How is it possible that, as one analyst commented, Saudi Arabia is becoming “the ATM of Western finance”? The Arab entry into Telefónica is just the latest piece of tentacles that are spreading to more and more sectors, especially the pointers.
The turning point came in the pandemic, when Riyadh decided to step on the accelerator as hard as it had ever done before. Currently, the Saudis have stakes in technology companies that are the symbol of advanced Western capitalism, such as Uber, Booking or Microsoft. As well as in the powerful video game sector (Electronic Arts) and the financial elite (Blackrock).
The country’s sovereign fund (acronym) PIF, with estimated assets of more than 700,000 million euros between holdings and cash, is the one that has spent the most since 2022 among those in the Persian Gulf regions. Why is Saudi Arabia now embarking on buying shares in Western companies?
The story goes back a long way, when Mohammed Bin Salman launched his Vision 2030 plan in 2016 with the aim of diversifying the economy and reinvesting oil dividends. But now is the time for Saudi money to start generating more money.
First of all, with the pandemic the shares of some companies collapsed at a bargain price and they were an opportunity (think of Carnival cruises). Second, after the Jamal Khashoggi case (the journalist quartered in the Saudi consulate in Turkey) the regime needed to present itself as a more modern country. Hence the heavy purchases in the entertainment sector in search of great sports showcases, such as the signing of contracts with relevant figures from football, the Dakar Rally or Formula 1, to increase their soft power , also in terms of image. “Saudi Arabia, without pretending to be a democracy, consciously invests in companies that guarantee it status and connections with governments, knowing that if there were political criticism of its regime, the blood would not reach the river”, admits Eduard Soler , professor of International Relations at the Autonomous University of Barcelona and senior associate researcher at CIDOB.
Internal reasons must be added to this. It is difficult for Riyadh to keep the price of oil high (last week it announced another cut in production), which is why it needs to attract capital from abroad to balance the accounts. More than half of the active population works in the public sector, which accounts for 45% of the state budget. But this year the country will close with a deficit and Aramco, the state oil company, posted a 38% drop in profits. One should not rest on the laurels of black gold.
In this sense, the comparison with the neighbors weighs. The sovereign wealth funds of Abu Dhabi and Kuwait still manage more assets than the PIF. According to Unctad, foreign investments to Saudi Arabia in 2022 have decreased by 59% compared to 2021, when Qatar attracts three times more capital and Dubai is becoming a first-class business hub. “Saudi Arabia has arrived later and is now trying to recover the disadvantage. It was an anomaly that the most influential country in the Gulf did not follow modernization and investment policies like the others”, says Eduard Soler. This explains the announced urban development of The Line and Neom, future Saudi cities focused on renewable energy, natural spaces and artificial intelligence and the changes in the tax regime for multinationals, so that they can settle in the country if they want public contracts
Mohammad bin Salman is living a pivotal moment. His father, King Abdulaziz is 87 years old and with the succession in sight he needs to legitimize himself before his people, with media financial operations.
On whether this Arab expansion can pose a danger to Western geopolitical interests, in a recent note the analyst Natalia Torregosa Ramos of the IEEE (Spanish Institute of Strategic Studies) wrote: “In the short term, relations between Saudi Arabia and China will be more intense, even in security and military cooperation. The two powers have ideological similarities, because they perceive as a threat the democratic or liberal ideas, typical of the West, which they consider foreign. In addition, as allies they have enough means to deploy considerable economic coercion at a global level.”
