COVID: General view of Riyadh city after Saudi government eases curfew (Reuters)
Riyadh, Saudi Arabia:
The Saudi Arabian sovereign wealth fund won around $ 8 billion in stakes in global giants – from Boeing to Facebook – in a frenzy that belies deep and unpopular austerity measures at home.
The double shock of the new coronavirus pandemic and the fall in oil prices have prompted the government to triple its value added tax, suspend a monthly allowance to civil servants and cut spending as it seeks to control a deficit. budget in hot air ballooning.
The harsh measures are straining a so-called “rentier” social contract which, for decades, has seen the kingdom use its oil wealth to provide citizens with generous subsidies, jobs and a non-taxable lifestyle.
In the midst of its worst economic crisis in decades, the state’s seemingly contradictory policy of spending billions of dollars on assets abroad is frowning.
The kingdom’s public investment fund is fast becoming one of the biggest bargain hunters in the world, spending billions to buy minority stakes in American and European bluechip companies.
“You don’t want to spoil a crisis,” said PIF Governor Yasir al-Rumayyan in April, saying that the $ 300 billion fund was taking advantage of a virus-induced recession to raise the stakes for unbeatable price.
In the first quarter of this year, it purchased $ 7.7 billion of interests in a multitude of businesses – from Boeing, Walt Disney and Starbucks to Marriott and Citigroup.
He has also acquired stakes in energy giants, including Royal Dutch Shell and Total – a move contrary to Saudi policy to move away from oil addiction – as well as Facebook, which has sparked concerns. of confidentiality in an American guard dog.
The PIF also supports a $ 300 million ($ 372 million) takeover of Newcastle United football club, although the deal appears to be in trouble following allegations that Saudi Arabia is behind ‘a pirate sports broadcaster.
Spend nest eggs
The painful austerity campaign could increase public control over this spending – especially after the VAT, introduced just over two years ago, tripled to 15% from July.
“Companies are happy to see their demand in demand and stock prices soaring,” Karen Young, a researcher at the American Enterprise Institute, told AFP.
“However, it is more important to think about how Saudi citizens view their savings and their collective national nest egg spent on the international stock markets at a time of national economic crisis.”
Riyadh traders wonder privately why crucial investments have not been used to support struggling small and medium-sized businesses suffocated by the pandemic.
The investments are also unlikely to appease young Saudis concerned about finding a job when youth unemployment is already high.
In an absolute monarchy where few people publicly challenge official decrees, columnist Khalid al-Sulaiman wrote in a pro-government newspaper that the austerity measures will “have a significant effect on the purchasing power of society”.
“A football club, entertainment, megaprojects. There is absolutely no point in throwing money at a time of deep austerity,” said a Saudi government worker, who also works part-time for a carpool app for supplement his income.
Such is the economic anguish that some Saudis have dubbed “insensitive” a light video by the entertainment chief Turki al-Sheikh, in which he breaks a television screen in frustration after losing a Playstation game.
The central bank’s foreign exchange reserves fell sharply in March and April, as the government said $ 40 billion had been transferred to the FIP to finance its share buying spree.
Reserves, which fell to around $ 450 billion in April, a multi-year low, are expected to be further depleted to finance a growing budget deficit, analysts said.
“Big bet”
The de facto Crown Prince, Crown Prince Mohammed bin Salman, transformed the once-torpid FIP into a key investment vehicle to develop megaprojects aimed at diversifying the oil-dependent economy, while creating an international investment portfolio.
In a press release, 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, Saudi analyst and author.
“Smart or not, we won’t know until we look in the rearview mirror.”
Some of these “tactical” investments in undervalued assets, including the struggling cruise ship Carnival, are in line with Saudi Arabia’s goal of developing its tourism and entertainment sectors from scratch, added Shihabi.
The PIF would have struggled in the past to attract a cruise liner in the Red Sea, where the kingdom is seeking to develop a mega tourism project as well as NEOM, a futuristic mega-city of 500 billion dollars.
But many of the other acquisitions are “unlikely to produce a substantial return in the short term,” said Robert Mogielnicki, a research fellow at the Institute for the Arab Gulf States in Washington.
The Facebook investment has raised concerns among American watchdogs after two former Twitter employees were accused of spying for Saudi Arabia last year.
“I am particularly concerned about the large Facebook stock purchase because we already know that the Saudis had agents on Twitter to spy on Saudi dissidents,” Ben Freeman, director of the Center for International Policy based, told AFP. in Washington.
“Would the company suppress a disinformation campaign run by one of its stakeholders?”
Facebook did not respond to a request for comment.
(This story has not been edited by GalacticGaming staff and is automatically generated from a syndicated feed.)
