What Is the Public Investment Fund (PIF) Restructuring Program in Saudi Arabia?

Saudi Arabia’s Public Investment Fund (PIF) Restructuring Program is one of the core projects in the country’s Vision 2030 initiative. The restructuring program involves a significant expansion of PIF’s role and mission to include finding qualified foreign partners for financing projects that fall under the Vision 2030 project. This is particularly true for Vision 2030’s large-scale projects and global investments.

With the National Transformation Program 2020, or NTP 2020, in full swing, carrying out the early parts of Vision 2030, foreign businesses have an opportunity to get involved with Saudi expansion. The companies that grasp the nuances of PIF and Vision 2030 have the best chance at success.

Table of Contents

• What Is Saudi Arabia’s Public Investment Fund?
• How Does Saudi Arabia’s Public Investment Fund Impact Foreign Businesses Under Vision 2030?
• What Is the Sovereign Wealth Fund?
• Where Does Funding for Saudi Arabia’s Public Investment Fund Come From?
• What Does Saudi Arabia Use Their Public Investment Funds For?
• What This Means for Foreign Businesses
• How the Quincy Group Can Help You Do Business in Saudi Arabia

What Is Saudi Arabia’s Public Investment Fund?

For almost five decades, PIF has been one of Saudi Arabia’s most critical economic engines. It has contributed to the growth and establishment of many of the largest financial entities in the Kingdom of Saudi Arabia (KSA). One of the world’s largest sovereign wealth funds, Royal Decree No. M/24 established the fund in 1971, and it has financed many of the Kingdom’s most important projects and companies while providing financial support to the country’s strategically important projects.

One of the two most important changes for PIF came on March 23, 2015, when the Saudi Arabian Council of Ministers passed a resolution stating PIF would now report to the Council of Economic and Development Affairs (CEDA) instead of the Department of Financial Affairs. Crown Prince Mohammed bin Salman became head of CEDA. The change gives PIF more cohesive authority and provides a more well-defined national strategic role to PIF.

Another change came in 2017, when Saudi Arabia announced the Vision 2030 initiative. Vision 2030 seeks to modernize Saudi Arabia’s culture, economy and social institutions. Each of these pillars, as they are called, contain specific and detailed objectives for reforms. The initiative seeks to:

• Grow Saudi Arabia’s private sector
• Increase tourism for both religious and non-religious visitors
• Reduce unemployment in the Kingdom
• Decrease, ultimately, the country’s dependency on oil

How Does Saudi Arabia’s Public Investment Fund Impact Foreign Businesses Under Vision 2030?

After the government of Saudi Arabia announced Vision 2030, PIF needed to develop a more aggressive strategy to help the country realize the objectives of the new initiative. It created a new structure that improved its strategy and redefined its mission and vision.

In line with Vision 2030, PIF becomes the main engine that creates economic diversification in Saudi Arabia and transform KSA into a powerhouse of global investment in 2018-2020. Its main objectives are:

• To grow the assets of PIF
• To unlock new sectors through PIF
• To use PIF to localize edge technology and knowledge

What Is the Sovereign Wealth Fund?

A Sovereign Wealth Fund (SWF) is an entity or investment fund owned by the state and comprised of money that comes from a country’s financial reserves. These are funds that have been set aside by a country to use for investment to benefit that country’s citizens and its economy.

SWF’s funding comes from a variety of sources, including the reserves of a central bank, normally accumulated because of trade or budget surpluses, funds generated by moving some operations from the public sector to the private sector, the government’s foreign currency operations, and revenue created by exporting natural resources.

The Sovereign Wealth Fund Institute says these funds are SWFs:

• Pension reserve funds
• Stabilization funds
• Future generation funds
• Reserve investment funds
• Strategic development sovereign wealth funds (SDSWF)

PIF falls under this final classification, as its main goal is to help diversify and grow the Saudi Arabian economy so that it is less reliant on its reserves of oil and natural gas.

Where Does Funding for Saudi Arabia’s Public Investment Fund Come From?

PIF derives its funds from a variety of investments and programs. Some are traditionally used to grow an SWF, and some are very specific to Saudi Arabia.

1. Moving Government Assets Into the Private Sector

Saudi Aramco, the Saudi Arabian Oil Company, manages all of KSA’s assets in energy and oil production. The Strategic Transformation Program called for offering 5% of the shares in Aramco to the private sector. It was hoped this sale of shares would generate $100 billion, which would be used to realize other goals of Vision 2030.

Saudi Arabia’s ruler, King Salman, canceled the sale of the shares in 2018, but King Salman insists it has merely been postponed. Instead, the government of Saudi Arabia proposed a partial sale of SABIC, KSA’s giant petrochemical company owned by PIF, to Aramco. In March 2019, Aramco and PIF reached a deal that will generate $69.1 billion for PIF by selling a majority of its SABIC shares to Aramco.

2. Loan and Debt Instruments

In April 2019, PIF sought to raise debt as part of a plan to become an SWF powerhouse and support its role in Vision 2030.

