Saudi Arabia’s biggest publicly traded firms have decided to cut dividends and reinvest the money in the local economy as the crown prince attempts to get his economic reform agenda.
Twenty-four companies have agreed to join the plan, including oil giant Saudi Aramco, Saudi Basic Industries Corp., Almarai Co., Saudi Telecom Co., and National Shipping Co., with a cumulative investment of $1.33 trillion over the next ten years.
Crown Prince Mohammed bin Salman stated that in exchange for participating, the companies will receive government benefits, including subsidies. The government would keep its promise to protect Aramco’s dividend payments to minority shareholders.
Prince Mohammed pointed out “what we’re trying to create is growth in Saudi Arabia: growth in GDP, more jobs in Saudi Arabia, more income to the Saudi government and a better life for Saudis.”
The $1.3 trillion from private companies are part of a $7.1 trillion strategy unveiled by Prince Mohammed, which details a slew of expected investments over the next decade. Over the same period, the central government will spend about $2.6 trillion, while the sovereign wealth fund has previously announced that it will invest an additional $0.7trillion.
The remaining $1.06 trillion will come from private investments in a yet-to-be-announced national investment plan, with the final $1.3 trillion coming from ordinary consumer spending.
Diversify the economy
The announcement highlighted how the prince’s attention is shifting domestically as he seeks to diversify the world’s largest oil exporter’s economy and generate enough employment for the kingdom’s young population. It also illustrated that the government is relying on the struggling private sector to fuel growth, which had previously been dependent on government spending.
The new strategy comes after a double crisis for Saudi Arabia, with the coronavirus pandemic and oil market instability slowing the 35-year-old de facto ruler’s goals to improve the non-oil economy and reduce citizen unemployment.
According to Prince Mohammed, the dividend plan would not affect the companies’ shareholders because, instead of earning a cash dividend, they will benefit from stock market growth fuelled by domestic spending plans. The government is still in talks with other companies about joining the initiative, but Aramco and Saudi Basic Industries Corporation (SABIC) will account for roughly 60 percent of the $1.3 trillion.
Going to sell
In return for the firms’ participation, “we’re going to give them subsidies, we’re going to change the laws as they wish and we’re going to do their wish list to make that happen,” Prince Mohammed added.
The Public Investment Fund (PIF), the kingdom’s sovereign wealth vehicle, will look to sell some of its local assets to fund new investments.
The Crown Prince stated that “we shouldn’t keep our share forever, whatever mature investment we have, we’re going to sell. So if you own 70 percent of a company then that’s wrong, PIF would own 30 percent of that company and they will sell that 40 percent.”
The PIF completed the sale of its 70 percent stake in SABIC to Aramco last year, raising approximately $70 billion. The PIF owns significant stakes in several Saudi firms, including Saudi Telecom and National Commercial Bank. The prince remained tight-lipped about any planned asset sales by the PIF.