The Saudi invasion of Western companies in recent years, of which Spain’s Telefónica is the most recent example, was not an improvised phenomenon. The multi-million dollar payouts that the country’s sovereign wealth fund, the all-powerful Public Investment Fund (PIF), makes from time to time are due to an ambitious strategy born in 2016, the so-called Vision 2030. With it the desert kingdom began to diversify its economy to reduce its dependence on oil, which has traditionally been the source of revenue on which its progress has been based, and its ultimate goal is to increase the private sector’s contribution to Saudi GDP from 40% to 65% by the end of the year Decade.
The list of international, especially American, companies that have since witnessed the vehicle entering their capital overnight under the chairmanship of the controversial Crown Prince Mohamed bin Salman, who has also been Saudi Prime Minister since the end of September, is very extensive. It includes names like Californian electric car maker Lucid Motors, one of its main holdings; the British football team Newcastle; video game giants Electronic Arts and Activision Blizzard; and others that require no introduction, such as Uber, Meta, Microsoft, Starbucks or Booking.
In its annual report, the fund states assets under management of 556.77 billion euros. And this number doesn’t stop growing: last year it increased by 10% with 25 new companies founded. Despite its massive landing outside Saudi borders, its foreign investments still represent a small portion of its portfolio at 23% of the total. In the document, the PIB emphasizes that its stocks include “high-tech and growth sectors such as video games and the creative industries in general, as well as companies and initiatives linked to the fast-growing travel and tourism industry.”
It is difficult to find a relevant Saudi Arabian company where the PIF is not represented. An example of this is Aramco, the state-owned oil giant and one of the largest companies in the world: in April this year, the sovereign wealth fund doubled its stake to 8% of its capital. In the case of Saudi Telecom (STC), which is currently in the spotlight in Spain for its acquisition of 9.9% of Telefónica’s capital, the PIF has a controlling stake of 64%.
The development of STC’s stock exchange, which sells, among other things, Internet and television packages as well as mobile phones, has been positive over the last five years. This period saw a revaluation of 19.50% in an environment of sharp declines for major Western operators such as Vodafone, Orange, BT and Telefónica itself. This has paved the way for their Arab counterparts to look for bargains at reduced prices. The first was Etisalat from the Emirates when it bought 9.8% of Vodafone for 4,220 million in May 2022 – since then the British company’s shares have fallen by almost 40%. And a year later, STC replicated this move at Telefónica.
That doesn’t mean that all of Saudi Arabia’s bets on Western companies are proving to be a complete success. Luxury electric vehicle maker Lucid Motors, which some saw as a future rival to Elon Musk’s Tesla, has been disappointing with its reservations and sales data, causing the stock market to fall 60% over the last year. Another of their positions is also not doing well: the Saudi National Bank, which wasted more than a billion euros in just five months on the ruinous purchase of shares in the Swiss bank Credit Suisse, a giant in times of crisis that they wanted to help revive for the fact that this made the purchase profitable, but the company was eventually taken over by its competitor UBS at a bargain price, while it withdrew massive amounts of money from its customers.
A sea of liquidity
However, both setbacks and a few others are just drops of water in the ocean of liquidity in which the sovereign wealth fund swims. In times of renewable energy transition, some believed that the oil business was headed for a slow decline, but the outbreak of the pandemic with its surge in demand catapulted crude oil prices up again in international markets and proved to be one of the winners of high inflation, the western one Households suffocated. According to the International Monetary Fund, it was the fastest-growing economy in the G-20 with growth of 8.7% in 2022, “reflecting both strong oil production and non-oil GDP growth of 4.8%, which is driven by robust private consumption and non-oil sector “private investments, including mega projects”.
This year saw the so-called black gold pause for breath for several months, but gradual production cuts announced by Saudi Arabia and Russia have drained supply and pushed prices to year-highs of over $90 a barrel. Once again, the threat of inflation is growing at the pumps and the huge transfers of resources from consumers in importing countries to exporting countries are returning. Or, which is the same: motorists, industry and all sectors that need oil or its derivatives feed the wealth that Saudi Arabia then uses to buy its countries’ companies and sports clubs.
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