Saudi Arabia’s sovereign wealth fund has snapped up around $8 billion worth of stakes in global giants — from Boeing to Facebook — in a spree that belies deep and unpopular austerity measures at home.
The twin shocks of the novel coronavirus pandemic and a plunge in oil prices have prompted the government to triple its value-added tax, suspend a monthly allowance to civil servants and slash spending as it seeks to tame a ballooning budget deficit.
The harsh measures are straining a so-called “rentier” social contract, which for decades saw the kingdom use its oil wealth to provide citizens with generous subsidies, jobs and a tax-free lifestyle.
Saudi wealth fund spending is controversial amid economic crisis
Amid its worst economic crisis in decades, the seemingly contradictory state policy to splurge billions on overseas assets is raising eyebrows.
From empty hotels to shuttered beauty salons, oil-dependent Saudi Arabia is bracing for a coronavirus-led economic slump on top of possible austerity measures as crude prices go into free fall.
Read more: Virus-hit Saudi economy is suffering: Huge losses are expected
Huge losses are expected after the Arab world’s biggest economy shut down cinemas, malls and restaurants, halted flights, suspended the year-round umrah pilgrimage and locked down eastern Qatif region — home to around 500,000 — in a bid to contain the deadly virus.
“It’s crisis time,” said a Saudi government employee, explaining why he had begun converting part of his salary into US dollars and gold coins. “Everything is unpredictable and we should be ready for the worst.”
The kingdom’s Public Investment Fund is emerging as one of the world’s biggest bargain hunters, dishing out billions to buy minority stakes in American and European bluechip firms.
“You don’t want to waste a crisis,” PIF governor Yasir al-Rumayyan said in April, indicating the $300 billion fund was taking advantage of a virus-induced recession to snap up stakes at knockdown prices.
In the first quarter of this year, it bought $7.7 billion holdings in a host of companies — from Boeing, Walt Disney and Starbucks to Marriott and Citigroup.
It also took stakes in energy giants including Royal Dutch Shell and Total — a move at odds with Saudi policy to steer away from oil dependence — as well as Facebook, which has triggered privacy concerns from a US watchdog.
Premier League is reported to have approved the proposed £300 million takeover of Newcastle United by the Saudi Public Investment Fund, PIF, fronted by Saudi Crown Prince Mohammed Bin Salman ⚽️ 🇸🇦 https://t.co/uad2qyXsJp
— Sports Business Inst (@SBI_Barcelona) May 23, 2020
The PIF is also backing a proposed £300 million ($372 million) takeover of football club Newcastle United, though the deal looks to be in trouble over allegations that Saudi Arabia was behind a pirate sports broadcaster.
Many wonder why funds aren’t being diverted to help Saudis in need
The painful austerity drive could heighten public scrutiny of such spending — especially after VAT, introduced just over two years ago, is tripled to 15 percent from July.
“Companies are happy to see their stocks in demand and share prices buoyed,” said Karen Young, a scholar at the American Enterprise Institute.
“However, it is more important to think about how Saudi citizens view their savings and collective national nest egg being spent on international equity markets at a time of a national economic crisis.”
Shopkeepers in Riyadh privately wonder why the crucial investments were not instead used to prop up struggling small and medium enterprises choked by the pandemic.
The investments are also unlikely to soothe concern among young Saudis worried about finding jobs amid already high youth unemployment.
In an absolute monarchy where few publicly question official decrees, columnist Khalid al-Sulaiman wrote in a pro-government newspaper that the austerity measures will have a “significant effect on society’s purchasing power”.
“A football club, entertainment, mega projects. Throwing money at all this is absolutely unnecessary at a time of deep austerity,” said one Saudi government worker, who also works part-time for a ride-hailing app to supplement his income.
Such is the economic anxiety that some Saudis dubbed as “insensitive” a light-hearted video by entertainment chief Turki al-Sheikh, in which he breaks a television screen out of frustration after losing a Playstation game.
Saudi’s royal family is getting richer, but at what cost?
The central bank’s foreign reserves saw a sharp fall in March and April, with the government saying $40 billion had been transferred to the PIF to fund its stake-buying spree.
Saudi Arabia, a country implementing austerity measures in a depressed oil market, has been dipping deep into its national reserves to fund a stock buying spree. In the span of 2 months, US$40 billion in reserves have been transferred to the kingdom’s PIFhttps://t.co/5glBPGTNtQ pic.twitter.com/LeDNEJkJ4T
— Facts Check (@factscheck_) June 8, 2020
The reserves, which tumbled to about $450 billion in April, a multi-year low, are expected to be further depleted to finance a growing budget deficit, analysts say.
According to the recent estimates, the total wealth of Saudi Arabia’s royal family has reached $1.4 trillion. This estimated wealth makes the Saudi royal family 16 times richer than the British monarchy. Also, Saudi’s are the richest families among all the monarchs and also the richest family in the world.
Read more: Saudi royal family’s wealth reached $1.4 trillion mark
The $1.4 trillion belongs to 15,000 family members of Saudi Arabia’s royal family. The House of Saud-the the ruling family of Saudi Arabia draws a large share of their wealth from vast oil reserves founded 75 years ago. House of Saud also earns humongous profits from the state-owned oil company, Saudi Aramco.
Big bets made through Saudi wealth fund
De facto ruler Crown Prince Mohammed bin Salman has transformed the once-torpid PIF into a key investment vehicle to develop mega projects to diversify the oil-reliant economy, while also building an international portfolio of investments.
In a statement, the PIF described itself as a “patient investor with a long-term horizon”.
“The PIF is making big bets on a few stocks,” said Ali Shihabi, a Saudi analyst and author.
“Smart or not, we’ll only know when we look in the rear-view mirror.”
Some of those “tactical” investments in undervalued assets, including the struggling cruise operator Carnival, chime with Saudi Arabia’s goal of developing its tourism and entertainment sectors from scratch, Shihabi added.
The PIF reportedly struggled in the past to attract a cruise liner to the Red Sea, where the kingdom seeks to develop a mega tourism project as well as NEOM, a $500 billion futuristic megacity.
But many of the other acquisitions are “unlikely to yield a substantial return over the short run”, said Robert Mogielnicki, a resident scholar at the Arab Gulf States Institute in Washington.
The Facebook investment has raised concern among US watchdogs after two former Twitter employees were charged last year with spying for Saudi Arabia.
“I’m particularly concerned about the large Facebook stock buy given that we already know the Saudis had agents at Twitter to spy on Saudi dissidents,” Ben Freeman, a director at the Washington-based Center for International Policy, told AFP.
“Would the company remove a disinformation campaign run by one of its stakeholders?”
Facebook did not respond to a request for comment.
AFP with additional input by GVS News Desk
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