Saudi Arabia’s crown prince looks to Aramco to lead investment plan

Crown Prince Mohammed bin Salman is banking on Saudi Arabia’s largest listed companies, including Saudi Aramco, to invest $1.3tn in the kingdom over the next decade and urging them to reduce dividends as he tries to accelerate plans to diversify the oil-dependent economy.

Prince Mohammed said more than 20 companies had agreed to be involved in his new initiative, with 60 per cent of the investment led by state oil giant Aramco, which listed on the local stock market in 2019, and Sabic, a petrochemicals company.

“That will not harm the shareholders of those companies because instead of getting dividends in cash, you’re going to get growth in the stock market,” Prince Mohammed told reporters late on Tuesday.

“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,” he added.

A Saudi official told the Financial Times that the initiative was optional and it would be up to companies to decide whether to reduce their dividends.

The official added that Aramco would be expected to keep its promise of paying its $75bn annual dividend on a pro-rata basis to minority shareholders. The energy firm listed 1.7 per cent of its shares on the Tadawul exchange.

The initiative is the latest sign that Prince Mohammed is aggressively seeking investment in Saudi Arabia to support his ambitious plans to modernise the conservative nation. It also suggests he is focusing more on domestic investment as the kingdom has struggled to attract sizeable foreign capital into sectors outside energy.

Mohammed al-Jadaan, the finance minister, told the Financial Times the government would offer incentives to companies taking part in the scheme, including tax waivers, guarantees on feedstock prices for energy-intensive projects and some concessional loans. He said the aim was to “turbo-charge the private sector investments”.

“We are talking about companies in the technology sector, financial technology, mining, logistics, food, renewables, manufacturing solar panels and other things,” Jadaan said. “We have not concluded final agreements with them, because we wanted them to go through the governance and regulatory process, as some of them are listed.”

Saudi officials insist the investments by large state affiliated companies will boost the private sector as many smaller firms are contracted to these companies on projects. The Public Investment Fund, the sovereign wealth fund chaired by Prince Mohammed, has already committed to invest $40bn annually in the kingdom over the next five years. The crown prince said its total domestic investment to 2030 would be $800bn.

Jadaan dismissed suggestions that Aramco would be used as a tool for state development. It was previously tasked with building schools, hospitals and other infrastructure.

“Aramco has its own governance and will invest in its sector as it sees appropriate. As a listed company I would not want to speculate about their investment plans but let us remember that this is an opt-in programme,” he said.

Amin Nasser, Aramco’s chief executive, told CNBC that the energy group would “undertake investments that are commercially beneficial that maximise value to us”. “We have a strong balance sheet,” he said, adding that Aramco was “very capable” of executing megaprojects while meeting the “expectations of its shareholders”. 

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It is not clear how Aramco, which also pays dividends, taxes and royalties to the state, will seek to fund these projects.

Aramco is the major shareholder in Sabic after acquiring the sovereign wealth fund’s 70 per cent holding in the petrochemicals firm in a $69bn deal orchestrated by the royal court in 2019.

“The ask on the public and private sectors is telling of the enormous task required to diversify its economy away from oil. It’s a huge ship trying to navigate in a limited space and time as the world is changing much too fast,” said John Sfakianakis, a Gulf expert at Cambridge university.

“Including the private sector in the country’s development plans is essential. The numbers are lofty, but even a partial attainment is better than nothing given the enormity of the task to diversify.”