3. Earnings From Investments

PIF has invested in a variety of projects both in the KSA and internationally.

4. International Investments

This pool of assets includes investments made with carefully selected partners for long-term direct and indirect investments. Traditionally, PIF looks to invest funds internationally with partners who have major technological, strategic or economic impact on the fund whose industries focus on the future and want to help Saudi Arabia have a positive impact around the globe.

5. International Diversified Pool

These are diversified PIF investments that range across a variety of classes of global assets, including public equity, real estate, private equity, fixed-income and infrastructure. PIF invests in these assets to generate income and liquidity.

6. Saudi Equity Holdings

These are investments in listed and unlisted companies located in Saudi Arabia and spread across a variety of sectors. By investing in these companies, the PIF wants to help them grow and become regional and global leaders.

7. Saudi Sector Development

Through its investments in new companies and sectors, either indirectly or directly, PIF looks to generate funds by helping the growth of critical new sectors that enable Saudi Arabia to develop and diversify its economy. By investing in these sectors, PIF also hopes to help grow private sector participation and generate new skills and jobs for those who work in SMEs.

8. Real Estate and Infrastructure Development in Saudi Arabia

By investing in real estate and infrastructure in KSA, PIF generates revenue. PIF’s goal in this area is to maximize the value of the land bank and improve how it is used. It also seeks to improve critical infrastructure that assists economic development in other sectors. PIF hopes to grow its investments in the sector by working with leading development experts and attracting investment from local and foreign sources.

9. Giga-Projects

PIF investment in several large-scale projects as part of Vision 2030 aims to create ecosystems that are large-scale and complex and can have a significant impact on the economy of Saudi Arabia. These projects are one-of-a-kind and multifaceted in ambition and scope, and they have been created to encourage growth and add significant value to the Saudi Arabian economy.

What Does Saudi Arabia Use Their Public Investment Funds For?

From 1971 to 2017, Saudi Arabia used PIF funds to support its annual five-year growth plans. The goal behind these plans was to diversify the Saudi Arabian economy and lessen its dependence on oil as its main source of revenue. The Kingdom launched its 10^th program in 2015, but it was shelved in favor of the Vision 2030 initiative in 2017.

Going forward, PIF funds will support 30 initiatives of the Vision 2030 plan. These 30 initiatives are broken into three separate categories:

• Local Initiatives
• International Initiatives
• Institutional Initiatives

1. Local Initiatives of Saudi Arabia’s Public Investment Fund

These initiatives largely boost and support companies in Saudi Arabia. The list of past, current and future endeavors includes:

1. Maximize the value of PIF’s investments in Saudi companies
2. Transform PIF into an active investor
3. Launch and develop new sectors
4. Establish the Saudi Military Industries Company (SAMI): SAMI was established in May 2017 in order to provide military services and products to the KSA and to reduce its dependence on the purchase of foreign military products
5. Support Saudi industrial transformation and development
6. Establish the Entertainment Investment Company: The Saudi government has created two new governmental organizations, the General Entertainment Authority (GEA) and the General Cultural Authority (GCA). The Saudi government hopes to use these organizations to attract private investment for projects like amusement parks and movie theaters.
7. Launch Noon.com, a regional e-commerce platform: Noon.com has already had a very successful launch in Saudi Arabia and the UAE and recently expanded into Egypt
8. Establish the Saudi Real Estate Refinancing Company: In April 2017, the Saudi Real Estate Finance Company announced it would buy $200 million worth of mortgages from banks
9. Establish the Saudi Recycling Company: Launched in October 2017, the Saudi Recycling Company hopes to recycle 85% of KSA’s waste
10. Establish the National Energy Efficiency Services Company (Super Esco)
11. Establish the Fund of Funds to boost SME funding
12. Establish a heli-taxi company for private transportation and sightseeing trips
13. Develop real estate and infrastructure projects and companies
14. Maximize the value of PIF’s land and create new urban models in the main cities
15. Establish a housing community development company
16. Develop the King Abdulaziz International Airport city in Jeddah
17. Develop the King Khalid International Airport city in Riyadh
18. Grow tourism by developing the hajj and umrah experience and increase hotel and housing capacity in the holy city of Makkah
19. Grow tourism by developing the hajj and umrah experience and increase hotel and housing capacity in al-Madinah
20. Develop a tourist and entertainment destination in Asir

Giga-Projects

Saudi Arabia has committed to three giga-projects:

• NEOM: The NEOM Project involves building an economic city on KSA’s northwest corner of the Red Sea coast. The project includes residential areas, commercial areas and industrial units employing state-of-the-art technology. It would include cross-border linkages to similar projects in Egypt and Jordan, along with a bridge link to Egypt. It has a projected cost of $500 billion.
• Red Sea Project: The Red Sea Project calls for the building of a large-scale tourism resort on a wide piece of land in the Al-Hawra Archipelago. It would be located 500 miles north of Jeddah. KSA hopes the Red Sea Project and NEOM Project result in a sizable relocation of economic activity and population to the Red Sea area.
• Qiddiya: Being built southwest of Riyadh, this giga-project is seen as a multi-functional cultural and entertainment zone. Its plans call for theme parks, sports centers, facilities for cultural events and shopping malls, and more than 10,000 vacation homes. One of its main goals is to convince Saudi nationals to stay in the country for vacation, and they also intent to generate 57,000 jobs through this project.

