Vision 2030 heralds new transformation phase

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Updated 25 April 2016

Vision 2030 heralds new transformation phase

JEDDAH: Saudi Arabia is set to enter a new transformation phase after the announcement of Vision 2030 by Deputy Crown Prince Mohammed bin Salman today.

Saudi Vision 2030 aims to diversify the sources of revenue of the Kingdom’s national economy and initiate post-oil era preparations.
The National Transformation Plan (NTP) includes establishing the largest sovereign wealth fund in the world worth $2 trillion after the initial public offering of 5 percent of the stocks of Saudi Aramco, the world's largest oil company.
The UK’s Economist said the new transformation is highly anticipated by the Saudis who want their country to be immune to the fallout of drop in oil prices.
The magazine described the vision of Prince Mohammed bin Salman for reforming the economy as very pragmatic that is expected to involve carefully thought-out programs of privatization of the health, education sectors and other government facilities. This, the magazine believed, will require the private sector to assume greater responsibilities and provide better services to citizens and investors. 
James Reeve, deputy chief economist and assistant general manager, Samba Financial Group, told Arab News: “Expectations are high, and I think analysts will be looking for specific details about how the government is going to increase the share of the private sector in the economy. Not just through sale of state assets — though of course that will be important — but how the private sector can get more involved in the provision of services such as health, education and power distribution.”
He said doing away with red tape will also be important. There needs to be greater centralization of authority on matters of foreign investment — an agency that can truly attract foreign investors and make sure they are able to act on a level-playing field.
Al-Eqtisadiah quoted Alfred Valder, former professor of international economics at the University of Oxford and consultant at the World Bank, as saying Prince Mohammed bin Salman’s plan is aimed at accelerating the transformation of the Kingdom to the free market, increasing the contribution of the industrial sector and services in the gross domestic production (GDP), cutting government spending and integrating Saudi women in the labor market.
"It represents a map for the future development of the Kingdom with priority given to Saudi citizens by raising the standards of living for each and every individual. However, it goes much beyond that; it completely understands the nature and aspirations of the growing Saudi youths with more than 70 percent of the population less than 30 years of age," he added.
Louise Marsh, deputy chairman of board of directors for the International Group for Investments, said: "According to estimates of the economic advisers at McKinsey Global Institute who supports the Saudi plan, the Kingdom will be able to double its GDP by 2030 and increase family income by 60 percent. It will also provide 6 million jobs which is very crucial to a community where the younger age groups are growing fast."
The oil price boom from 2003 to 2013 fueled rising prosperity in Saudi Arabia, which became the world’s 19th largest economy. GDP doubled, household income rose by 75 percent and 1.7 million jobs were created, including jobs for a growing number of Saudi women. The government invested heavily in education, health and infrastructure and built up reserves amounting to almost 100 percent of GDP in 2014.
Marsh said the Saudi leadership seeks to reduce its dependence on oil and is now engaged in a race against time to get ready for the new phase.
However, McKinsey Global Institute said a productivity-led economic transformation could enable Saudi Arabia to double its GDP again and create as many as six million new jobs by 2030 (exhibit).
“We estimate this would require about $4 trillion in investment. Eight sectors — mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, health care, finance, and construction — have the potential to generate more than 60 percent of this growth opportunity.”
To enable this transformation, McKinsey Global Institute said Saudi Arabia will need to accelerate the shift from its current government-led economic model to a more market-based approach. In the labor market, greater work force participation by Saudi men and women is essential to achieve higher household income. Faster productivity growth requires better business regulation and more openness to competition, trade and investment.
Professor Colin Ling of Cambridge University said the international applause for the Saudi vision indicates the desire of investors to invest in the Saudi market, both to take advantage of the opportunities offered currently and those offered by the transformation process in the mining, petrochemicals, finance, manufacturing, construction and health and retail sectors.
Tina Ward, a consultant at the Organization for Economic Cooperation and Development (OECD), believes it is too early to put in place a detailed plan for the investment projects which the investment fund must concentrate on, but, she added: "There are a number of broad outlines, mainly the need to diversify into different trends and investment areas both locally and internationally by not restricting the investments in a very limited number of countries. Maybe Saudi Arabia will benefit from the comparative advantages in the field of energy, whether as a result of its accumulated expertise in this domain or its industrial potentials.
“The Saudi investment fund is expected to invest in the petrochemical sector both for its strategic importance and because Saudi Arabia generates economic activity worth $30 billion a year. It is certain that the retail sector will receive the attention of the officials at the sovereign fund. This sector is growing currently in the Kingdom by 12 percent annually and employs more than 12,000 people, particularly women."
Morgan Stanley said in its report: “We expect the NTP to address two critical objectives: Diversifying the economy and government revenues away from oil, and eliminating the fiscal deficit by 2020.”
It said the NTP may indicate how the government intends to leverage the private sector to diversify the economy and create jobs, and what support key sectors may receive from the government.

