In the midst of a crisis, the confusing “buying frenzy” of the sovereign wealth fund of saudi arabia

En pleine crise, la déroutante «frénésie d'achats» du fonds souverain saoudien

RYAD | Eight-billion u.s. dollars. It is the amount invested in the midst of a crisis of the COVID-19 by the sovereign wealth fund of saudi Arabia in the giants of the global economy, from Boeing to Facebook, a frenzy that contrasted with the austerity measures unprecedented in the kingdom.

The double shock of the pandemic COVID-19, and the collapse in oil prices prompted the government to triple the sales tax, suspend benefits and reduce its expenditure to curb the growth of its budget deficit.

These drastic measures put a strain on a social contract that says “annuitant” who, for decades, has seen the kingdom use its oil wealth to provide citizens with generous subsidies, jobs and a comfortable lifestyle. Without income taxes.

But recently, the Public Investment Fund (PIF) — quickly becoming one of the biggest bargain hunters — has spent billions to buy shares in foreign companies of the first plan.

“We don’t want to waste a crisis”, has ironisé the governor of the FGP, Yassir al-Roumayyan, in April, confirming that the funds, rich of $ 300 billion, is benefiting from the slowdown of the global economy to offer shares at discounted prices.

Boeing, Facebook, Total, Walt Disney, Starbucks, Marriott, Citigroup: during the first quarter of 2020, the public body has purchased for $ 7.7 billion of shares.

The PIF also supports a proposed takeover of the club of English football of Newcastle United to the tune of approximately $ 372 million, although the agreement seems to be in trouble because of accusations that saudi Arabia would be behind a string of tv sports pirate.

“Throw away money”

“Businesses are pleased to see their shares being sought and their prices will increase,” said AFP Karen Young, a researcher at the American Enterprise Institute.

But in a country where the VAT will triple to 15 % from July, “it is more important to think about how the Saudis see the fact that their savings and the savings of the country are spent on the international markets”, she says.

Riyadh, merchants wonder why these amounts have not served to support small and medium-sized businesses choked by the pandemic.

“A soccer club, entertainment, mega-projects. Throw away money, and is absolutely useless in these times of austerity,” said an official, also driver VTC part-time job to make ends meet month.

The foreign exchange reserves of the central Bank experienced a sharp decline in march and April, the government is claiming that $ 40 billion had been transferred to the PIF to fund its purchases.

The reserves, which have dropped to about $ 450 billion dollars in April — its lowest level for years, and should decline further to finance the budget deficit, according to analysts.

“Big paris”

The crown prince Mohammed bin Salman, strong man of the kingdom, has transformed the PIF in a power charged to diversify an economy ultradépendante oil.

The organization says search “actively strategic opportunities, both in saudi Arabia and in the world, which have a high potential to generate significant returns in the long term”.

“The PIF makes big bets on a few stocks. Smart or not, we will only know that when we look in the rearview mirror,” said Ali Shihabi, an expert of saudi arabia.

Some of these investments “tactics”, such as those in the cruise company Carnival, which is experiencing great difficulties, are in line with the objective of Riyadh to develop the sectors in an infant stage of tourism and entertainment, ” he adds.

But many other acquisitions are “unlikely to produce a substantial return in the short term”, according to Robert Mogielnicki, a researcher at the Arab Gulf States Institute based in Washington.

The investment in Facebook, which has not responded to the requests of the AFP, has raised concerns in the United States, where two former Twitter employees were accused last year of spying for saudi Arabia.

“We already know that the Saudis have agents on Twitter to spy on dissidents,” says the AFP Ben Freeman, director of the Center for International Policy in Washington. “The company would it end up in a disinformation campaign carried out by one of its shareholders?”

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