In recent years, there has been a Saudi invasion of Western companies. This is by no means an improvised phenomenon. The regular multi-billion dollar payouts by the country’s sovereign wealth fund – the all-powerful Public Investment Fund (PIF) – are part of an ambitious strategy launched in 2016: the so-called Vision 2030. With it the desert the kingdom began with diversifying its economy to reduce dependence on oil. Traditionally, Saudi Arabia’s progress has been based on its revenues from state-owned crude and refined oil. However, Riyadh’s ultimate goal is to increase the private sector’s contribution to Saudi GDP from 40% to 65% by the end of the decade.
The list of international companies – particularly American ones – that received capital injections from Saudi Arabia overnight is extensive. There are companies like Lucid Motors – the Californian electric car manufacturer – or Newcastle, the British football team. There are also video game giants like Electronic Arts and Activision Blizzard. And then of course there are well-known names that need no introduction, such as Uber, Meta, Microsoft or Starbucks, which now hold large shares in the PIF, which is controlled by the controversial Crown Prince Mohammed bin Salman (MBS). MBS has also been the regime’s prime minister since September 2022.
In its annual report, the PIF says it has $776 billion in assets under management. Last year, this number increased by 10% through the creation of 25 new companies. Despite its massive exposure outside Saudi borders, the fund’s investments abroad still represent only a small portion of its portfolio: 23% of the total. In the report, the PIF highlights 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 company in Saudi Arabia where the PIF is not represented. An example of this is Aramco – the state-owned oil company and one of the largest companies in the world. Last April, the sovereign wealth fund doubled its stake to 8% of Aramco shares. In the case of Saudi Telecom (STC), which is currently in the spotlight in Spain for acquiring 9.9% of Telefónica, the country’s largest telecom operator, the PIF has a controlling stake of 64%.
The development of the STC on the stock exchange has been quite positive over the last five years. During this period, the Saudi company, which sells mobile phones, internet and TV packages, has acquired shares in major Western operators such as Vodafone, Orange, BT and Telefónica. This has subsequently paved the way for STC’s Arab competitors to seek discounted price opportunities. For example, in May 2022, the Emirati company Etisalat bought 9.8% of the British multinational Vodafone for $4.2 billion.
Far from all of Saudi Arabia’s bets on Western companies have been resounding successes. Luxury electric vehicle maker Lucid Motors, seen by some as a future rival to Elon Musk’s Tesla, has disappointed shareholders with poor sales, leading to a 60% plunge in the stock market last year. The Saudi National Bank, meanwhile, wasted more than $1 billion in just five months on its doomed purchase of shares in Swiss bank Credit Suisse. The PIF hoped to revive the struggling financial firm and make it profitable again, but it was eventually taken over by rival UBS at a bargain price while its customers withdrew deposits massively.
A sea of liquidity
However, these setbacks – among others – are just drops of water in the ocean of liquidity in which the sovereign wealth fund is swimming. When there was a big push for renewable energy, many experts thought the oil business was headed for a slow decline. But with the outbreak of the pandemic, which led to increasing demand amid huge transportation costs, crude oil prices shot up in the international market. This has enabled Saudi Arabia to become one of the winners from the high inflation currently crushing Western budgets. According to the International Monetary Fund, Saudi Arabia was the fastest-growing economy in the G20 in 2022, with GDP growth of 8.7%. This reflected “both strong oil production and non-oil GDP growth of 4.8%, driven by robust private consumption and non-oil private investment, including mega projects.”
This year, successive production cuts announced by Saudi Arabia and Russia have reduced global oil supplies and pushed prices to annual highs of over $90 a barrel.
Once again, the threat of inflation at the pumps is growing, as is the enormous transfer of resources from consumers in oil importing countries to oil exporting countries. Motorists, heavy industry, agriculture and all sectors that require oil or its derivatives contribute to the wealth that Saudi Arabia uses to buy companies and sports clubs in countries around the world.
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