Center of excellence within Vision 2030

Updated 12 May 2016

Center of excellence within Vision 2030

It is very likely to be the world’s largest ever initial public offering. The sale of five percent of Saudi Aramco is expected to value the company at over $2 trillion. This will establish it as by far the most valuable business on the planet. But the part-privatization of Aramco is even bigger than this.
It is the first move in Deputy Crown Prince Mohammed bin Salman’s Vision 2030. This is dedicated to weaning the Kingdom off what the prince rightly describes as its “addiction to oil”. The plan envisages the private sector expanding from 45 to 60 percent of Gross Domestic Product. It looks to a radical expansion in manufacturing which currently accounts for just about a quarter of non-oil activity. This will strengthen the country’s economic base and draw in further strategic investment. It will also create private sector jobs. It will see unemployment tumble from the present 11.6 percent to seven percent or lower.
The corollary of such private sector employment growth is a shrinking of the role of public employment. This is likely to happen on two fronts. The first is the planned overhaul of the bureaucracy, to cut out waste and streamline procedures. The restructured Ministry of Commerce and Investment has been shorn of its industrial responsibilities. It is now focused on the mechanics of economic growth. It is dealing with practicalities of business. It is producing much-needed insolvency legislation. It will be the first such law in the Gulf states. It will give comfort to both domestic and foreign investors. Internationally, the Kingdom already scores highly on the speed and efficiency with which new companies can be established. This is being boosted by a reduction in the initial investment required. The minimum capital has been cut from SR2 million to SR500,000.
The second, and no less important front is in the new “Super-Ministry” for Energy, Industry and Mineral Resources. It is headed by Khalid Al-Falih, a widely-respected former Saudi Aramco technocrat. Aramco has always been a center of excellence. With new creation of the new ministry, that excellence moves to the center of government.
Aramco CEO Amin Al-Nasser said this week that the company would continue its global expansion. It was looking to a series of joint ventures. These included projects in China, Indonesia, the US and Vietnam.
Meanwhile, the Public Investment Fund is to hold the Kingdom’s stake in Aramco along with other key interests including the international petrochemicals giant Saudi Basic Industries Corporation. The Fund was set up in 1979 to take stakes in local companies. It is now being transformed into the Kingdom’s sovereign wealth fund. It will have well in excess of $2 trillion in assets. This substantial financial underpinning will give the fund ready access to financial markets.
The Saudi Aramco IPO has already made world’s financiers sit up and take very close interest. Investment bankers are clearly interested in the fee income from such a huge deal. But long-term investors also see profitable returns from buying in to the listing. Analysts are already predicting that the issue will be significantly oversubscribed. The IPO will also boost transparency. As international fund managers better appreciate the available opportunities throughout the Kingdom their appetite for other local assets will increase.
The changes represented by the 84-page Vision 2030 plan are fundamental. They are also rooted in reality. The price of oil has fallen from historic highs and is likely to remain around its current levels for some time. Yet demand is also increasing. The Kingdom is prepared to increase its output to help meet that demand.
For some oil-producing countries, the fall in revenues is causing the abandonment of investment. Governments are drawing in their horns. Not so here in the Kingdom. Reduced income from hydrocarbon is being taken as a prime opportunity. The desire to boost the non-oil sector of the economy has been long-standing. Some strides have been made. But they were not enough. The decline in oil price has given impetus for radical change. Vision 2030 is designed to transform the economy. One example stands out. The Kingdom is a major investor in defense equipment. Manufacturing jobs will be created by the establishment of localized defense industry plants. With every new strategic investment by international companies also come the transfer of technology and management expertise.
Saudi Aramco, which sits at the heart of Vision 2030, already has a proven record as a highly capable and efficient business organization. And it is providing the template for the visionary reordering of the Kingdom’s economy.

EDITORIAL: Jeddah floods a reminder of why we need the anti-corruption drive

Saudi drivers take a flooded street in Jeddah on Tuesday. (AFP)
Updated 22 November 2017

EDITORIAL: Jeddah floods a reminder of why we need the anti-corruption drive

It has happened again. The roads, streets and many underpasses in Jeddah were flooded with rainwater on Tuesday. Many areas were turned into lakes because of the heavy, though forecast, downpour. In some areas, water was knee-deep while in others it was chest-deep. People were stuck in their vehicles and many were seen pushing their vehicles to the side of the roads with great difficulty. In low-lying areas, citizens struggled to remove their belongings from flooded houses.

For the residents of Jeddah, rain has, more often than not, brought trouble and devastation. Whenever the skies open up, thoughts go back to that “Black Wednesday” of November 25, 2009, when more than 100 people lost their lives and property worth billions of riyals was destroyed. An investigation was opened into the disaster and some of the guilty were taken to court and tried; some of the small fry were even jailed. As has been the case in the past, the mighty arm of the law could barely touch those at the top who enjoyed immunity from prosecution.

And so it was business as usual until the rain began to wreak havoc again, reminding us that the laws of nature take their course and that hiding your head in the sand does not chase the clouds away.

Having said that, it must be admitted that, yes, lessons were learned. A disaster management team was set up. The weather forecast department became active in issuing alerts. In fact, Tuesday could have been far worse had it not been for the timely alert from the Presidency of Meteorology and Environment (PME) and a prompt decision by the Ministry of Education to suspend classes, schools and universities in and around Jeddah. That helped in keeping people and vehicles off the streets. At noon on Tuesday, it looked as if the city were under some kind of curfew.

The questions that are on everyone's minds right now are: Why is it that rain renders the city helpless and immobile at this time every year? Why have efforts to create effective rainwater drainage systems not borne fruit despite pumping billions of riyals into new projects such as dams and canals? Why is it that the authorities are found wanting whenever heavy rain occurs? More importantly, what is the solution?

Here is the answer. These floods are a stark reminder of why the current drive against corruption is so essential. It is required in order to instill the fear of law into high-ranking officials and heads of construction companies and civic bodies who have failed in their responsibilities. Those who have cut corners and have pocketed public money, those who have not delivered on the projects and who have provided substandard services must pay for their sins of omission.

This is exactly what is happening. No one is above the law. The guilty, whoever they are, however high up they are, will have to pay — and they are. In this new era of transparency and accountability — initiated by Crown Prince Mohammed bin Salman — word has gone down from top to bottom that no one is immune. If you are guilty you will be punished. Those responsible for the havoc of the floods on Tuesday will have no rest either.