The agency said, “Bloomberg“America, the Saudi Crown Prince, Mohammed bin Salman, has set a new goal in mind as he moves forward with the unprecedented economic transformation plan.
Companies listed on the Saudi Stock Exchange
The agency stated that this new goal targets the largest listed companies in the country.
She added, “After six weeks of saying that foreign entities should move their regional headquarters to the Kingdom or they will lose their business. Prince Mohammed announced that local companies would be encouraged.
The agency indicated that this would be from the oil giant Aramco to the dairy company Almarai. To reduce their profits and redirect them to the economy.
Support versus partnership
“We’ve seen the government use the stick to lure foreign investors into Saudi Arabia,” said Tariq Fadlallah, CEO of the Middle East Department at Nomura Asset Management.
Fadlallah added, “She is now using the same policy with local investors. I am not a supporter of government intervention in the private sector. ”
He added, “But Saudi Arabia does not have many options to stimulate these companies. Therefore, partnership in this way may help encourage more investment. ”
Risks are high
The stakes are high here. As it states Seeing the Crown Prince On public and private sector spending, jointly, for 27 trillion riyals (seven trillion dollars). Over the next 10 years. In an attempt to diversify the economy, of which oil accounted for 54% of its revenues last year.
All of this comes at a time when foreign direct investment has reached its lowest levels and the budget deficit has ballooned. During the suffering of the Prime Time Zone from the repercussions of the decline in crude oil prices, last year, as a result of the Covid-19 pandemic.
Twenty-four companies, including SABIC, Almarai, Saudi Telecom and the National Shipping Company of Saudi Arabia, agreed. To join the plan and invest five trillion riyals ($ 1.33 trillion) in the local economy, according to Prince Muhammad.
The prince explained that these companies will receive government support and will be able to lobby for changes in laws and regulations.
None of the companies he mentioned has commented yet on the amount of money they can invest in the plan.
With the spending plans not being disclosed, investors may find it difficult to determine whether this government interference in corporate decisions will ultimately create any real value.
Hasnain Malik, Head of Research at Tellimer, Dubai, said: “In the long term, capital spending increases growth rates. If it is related to productive projects that create value and jobs.
He added, “It is not clear yet whether the promises of concessions and subsidies will make the non-oil investments convincing for these companies in a way different from before.
He continued, “The problem is that inaction is not an option here, given the demographic pressures to create job opportunities and deplete oil revenues.”
How do investors see the story?
According to the agency, inaction may be the problem that Prince Mohammed is trying to solve here. It represents mortgages. The main reason for the growth of Saudi banks’ loans to the private sector.
“This is likely due to less government investment spending on new infrastructure projects and slowing economic growth,” she added. The dividend distribution of Saudi companies is already declining.
The announcement was favorably received by investors on Wednesday, March 31. Saudi Arabia’s Tadawul Index rose by 2.8%, while Aramco shares rose by 2.7%, according to the US agency.
Saudi Arabia said in February it would stop working with companies that do not have regional headquarters in the kingdom.
The purpose of the announcement was to reduce “economic diversion” and increase new job opportunities.
The kingdom has always had the services of consultants and consultants residing in neighboring Dubai or Bahrain, where foreigners enjoy an easier lifestyle.
“Foreign direct investment lags far behind government targets,” the agency says. Prince Mohammed said he would like that investment to exceed $ 500 billion over the next decade.
Last year, it increased by 20% to reach $ 5.5 billion, which is less than the Kingdom’s goals, but higher than global rates of decline.
The agency added, “But the target of the five trillion riyals from local companies goes far beyond what bin Salman imagines will come from foreign investors.”
Bin Salman said: “We have 90% of the $ 27 trillion that we, the Saudis, guarantee, the government, the private sector, and the Prime Time Zone.
He added, “We will get less than 10% of foreign investment, whether through regional investors – especially in the Gulf – or investors from different parts of the world, east and west.”
However, the slow pace of foreign investment may explain the desire to persuade local companies to contribute more to the economy.
According to Jean-Francois Seznick, a fellow at the Atlantic Council of Washington: “The kingdom fears that foreign companies will not be in a hurry to invest in Saudi Arabia.
He continued, “They have to reduce their spending on oil income. How would you do it if foreign investors didn’t come? One of the solutions is to encourage the local private sector to do more. ”
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