Saudi Arabia will spend at least half the money it raises by selling shares in the state oil company on domestic investments, Deputy Crown Prince Mohamed bin Salman said in a rare televised address to a nation that’s shown signs of uncertainty over his austerity plans.
The Saudi sovereign wealth fund will use proceeds from the initial public offering in Saudi Aramco to develop domestic arms manufacturing, the mining industry and the entertainment sector, Prince Mohamed said in an interview on state television. He said the share of IPO profits to be spent within the kingdom “won’t be below 50%, and could reach 70%.”
The share-sale is due to take place next year. Without it, the kingdom could take decades to develop its economy and new industries, he said.
Prince Mohamed, 31, used the interview to highlight planned investments, cash transfers and construction projects that he says will help revive an economy stuck in the worst slowdown since 2009.
Excluding oil, Saudi output barely grew last year after the government slashed spending and suspended some allowances for state employees, a significant change for a public accustomed to generous handouts.
By focusing on planned investments, the prince wanted to “shift the emphasis away from austerity to growth,” said Simon Kitchen, head of macro-strategy at Cairo-based investment bank EFG-Hermes. “The private sector has been squeezed by lower spending and higher costs over the past few years. Business wants some certainty over where growth is going to come from. Uncertainty has discouraged private sector investment recently,” he said by email.
King Salman has reversed some of the cuts, ordering the resumption of bonuses and allowances for state employees that had been suspended in 2016.
That decision was possible because austerity measures succeeded in their goal, helping the country avoid recession and reducing the budget deficit sufficiently that the perks can now be resumed, Prince Mohamed said in the interview.
“The suspension of allowances was temporary and was to be reviewed periodically,” he said. “It was reviewed in the appropriate time after our oil revenue improved.’’
The prince rejected the idea that public pressure had played any role. “That isn’t true,” he said. “The deficit fell 44% below our projections. Why? Because of austerity measures.” He also said that the government’s non-oil revenue exceeded expectations in the first quarter of this year.
It was the second time that Prince Mohamed has addressed the Saudi public via domestic television. On the previous occasion, in April last year, he announced details about the Vision 2030 plan to transform the Saudi economy.
Prince Mohammed said that all reform measures have side- effects. “These new programmes, which are being launched, will start yielding results by the end of 2017 and more strongly in 2018 and 2019,’’ he said.
He cited the effort to build a defence industry, saying that Saudi Arabia spends as much as $70bn a year on its military and aims to include local content in all its arms deals. The government also plans home-building programmes, with housing to be made available free or at low cost to poorer Saudis, Prince Mohamed said. “His comments give some pointers on future areas of growth: healthcare, defence, mineral exploitation, logistics,” said Kitchen of EFG-Hermes. “Giving guidance on spending priorities is particularly important given the fiscal picture.”
The Saudi sovereign wealth fund will use proceeds from the initial public offering in Saudi Aramco to develop domestic arms manufacturing, the mining industry and the entertainment sector, Deputy Crown Prince Mohamed bin Salman said in an interview on state television.
