Saudi Arabia's $2 trillion gamble: Can Oil wealth fund tech revolution?

Can Saudi Arabia ditch oil for tech? Explore how the Saudi Arabian Public Investment Fund (PIF), a sovereign wealth fund, is fueling a bold economic transformation, from futuristic cities like NEOM to tech giant investments. Find out if this Vision 2030 gamble will secure their future.

It was just a few months ago that Saudi Sovereign Wealth Fund, PIF, had $676 billion in assets under management. As of the month of March, Saudi Arabia transferred a $164 billion stake in Aramco to PIF, propelling it to the second-biggest fund in the Middle East for an astonishing $925 billion. This is up from $595.6 billion in 2022 and is now resulting in PIF 16 percent ownership of Aramco. 

As the Saudi Arabian Public Investment Fund (PIF) aims to reach the $2 trillion target in assets by 2030, it will have to compete with other regional sovereign wealth funds like the Abu Dhabi Investment Authority (currently at $993 billion) and Kuwait Investment Authority ($923 billion) (SWF Data). With these three competitors, the Gulf Cooperation Council (GCC) becomes a leading region in the world with three SWFs each approaching the $1 trillion mark in assets. These staggering sums speak volumes about these funds leveraging their oil and gas revenues to invest and transform their economies, preparing for a future beyond oil.

In its March report, the Sovereign Wealth Fund industry report added that PIF became the world’s largest sovereign investor in 2023, deploying $31.6 billion across 49 deals, a 33 percent increase from 2022. These financial capabilities are essential for Saudi to develop its diversified economy. According to Bloomberg, PIF annual deployment of capital is estimated to reach $70 billion a year from 2025 onward. 

While keeping this ambitious Vision 2030 plan in mind, the capital Saudi Arabia needs to keep its economy competitive goes beyond what PIF can do on its own. Saudi banks are also playing a crucial role, actively fundraising across the Middle East, Europe, and Asia to secure loans that provide liquidity for Saudi companies. Local banks are expected to raise $11 billion annually to fund large infrastructure projects like NEOM, Quiddya, and Oxagon, which combined are expected to require at least $500 billion in investment over the next three years.

Sovereign wealth funds and Oil Giant Aramco could also seek more bank loans or sell part of their portfolio companies to secure more capital. According to Blomberg, Aramco could be having a secondary market placement to raise as much as $20 billion to help pay the bill for the 2030 infrastructure projects.

Notable overseas investments in 2023, alongside golf and soccer, included Nintendo in Japan and Vale Basic Materials in Brazil.  PIF was the top spender among global sovereign wealth funds last year, accounting for about a quarter of the $124 billion splashed by state-owned investors, according to a preliminary report by research consultancy Global SWF.

Challenges ahead: PIF might face challenges in reaching its $1 trillion target. These could include volatile oil prices, geopolitical instability, or difficulties integrating new investments. Plus the Kingdom should make sure that national companies increase their efficiency and profitability as these government led companies may risk losing competitiveness. Additionally, we would have to see if some of the aggressive investments the Saudis have made across sports, tourism and tech result in success or failures as these may affect the national budget space. 

Conclusion: PIF is poised to play a transformative role in the kingdom's economic future, particularly in the tech sector. The success of Vision 2030 and the region's overall economic diversification will depend on PIF's ability to navigate the competitive landscape, secure capital, and attract top international talent. This economic transformation is expected to create significant job opportunities in various tech fields.