First of all, we would like to state that Prince Mohammed Bin Salman skills as financial manager leave a lot to be desired. His foreign policy and military forays have been total disasters. In Yemen, his troops can barely handle badly equipped Houthis and their foray in Syria completely backfired after Putin intervened. Against this backdrop, it would seem that his ambitious dream of creating a $ 2 trillion megafund might just be that; nothing more than a pipe dream.
So let’s what Deputy Crown Prince Mohammed bin Salman has to say on this grand plan.
“IPOing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil,” he said at the royal compound in Riyadh that ended at 4 a.m. on Thursday. “What is left now is to diversify investments. So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”
Mohammed bin Salman want’s to transform the economy from depending on oil revenues to one that secures most of its revenues from investments. The assumption is that they will not incur massive losses and we all know that is impossible. In fact, the plan is simply ridiculous for it could be done, the U.S would have done it long ago. After, all we can create as much money as we want. A prolonged correction and the revenue stream could evaporate in a second, leading to riots and chaos.
“We are working on increasing the efficiency of spending,” said Prince Mohammed, who is second-in-line to the throne. The government used to spend up to 40 percent more than allocated in its budget and that was whittled to 12 percent in 2015, he said. “So I don’t believe that we have a real problem when it comes to low oil prices.”
You cannot transform an economy so fast, especially when the transformation entails massive risk as it involves speculating in the markets. Saudi’s are used to handout’s; that is the only thing that keeps the masses loyal to the criminal house of Saud.
“It is clear Saudi Arabia needs to reform, diversify, and re-energize its economy, but this will involve more than just increasing investments in non-oil industries,” and “One cannot order economic reforms like a multiple course dinner,” stated Paul Sullivan, a professor of security studies at Georgetown University in Washington.
If the prince’s investing skills are as good as his military skills, the country is in trouble. He states that the fund is examining “two opportunities outside Saudi Arabia”. “I believe that we will conclude at least one of them.”
“We’re working now on different fronts,” he said. “Now the government is transferring some of its assets, lands, some of the companies to us. We have different projects in tourism and in new industries that are untapped in Saudi.”
He went on to state that their overseas investment plan is “very aggressive”. “Undoubtedly, it will be the largest fund on Earth,” the prince went on to say. “This will happen as soon as Aramco goes public.”
Aggressive investing hardly pays off in the long run when it comes to investing in the markets and his strategy does not seem sound or solid. It would be far better to create new industries than hope to reap the bulk of your earnings from the markets. from the onset, the plan reeks and it sounds more like wishful thinking. Time will tell if he can succeed, but history is clear when it comes to the markets. Those who are aggressive need to understand market psychology and one of the rules is that you need to throw your emotions out of the window, something this prince seems to be having a hard time controlling.
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