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 last piece of some tentacles that are spreading to more and more sectors, especially the leading ones.
The turning point came in the pandemic, when Riyadh decided to step on the accelerator hard like it had never 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 thriving video game sector (Electronic Arts) and the financial elite (Blackrock).
The country’s sovereign fund (acronym) PIF, with estimated assets of more than 700 billion euros between shares and cash, is the one that has spent the most since 2022 among those in the Persian Gulf regions. Why is Saudi Arabia now launching into purchases of shares of 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 when Saudi money has to start making more money.
First, with the pandemic the shares of some companies plummeted at bargain prices and were an opportunity (think Carnival cruises). Second, after the Jamal Khashoggi case (the journalist dismembered in the Saudi consulate in Turkey) the regime needed to present itself as a more modern country. Hence the strong purchases in entertainment sectors in the search for large sporting showcases, such as the signing of contracts with relevant figures in football, the Dakar Rally or Formula One, to increase their soft power, also in terms of image. “Saudi Arabia, without pretending to be a democracy, consciously invests in companies that guarantee status and connections with governments, knowing that if there were political criticisms 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.
To this we must add internal reasons. Riyadh finds it difficult to keep the price of oil high (last week it announced another production cut), which is why it needs to attract capital from abroad to balance the accounts. More than half of the active population is employed 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, recorded a 38% drop in profits. There is no need to 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 towards Saudi Arabia in 2022 have decreased by 59% compared to 2021, when Qatar attracts three times more capital and Dubai is becoming a first-rate business hub. “Saudi Arabia arrived later and is now trying to recover from 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 energies, natural spaces and artificial intelligence, and the changes in the tax regime of multinationals, so that they can settle in the country if they want public contracts.
Mohammad bin Salman is experiencing a key 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.
Regarding whether this Arab expansion could pose a danger to Western geopolitical interests, in a recent note, analyst Natalia Torregosa Ramos of the IEEE (Spanish Institute for Strategic Studies) wrote: “In the short term, relations between Saudi Arabia and China will be more intense, even in security and military cooperation. Both powers present ideological similarities, because they perceive as a threat the democratic or liberal ideas, typical of the West, which they consider foreign. Furthermore, as allies they have sufficient means to deploy considerable economic coercion on a global level.”