2. International Initiatives of Saudi Arabia’s Public Investment Fund

These are projects designed to increase PIF’s revenues by investing in global projects. For instance, PIF has begun to look for new investments in China and announced in May 2019 that it would open a new Asia office. These projects include:

1. Initiatives to develop international strategic partnerships
2. SoftBank Vision Fund Initiative: SoftBank is a Japanese holding corporation that makes many investments in high-tech industries and is well known for developing new ideas in Silicon Valley. In 2017, PIF invested $45 billion in SoftBank.
3. U.S. Infrastructure Investment Program Initiative
4. Russian Direct Investment Fund Initiative
5. French Private Equity Investment Initiative
6. Uber Investment Initiative: In 2016, PIF sent Uber, the ride-hailing company, $3.5 billion in investment funds. PIF now owns 10% of Uber.
7. Saudi-Jordanian Investment Fund Company Initiative
8. International investments to diversify sources of wealth and income
9. International diversified investment initiatives

3. Institutional Initiatives of Saudi Arabia’s Public Investment Fund

These are initiatives designed to strengthen and promote PIF as an institution and a fund and in the way that is governed. These include:

1. Build human capital capabilities
2. Upgrade the IT systems and infrastructure needed to support the fund’s activities
3. Strengthen PIF’s image and presence locally and globally

What This Means for Foreign Businesses

What do Saudi Arabia’s public investment fund initiatives mean for foreign businesses? As foreign companies seek to do business in Saudi Arabia, companies must align their own business objectives with the goals of the Kingdom, particularly the goals articulated in Vision 2030. This could build a much stronger foundation for doing business in KSA and increase the likelihood of a company’s success.

Companies that understand what the Kingdom’ s goals are and how to align their business objectives accordingly may thrive. It also helps to know how business is done in Saudi Arabia and who the key stakeholders are. Doing business in Saudi Arabia is as much about who you know as what you know, if not more so.

How the Quincy Group Can Help You Do Business in Saudi Arabia

The Quincy Group has worked in Saudi Arabia for decades and is currently the only advisory firm with a full-time office in Riyadh. The Quincy Group has long-term relations with the key people at PIF and other ministries that oversee important SWF investments. We can help:

• Align your objectives with the Kingdom’s goals
• Better understand how business is conducted in Saudi Arabia
• Introduce you to key stakeholders
• Show you why it’s important for your business to work with the Quincy Group to achieve long-term success

By working with the Quincy Group, our clients have an extension of credibility and trust with key people in Saudi Arabia as a result of the relationships we have cultivated. We have the knowledge and expertise to advise you on growing your business in Saudi Arabia. Combined with our full-time presence in Riyadh, this gives you a large step-up toward success. Since we operate both in KSA and in the United States, we can support you at home and in Saudi Arabia.

To learn more about how we can help you establish or expand your project in Saudi Arabia, call us at 202.461.2245 or visit our contact us page, where you can leave your contact details.

SOURCES:

• https://www.belfercenter.org/publication/saudi-arabia-transition
• https://vision2030.gov.sa/en
• https://www.reuters.com/article/us-saudi-aramco-ipo-king-exclusive/exclusive-saudi-king-tipped-the-scale-against-aramco-ipo-plans-idUSKCN1LC1MX
• https://www.forbes.com/sites/ellenrwald/2019/06/17/remember-that-aramco-ipo-prince-mohammed-does/#219cc4e133e3
• https://www.sami.com.sa/
• https://www.arabianbusiness.com/retail/413608-e-commerce-venture-noon-set-to-start-egypt-operations
• https://www.reuters.com/article/saudi-mortgages-sukuk/pif-backed-saudi-real-estate-firm-to-buy-200-mln-worth-of-mortgages-idUSL5N2290C0
• https://www.arabianbusiness.com/industries/banking-finance/381370-saudi-arabias-pif-launches-recycling-company
• https://www.constructionweekonline.com/article-47125-saudi-arabias-pif-mulls-launch-of-heli-taxi-company
• https://www.cnbc.com/2019/05/01/saudi-public-investment-fund-zeros-in-on-china-despite-us-investments.html
• https://www.bloomberg.com/news/articles/2018-11-03/the-inside-story-of-how-uber-got-into-business-with-the-saudi-arabian-government
• https://www.pif.gov.sa/en/Pages/AboutPIF.aspx
• https://vision2030.gov.sa/en/pifprogram/about
• https://www.investopedia.com/terms/s/sovereign_wealth_fund.asp

Share: