Saudi Economic Diversification: Plans To Develop New Megacarrier| Fact Check

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Saudi economic diversification plan has seen a spree of acquiring assets under SWF, especially during the Covid–19 pandemic. But with bonds worth billions raised, Saudi must understand it needs to stop somewhere.

“You don’t want to waste a crisis . . . So for us, definitely we are looking into any opportunities.” This phrase quoted by Yasir al-Rumayyan, governor of Saudi Arabia’s sovereign wealth fund (SWF), has exactly been the story for over a year now. And in a time that has lapsed, major revenue has been channelised only an only in this direction.

To understand severity of this situation, here is what Saudi Arabia has booked under its SWF finances in last one year. It has snapped up a 5.7 per cent stake worth around $500 Million in Live Nation, a US-based entertainment company. A 7.3 per cent holding in Carnival, making it the second-largest shareholder in the world’s biggest cruise line operator.

It has also taken stakes in 20 US and European blue-chip companies, such as BP, Royal Dutch Shell, Total, Boeing, Citigroup, Disney and Facebook, worth at least $7.7bn

Even before the pandemic raged havoc, Saudi NEOM economic diversification plan was placed as a placard for a better tomorrow. But feasibility of spending $500 billion on one project, when domestic challenges such as unemployment remained, sounded absurd even back then.

To overhaul the process, Saudi has signaled reducing dependency on oil, but has invested in petrochemical companies, issued bonds worth billions, made an internal transfer of SABIC — its petrochemical giant — IPO Aramco but only as far as its local stock exchange, Tadawul, introduced VAT and pushed debt to GDP ratio up from 13 per cent in 2013 to 31 per cent in 2021.

Arguably, Saudi has foreign reserves of more than $470bn, but it needs to preserve the bulk of those funds in order to stave off speculation on the riyal’s dollar peg.

Back in January, Saudi even sold its first Eurobond of the year. At that time, it hoped to ease budget deficits by selling $32 billion of its local currency and reduce debt to GDP ratio over the course of year. But in order to bolster chances of it happening, Saudi had to stop spending, but instead it has drawn new plans.

After a recent conclusion of Jeddah’s King Abdulaziz International Airport, which costed a hefty $7.2 billion, the realm now looks forward to transforming the state-owned carrier Saudia and its subsidiary flydeal into a megacarrier group. The aim is to put in the airline in midst with the “Big Three” carriers in the Middle East.

However, this Saudi economic diversification advent also needs to see some other projects involving billions of dollars of investment. Already underway are the Red Sea Project, a luxury resort on the Red Sea, and Qiddiya, an entertainment mega-project in Riyadh.

Ironically, as expansion just keeps on going, the debt just keeps on rising, and to control the extent of deficit financing, only pumping of more oil — a commodity Mohammed bin Salman wants to part ways with — is seen as the last ditch solution.