Saudi Arabia thinks a partial IPO of state-owned oil giant Saudi Aramco will lead to reducing the kingdom’s overdependence on oil. In an interview with Bloomberg published on Friday, Deputy Crown Prince Mohammed bin Salman explained that less than 5% of the firm will be sold, and the proceeds will go to the state’s Public Investment Fund (PIF). That sovereign wealth fund could become the world’s largest, he said, with more than $2 trillion in assets.
The IPO could happen as soon as next year. The plan is then for the PIF to play a major role in investing in the economy to encourage diversification from oil. It will also increase the proportion of foreign investments to 50% by 2020 from 5% now, said Yasir Alrumayyan, secretary-general of the fund’s board. Investments will thus make up the main source of revenue for the Saudi government, rather than oil. “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil,” Salman declared.
Battered from low oil prices and powerless to get all producers to agree to an output cut or even a freeze, Saudi Arabia is in a real bind. Blouin News has previously reported on the kingdom’s plan to make mining a central part of its economy to diversify away from oil. With a government hiring freeze in place and few job opportunities elsewhere, last month Riyadh also unveiled a policy requiring firms to have 100% Saudi employees within six months, starting with the mobile phone industry (see our coverage here.)
If oil prices stay this low, will taking Aramco public be as lucrative as Riyadh hopes? And might the added financial scrutiny uncover some shady dealings and corruption? High hopes could easily become a big disappointment.