Saudi Arabia welcomed last week top financiers and technology tycoons to attract additional investments in its economy, which it is looking to diversify from oil.
The Future Investment Initiative (FII) forum, dubbed by many observers ‘Davos in the Desert’, took place weeks after the power balance in the Middle East was upended again after the Hamas attack on Israel and the subsequent Israeli offensive on Gaza.
The forum was attended by prominent Wall Street bankers such as JP Morgan’s chief executive Jamie Dimon and Citigroup’s CEO Jane Fraser, as well as ousted WeWork CEO Adam Neumann—all attracted by potential opportunities that Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), could offer.
The attendance of top Wall Street financiers suggested that the Saudi oil money is still attractive for foreign investment, but the new war in the Middle East could scupper plans by Saudi Arabia’s state oil giant Aramco to sell more shares to the public.
Last month, The Wall Street Journal reported that Aramco – the world’s largest oil firm – is considering selling off as much as $50 billion in shares. If The Kingdom goes through with the share sale, it would be the largest such offering in history.
At the Future Investment Initiative forum, the booth of Aramco was quieter than the one of the Public Investment Fund, Iain Martin writes in Forbes.
Saudi Arabia and its Crown Prince Mohammed bin Salman are banking on foreign investments, technology, and mega projects such as the $500 billion futuristic NEOM city to diversify its economy away from oil as part of the Vision 2030 strategy.
But the NEOM project is not without controversies, ranging from doubts that the highly ambitious architectural and planning design can even be achieved to human rights abuses, which are not uncommon in the Kingdom.
The Hamas-Israel war and a possible further destabilization in the Middle East could scare some already hesitant investors away from Saudi Arabia.
“The headlines are an unwelcome development for the kingdom given its focus to attract foreign investors and convince firms to expand their operations in Saudi Arabia,” Ayham Kamel, head of Eurasia Group’s Middle East and North Africa research team, told Bloomberg ahead of the forum last week.
“Riyadh must be feeling the geopolitical heat, but its economic transformation program still presents some interesting opportunities,” Kamel added.
Saudi Investment Minister Khalid Al-Falih said at the forum, “We will turn challenges into opportunities by investing in our human energies and resources.”
Until Saudi Arabia manages to diversify its economy from oil, if ever, it will need oil prices at relatively high levels to balance its budget and have enough to invest in futuristic projects.
Earlier this month, the finance ministry said Saudi Arabia is about to slip into a budget deficit in the 2023-2024 financial year despite higher oil prices. The deficits will continue, too, because of Riyadh’s expansionary spending plans, the ministry noted. These plans appear to be expansionary enough to offset the effect of higher oil prices resulting from production caps.
Assessing Saudi Arabia’s economic growth prospects, the International Monetary Fund (IMF) said last month that risks to the outlook are balanced.
“On the upside, higher oil prices—as expectations of strong oil demand for the rest of the year persist—possible change in OPEC+ oil production cuts and accelerated structural reforms and investment could spur growth,” the IMF said in its assessment.
“On the downside, lower oil prices due to subdued global activity represent a key short-term risk while a quicker shift in demand for fossil fuel could hamper growth in the medium to long term,” according to the fund.
By Tsvetana Paraskova for Oilprice.com
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