillion in assets by 2030, becoming the world’s biggest wealth fund. It’s now No. 6, with Norway topping the list at $1.4 trillion.

Top Sovereign Funds

Saudi Arabia’s has rapidly grown to become the sixth biggest in the world

Source: SWF Institute

3. Is the PIF achieving its goals?

Billions of dollars have been spent on projects that are barely off the drawing board and few have attracted much foreign investment. The war between Israel and Hamas is complicating MBS’s efforts to focus the Middle East on economic development rather than old feuds. The PIF has said it aims to invest $40 billion a year in the local economy, an amount that dwarfs its international spending. One major focus is Neom, a more than $500 billion plan to transform an expanse of desert into a high-tech city, a fantastical-sounding project that has attracted considerable skepticism.

4. Is it profitable?

It’s hard to tell how profitable the PIF’s bets have been. It took an $11 billion loss on investments in 2022 as global markets tumbled. A $45 billion commitment to SoftBank Group Corp.’s technology focused Vision Fund, probably its biggest international deal, has failed to deliver big gains. Still, some deals aided the fund’s other goals: An investment in Lucid Motors Inc. led the electric carmaker to open the country’s first auto factory. With more than 2,000 employees in Riyadh and 50 in New York, the PIF plans to expand in the US, London and Asia.

5. How is it different?

The PIF aims to create private-sector jobs in a country where about 70% of the population is under the age of 35 and 42% of the workforce is employed by the government. How much a state-controlled entity can succeed in that goal is open to question. Other petrostates have mainly built up rainy-day funds that they can dip into when oil prices slide. The PIF is also using leverage to make bigger investments, borrowing from banks and through bond sales.

6. Why sports?

The goal is to excite the younger generation and enhance Saudi Arabia’s stature on the global stage. Critics deride this as “sportswashing,” an attempt to improve the nation’s image and divert attention from a brutal war in Yemen and a poor human rights record, including the murder of Saudi dissident Jamal Khashoggi in 2018. In June 2022, PIF-backed upstart LIV Golf agreed to merge with the PGA Tour, the US-based body that puts on the sport’s marquee events, ending an arms race in which LIV threw down millions of dollars to lure the biggest players. The PIF bought struggling English Premier League soccer club Newcastle United in 2021 and has taken over several Saudi teams, bankrolling some of the sport’s biggest stars to play in the kingdom. Saudi Arabia may be following the playbook of neighboring Abu Dhabi, which bought another English club, Manchester City, in 2008 and used it as a platform to market the emirate and its state-owned companies around the world.

7. What role does MBS play?

Day-to-day operations are managed by Governor Yasir Al-Rumayyan, a close ally of the prince. Critics say the PIF is part of a broader accumulation of power that’s seen MBS take control of oil policy, security, and domestic and foreign affairs. The PIF says all of its board members play an important role in decision-making. Some deals appear to be politically motivated, such as its backing of funds set up by former US Treasury Secretary Steve Mnuchin and Jared Kushner, the son-in-law of former President Donald Trump.

Source from: Bloomberg