When the Gulf countries reiterated their readiness to cope with a collapse in oil prices in spite of all the difficulties, misleading media campaigns and distortion of facts, some argued that the pledge was nothing more than an exaggeration. However, the Gulf has reacted strongly and swiftly.
Earlier, His Highness Shaikh Mohammad Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, announced the UAE’s adoption of a strategic approach laying the foundations of the post-oil era.
Prince Mohammad Bin Salman, Saudi Deputy Crown Prince, followed in the footsteps of the UAE by last week announcing that Saudi Arabia will launch the world’s largest sovereign fund with a total of $2 trillion (Dh7.34 trillion) to prepare for the post-oil stage.
But what does this mean? The sovereign fund (dubbed the Public Investment Fund) was founded years ago, but the latest steps will boost its capabilities and contribute to diversifying national income through restructuring and improving the fund’s management and capabilities. It will be the world’s largest sovereign fund with sizeable annual revenues that would contribute, according to available data, to 40 per cent of the kingdom’s annual revenues.
By adding the fund’s revenues to other public funding needs from taxes, customs duties and other contributions, the share of oil revenues to the general budget will drop to less than 50 per cent compared with 90 per cent in the present. This is part of the new national plan to be declared this month.
Government revenues
Though the fund has an existing asset portfolio, the new approach will make it even more substantial. The investments will significantly contribute to government revenues through two major steps; first by linking public investments with the kingdom’s largest internal and external funding needs. Second, by transforming Aramco into a joint stock company by listing 5 per cent of the parent company in the next two years and transferring the shares to the fund portfolio.
It is worth mentioning the fund owns shares in giant companies like Saudi Basic Industries Corporation (Sabic) and the world’s second largest chemical industries company.
Restructuring the fund will reshape the investments, which will result in more effective and profitable ones. The Saudi Arabia’s internal investments account for 95 per cent of its total while those on external assets stand at 5 per cent. However, the new approach will significantly raise the external component to 50 per cent and thus balance with the internal. That could be achieved by owning more shares and investing in international financial, industrial and real estate companies.
The move comes in line with a convergence of the global economy. It provides meaningful funding opportunities in so many developed and emerging countries.
Job opportunities
Meanwhile, The Saudi internal investments will witness significant growth and with the support of the fund. Earlier, an industrial mega project — dubbed “Promise of the North” — was announced with a total investment of $9.6 billion and expected to provide 20,000 job opportunities.
The fund, which could take part in this huge project, will invest heavily in international petroleum refining opportunities, making Aramco the world’s largest in this category.
Obviously, the coming period will see significant changes within the Gulf that would further lay the foundation for a post-oil economy.
The GCC countries, especially the UAE and Saudi Arabia, have developed and adopted well-defined approaches though which they can achieve economic diversity and restructure some of their institutions to them cope with the goal of diversifying sources of income by cutting the reliance on oil, preserving high living standards and maintaining social and economic stability.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