Saudi-backed fund invests with Alphabet

Updated 25 April 2018

Saudi-backed fund invests with Alphabet

  • The potential investment reflects Saudi Arabia’s continued interest in investing in tech startups outside of the Middle East.
  • Dowsett said that the region does still lack innovation and there was more a trend toward “reinvention”.

LONDON: SoftBank’s Vision Fund, backed by Saudi Arabia’s Public Investment Fund and the UAE’s Mubadala, invest in China’s ‘Uber for Trucks.’ 

Saudi Arabia’s appetite for investment in technology shows no sign of abating as reports emerge that a fund backed by the Kingdom is one of a number of investors looking to fund Chinese truck-hailing app Manbang. 

SoftBank’s $100 billion Vision Fund is said to be leading a group of funds and venture capitalists keen to support the mobile app platform, referred to as China’s “Uber for Trucks,” which helps link up truck drivers to shippers.

The platform is run by the Manbang Group, also known as the Full Truck Alliance, and was originally looking to raise up to $1 billion to fund its expansion. However, the company could be close to attracting as much as $2 billion from investors, according to the Wall Street Journal, which originally reported the investment.

The Vision Fund, the brainchild of  SoftBank CEO Masayoshi Son, is backed by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), as well as others including the UAE’s Mubadala Investment Company, Apple and Foxconn.

Alphabet’s venture capital fund CapitalG is also said to be one of the potential investors in the Chinese company. Softbank declined to comment on the reports. Alphabet did not respond to Arab News with a comment. The funding will help Manbang develop new business lines and to recruit talent, according to a statement from the firm, cited by Reuters. 

The potential investment reflects Saudi Arabia’s continued interest in investing in tech startups outside of the Middle East as it strives to diversify its investment interests away from the oil and gas sector. 

Technology is also an area where Saudi Arabia, and other Middle East investors, are eager to position themselves as major players. 

“Globally people are still learning about these technologies. To an extent it is where the Middle East could play catch-up, it is not on the back-foot, like it is in a number of (other) industries,” said Philip Dowsett, a partner at the law firm Morgan Lewis, based in Dubai. Dowsett works closely wth a number of private equity and venture capital funds. 

The Middle East could be “a player in these emerging technology markets,” he told Arab News. 

Back in 2016, Saudi Arabia’s PIF invested $3.5 billion in the lift-sharing app Uber, while Twitter secured a $300 million investment from Prince Alwaleed’s Kingdom Holding Company in 2011. Alwaleed also invested $105 million in the ride-sharing app Lyft in 2015. 

SoftBank’s Vision Fund also funded workplace messenging service Slack in September, while WeWork, the US-based startup that offers shared working spaces, secured a $4.4 billion investment from the fund last year. The funding was to be partly used to support the company’s expansion in Asia. 

The Financial Times on April 24 reported that WeWork is looking to tap the debt markets to further fund its expansion.
While Saudi Arabia’s interest in technology is unlikely to slow, Dowsett said sovereign wealth funds, such as PIF, will have to start thinking about what they bring to the table part from just writing the ‘big checks.’

“Other than that ticket and that check, what else do you bring to that investment?” said Dowsett, saying outside of the Middle East the venture capital market for tech deals is highly competitive. 

“This is what investors are trying to do. Gain this insight gain this experience, and build expertise in investing in technology assets,” he said. While most Middle East funds are looking for big-ticket tech deals outside of the region, the local tech industry is becoming more appealing to international investors.

“We are seeing a growth in the market,” said Dowsett, citing the Dubai-based ride-sharing app Careem, which launched in 2012 and has attracted venture capital funding from investors such as Daimler Financial Services. 

“It is all helping to promote the Middle East and to show that there is an environment to invest and money is coming in from outside the region — and there are very decent assets,” he said. “I have a number of private equity clients from the US and UK who are looking at this — it is not the Wild West as it used to be, there are fantastic assets here,” he said, noting that sometimes they are harder to find, with big-ticket deals still few and far between. 

Dowsett said that the region does still lack innovation and there was more a trend toward “reinvention,” where companies are taking concepts created elsewhere and replicating them for the region.