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Saudi Arabia The Oil Titan Turned FinTech Giant

OPEC produces 1189.80 billion barrels of oil, comprising 79.4% of global production, with non-OPEC countries responsible for 308.18 billion barrels of oil, or 20.6% of production. From that total, Saudi Arabia has 267.03 billion barrels of crude oil reserves (2018 figures), comprising 22.4% of overall OPEC production. The Saudi Arabian economy features a GDP annual growth rate of 0.5% (June 2019) with an unemployment rate of 5.6% and a -0.3% inflation rate. 

Saudi Arabia’s crude oil production tapered off significantly in 2019, from 10,643 BBL/D/1K in December 2018 to 9,890 BBL/D/1K in November 2019. Declines in crude oil production are the net result of several factors, including attacks on the Saudi Arabian oil fields, and the attendant impact on output.  More recent reports indicate that Saudi Arabia has been pushing fellow OPEC countries to reduce production by 400,000 barrels per day. However, the oil-rich nation has denied as much. OPEC, the powerful energy alliance, has reduced production by 1.2 million barrels per day since January 2019, running through to March 2020. By reducing production, OPEC countries can maintain stability in oil prices.

Trading Economics OPEC Exports Saudi Arabia Crude Oil Production

An Economy in Flux: Crude Oil to FinTech

The Saudi Arabian economy has proven robust, resilient, and dynamic in the face of mounting pressures in the oil market. Recently, the Saudi Arabian Riyadh Bank – a Middle Eastern financial juggernaut – announced an investment of $26.7 million into a major FinTech start-up investment initiative. The new CEO of Riyadh Bank, Tariq Al Sadhan stressed the importance of keeping up with the times, particularly the breakthrough developments taking place in the FinTech arena. The development of this particular fund is important vis-a-vis research and development for start-up companies. To date, SAMA (Saudi Arabian Monetary Authority) has issued over a dozen FinTech permits for this experimental programme. But all of this pales in comparison to the large-scale projects in FinTech investment that Saudi Arabia is currently engaged in.

FinTech companies are developing at a rate of knots across the Middle East. Countries including Tunisia, Egypt, United Arab Emirates, Saudi Arabia, Israel, et al are all experiencing strong growth in FinTech investment. Up until 2015, the world accepted Saudi Arabian dominance in crude oil production. In fact, little else was associated with this Middle Eastern Kingdom until recently. When Saudi Arabia underwent a dramatic change with the Salman family, a new focus took root. Prince Mohammed Bin Salman’s intent is to make Saudi Arabia a global leader for the modern age. He outlined his strategic vision in Salman’s Vision 2030; an ambitious initiative to make the energy-rich nation a force to be reckoned with in the 21st-century fields of FinTech, banking, investment, and high-tech. 

To date, the Saudi sovereign wealth fund a.k.a. the Public Investment Fund (PIF) is now the new growth engine of the Saudi Arabian economy. This fund has partnered with the Japanese juggernaut, Softbank Group with a $100 billion investment fund for the tech sector, initiated in 2016. The partnership is but a drop in the ocean, given that this fund has a planned investment value of $2 trillion. The company intended to raise funds of $100 billion through a public sale of a small stake in Saudi Aramco, – the state energy company.  The Saudi Aramco IPO recently went on sale and surged 10% to $9.38, giving the company a valuation of $1.88 trillion, making it the biggest publicly listed company in the world. The IPO debuted on the Saudi Arabian Tadawul, shattering records set by Jack Ma and his Alibaba IPO estimated at $25 billion at the time (September 2014). 

As the world’s largest IPO listing ever, Saudi Aramco rocked the stock markets with a frenzy of buying activity. Now, the oil giant is significantly more valuable than its $1.7 trillion valuation. A glut of oil trading activity dovetailed with the launch of the IPO, with renewed interest in black gold and its potential to transform the Saudi Arabian economy through the PIF. However, the outsized investment is significantly less than what the Saudi Arabians had expected, largely due to limited foreign interest. The CEO of Saudi Aramco anticipated a price of 32 Saudi riyals per share. The $2 trillion figure is expected to reach its full girth by 2030. By August 2018, the fund had assets worth $150 billion in Saudi Arabian companies, including Saudi Telecom Company, Saudi Basic Industries Corporation, and the National Commercial Bank in Saudi Arabia. This fund is tasked with developing the Saudi Arabian national economy, and although it is almost 40 years in the making, it is growing rapidly.

MENA Fintech
Source: Accenture Analysis of CB Insights

 

By May 2019, the wealth fund had amassed an asset portfolio of $300 billion. Saudi Arabia began turning its attention east towards China for lucrative business opportunities. With some $50 billion diverted into the US economy over 2018/2019, significant growth and development are expected to take root. Heavy investments in the Saudi Arabian economy and international markets allow the fund to build a powerful global presence with billions of dollars in business deals across Asia, the Middle East, Europe, and North America. In 2017, the Public Investment Fund partnered up with Blackstone in a $100 billion investment in US infrastructure, with $20 billion coming from the Saudis for this purpose. But it’s Saudi Arabia’s partnership with SoftBank’s Vision Fund that has Silicon Valley companies squarely in its sights. This particular fund invested $3.5 billion in Uber technologies in 2016, with significantly more investment opportunities on the horizon. This is but the beginning of Saudi Arabia’s global diversification strategy and a future beyond oil.

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