Newsletter – THE MYSTERIOUS KINGDOM

March 2019


In February 2019 the Crown Prince of Saudi Arabia – the largest Kingdom amongst the GCC held a state visit to India. Little is known about this country with the exception that it is the largest producer of oil globally.

Muhammad Bin Salman born on 31 August 1985 is known to his close associates as MbS. He assumed office on 21st of June 2017 ushering a new era of modernization in the Kingdom. To begin with, he dismantled the once feared religious police, allowing for greater freedom for his people.

With malls in the capital crowded with shoppers and younger folk keen to increase their spending on entertainment and fashion, MbS embarked on his “Vision 2030” – an ambitious plan to diversify his economy from an oil producing nation to one that is aimed at creating jobs in retail, tourism and banking. The Saudi stock market is up 9% in CY 2018 and the GDP is projected to grow at 1.9% with the non-oil sector by 2.3% for CY 2019. But one asks the question – is this is reality or just a mirage?

Case in point - the stock market. On the outside it looks healthy but dive deep into the analysis and one would find that the government is secretly propping it up by placing huge bets to counter selloffs.
This links into the political crisis the Kingdom is facing with MbS flexing his muscles by arresting those that oppose him. The GDP figures are also misleading with the economy tied to oil receipts and little data to support the view that the diversification strategy of Vision 2030 is in execution mode.

Notwithstanding the critics, MbS went ahead to attract foreign investments to the Kingdom with a

mega investment conference in Riyadh in October 2018 only to be overshadowed with the murder of Jamal Khashoggi an exiled Saudi journalist, in the Saudi consulate in Turkey. Rich Saudis in an attempt to protect their wealth moved $80 billion out of the Kingdom to safer heavens last year.

Foreign direct investments fell to $ 1.4 billion in 2017 from $ 7.5 billion a year before. For an economy with a fast-rising population, pulling out of a recession due to the drop-in oil prices lacks the punch in performance. With a GDP growth rate of 1.5% MbS attracts investors by showcasing state directed mega projects like Neom, a futuristic $ 500 billion city on the
north western coast staffed by robots. On 10th December he laid the foundation stone of yet another mega project – Spark – the “energy city” in the East meant to create 10,000 jobs. Both seem to far from reality.

Rising oil revenues and austerity drives for example, a cut in subsidies and introduction of a 5% value added tax, have helped reduce the budget deficit. The government has increased public spending with Saudis spending more.
Despite this, retail sales are sluggish and the number of retail jobs have fallen by 177,000 negating the very framework of Vison 2030. Jobs in the most crucial areas of the policy that MbS is attempting to execute are hard to take off.

Inspite of the issues, young Saudis speak highly of MbS. They believe that he is attempting to make a change despite the rash decision making in some cases. Yet without
foreign money, the Prince will find it difficult to build his country in a manner that will keep the Saudis happy.

Till then, look before you leap. The Kingdom of Saudi Arabia will continue to allude investors with its secrecy. SELECT INVEST RELAX the Phundoway always!

Disclaimer: Mutual funds are subject to market risks. Please read the offer document before you start investing.

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