25/05/2016 05:01 AST
Saudi Arabia’s Deputy Crown Prince Mohammed Bin Salman has an ambitious plan for the kingdom to overcome its reliance on oil and integrate its economy and markets on a global scale, in a bid to attract more foreign investors. While there may be some challenges in bringing his plans to fruition, Mohieddine (Dino) Kronfol, chief investment officer, Franklin Templeton Global Sukuk and MENA Fixed Income, and Bassel Khatoun, chief investment officer, MENA Equities, Franklin Local Asset Management, believe it’s a prime opportunity for the young prince and the royal family to reposition the nation for the 21st century and play a more substantial role in global financial markets.
Saudi Deputy Crown Prince Mohammed Bin Salman recently announced an ambitious 14-year plan, “Vision 2030,” to transform Saudi Arabia’s economy in a mass shake-up. His plan involves converting the oil-dependent kingdom into a modern, efficient and diversified economy that relies on multiple sources of income to support and advance the national population. The vision articulates impressive reform in tourism, health care, education, industry, mining and culture, among other sectors. The current low oil-price environment has accelerated the country’s growing fiscal deficit, which is one of the main issues the ambitious Vision 2030 tackles. We feel the plan addresses a number of issues that have been at the forefront of investors’ minds for some time.
Saudi’s proposal of increased transparency, clear key performance indicators (KPIs) and increased reliance on investment activity and income is a clear message that the country wants to mobilise foreign and private capital and further integrate with the global financial system. Zero tolerance for corruption and an emphasis on international levels of transparency and accountability underpin the drive for greater efficiency and less wastefulness.
One of the main proposals is to transform the state-owned oil company Aramco into a global industrial conglomerate. Its scale of production means that the firm produces 10 million barrels a day, equating to roughly one-in-nine barrels of the world’s oil supply, powered by a global workforce of 61,000 from 77 different countries.1 Ownership would be transferred to the PIF, the country’s sovereign investment fund. The profits from the fully integrated global petroleum and chemicals enterprise will be used to back capital-intensive sectors and contribute to establishing durable national corporations. The aim is to attract foreign direct investment in key sectors. The PIF will finance commercial projects that support the development of the Saudi Arabian economy, something that the private sector is unable to do alone.
For investors, we think Vision 2030 sets out ambitious long-term targets for the country. However, the key challenges the Saudi authorities face, in our view, are implementing these reform objectives, while maintaining economic growth in the kingdom. It is a significant and bold departure from the Saudi Arabia of the past, and we need to acknowledge that it’s a vision from a young leader trying to reposition a nation in the 21st century, giving the country a chance to compete on a global level. The United Arab Emirates (UAE), in particular Dubai, in addition to Singapore and Hong Kong, have all embarked down the road of reform. We have seen generally positive reactions when both the public and private sectors rally behind a vision, and transform cities into bustling city states, or countries into developed economies.
Vision 2030 calls on Saudi Arabia to improve and grow industries to attract additional foreign investment and form stronger ties through cross-border projects. The policies surrounding this aim have yet to be announced, but one thing we feel rarely gets much media attention is that most of the Gulf Cooperation Council (GCC) countries, especially Saudi Arabia, already have significant expatriate commu
Saudi Gazette
Please wait...
