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The $2 Trillion Project to Get Saudi Arabia’s Economy Off Oil
- joeyspn 11y agotl;dr: They plan to launch the world's largest sovereign wealth fund ($2 trillion in assets) via an IPO for 5% of Aramco, and diversify into nonpetroleum assets. I guess this signals interesting times ahead for tech, biotech, and clean energy entrepreneurs in S.A.
- azazqadir 11y agoAlso, real estate.
- bayesian_horse 11y agoI certainly wouldn't want to live in Saudi Arabia. And I wouldn't recommend any one else to relocate there, especially women.
- venomsnake 11y agoIt will fail. Money will be embezzled, it will be captured by power brokers, contracts will be given to OUR people. Even if the prince is sincere. Look at the corruption that EU projects have ...
- Cyph0n 11y agoSkimmed through it, saved it for later reading. It's pretty interesting to see such drastic plans for change in SA. As an Arab Muslim, I truly hope they follow through. It could push several other oil-dependent countries in the region to follow suit.
- wale 11y agoDefinitely. Oil wells are drying up, because "demand." So it's sure a good time to evaluate. If SA should be thinking of change on that front, others shouldn't waste any more time in following suit. Good stuff
- aerodog 11y agoCan someone explain to me how the sale of 5% of Aramco will yield $2T? Certainly they don't believe Aramco is worth $40T?
- 100timesthis 11y agointeresting read about that http://www.bloomberg.com/news/articles/2016-01-07/too-big-to-value-why-saudi-aramco-is-in-a-league-of-its-own http://www.bloomberg.com/news/articles/2016-01-07/too-big-to...
- msellout 11y agoWikipedia says there are an estimated 268 billion barrels in Saudi Aramco's proven oil reserves, with maybe 90 billion more undiscovered. It produces somewhere between 3 and 4 billion barrels annually. If a barrel of oil is worth about $50, then the total value of Aramco is about $18 trillion. We can put a discount on that for time, but you might also want to consider that oil will get more difficult to pump out of the ground and price should increase faster than inflation. CPI is pegged to the price of oil, so all this stuff gets complicated.
- acchow 11y agoYou need to measure how much profit they'll make from the oil, not the revenue it will generate.
- Scarblac 11y agoMind you, that estimate has remained unchanged since the late 80s, even though about 100 billion barrels have been extracted since then. OPEC quotas are based on a country's reserves. Take with a lot of salt.
- davidhariri 11y agoPlanet Money has an excellent episode on this topic from a few weeks ago: http://www.npr.org/sections/money/2016/02/03/465476188/episode-681-the-oil-kingdom http://www.npr.org/sections/money/2016/02/03/465476188/episo...
- noobie 11y agoThank you for mentioning this podcast. It's amazing!
- PascalsMugger 11y agoPlanet Money is one of the only podcasts I can just let run through all the episodes and still enjoy them all.
- bsaul 11y agosurely, saudi arabia is already working partly as an investment in activities other than oil. Do we have a measure of how well those investments have worked so far ? i mean, investing requires skill, and you can get burned if you're not really smart and knowledgeable and agile. All things in which many states ( not just oil states) are not very famous for.
- azazqadir 11y agoI thought Arabs are really good at investing money. The tall buildings in Dubai and Saudi Arabia had Arab investors.
- kchoudhu 11y agoI can't tell if this is sarcastic or not. I live in the Gulf right now, and hang out with investment professionals occasionally. The prevailing opinion appears to be that local investors are shrewd at a tactical level, but terrible at long term planning because of a tendency to go after flashy, high risk/high return prestige projects. There is also the distinct lack of local sophistication: almost all investors are reliant on non-local agents for due diligence and investment lead generation. I guarantee that this is going to come back to bite them down the road: incentives need to be aligned, and right now, they simply aren't.
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- vezycash 11y agoHere's something I never thought I'd see in my lifetime: "The men spoke for an hour about the de facto alliance of Israel and Saudi Arabia..." I went through the article, hoping to discover how the prince got his education. * "His father is an avid reader, and he liked to assign his children one book per week, and then quiz them to see who’d read it." * "His mother, through her staff, organized DAILY extracurricular courses and field trips and brought in INTELLECTUALS for three-hour discussions." ' His mother's practice of matching intellectuals with her kids supports John Holt's theories of proper child education.
- chris_wot 11y agoThere is barely any information other than the two sentences you quote about how the Prince was educated.
- vezycash 11y agoTrue. I'm of the opinion that creating the love of reading (learning) could be more important than schooling. From the article, you'll get the sense that the prince could think outside the established ways of doing things in the government. I'd wager that his father's reading exercises caused this. 'I have never let my schooling interfere with my education.' -Mark Twain "Education is what remains after one has forgotten what one has learned in school." - Albert Einstein As for his mother's actions, I believe children who are exposed to more adults (especially experts), grow up to be quite confident and unencumbered by their age or perceived inexperience. From my view, those who put the prince in trouble with the previous king were less annoyed by the changes than the fact that a 26 year old BOY (prince) was causing changes.
- ltnately 11y agoThe only other information I noticed while reading was his law education. In 2007, Prince Mohammed graduated fourth in his class from King Saud University with a bachelor’s degree in law
- brynx97 11y agoWhile they talk a sharp game of Western education, do not be fooled. I am continually shocked when I meet someone who was educated at Cambridge, but he (and she!) tell me that a women's status in Saudi Arabia is right. Or that a barbaric punishment is proper and correct as it is written in the Quran. Many of the Saudis who would take a different opinion on women's rights etc, do not live in KSA.
- cheriot 11y agoThe Royal family can diversify, but the Saudi people still have little to offer the world economy after such a long dependence. http://atlas.cid.harvard.edu/explore/tree_map/export/sau/all/show/2014/ http://atlas.cid.harvard.edu/explore/tree_map/export/sau/all...
- mafribe 11y agoPR fluff piece. He's working 16 hours a day to make the world a better place? Gosh, what a saint ... I wonder how much the Saudi-Arabia's PR agency had to pay to get it into a mainstream publication. See also: http://www.paulgraham.com/submarine.html http://www.paulgraham.com/submarine.html No meaningful questions of 'marginal' topics like the pointless the Yemen war, the support of ISIS and other unsavoury organisations. And exactly why does the interview accept him has head of state at all? Why should the House of Saud govern, and not be replaced by a democracy?
- eric001 11y ago"Why should the House of Saud govern, and not be replaced by a democracy?" That is a very, very naive question tho, don't you think?
- mafribe 11y agoMandela: Why should we have apartheid, and not equality? eric001: That is a very, very naive question tho, don't you think?
- nashashmi 11y agoDemocracy is sown via stability. Stability is sown via dictatorship. Sometimes it takes a dictator to bring about democracy, simply because he dictates it that way.
- return0 11y agoYou know the answer ?
- mommylovesme 11y agoif he'd knew, he wouldn't ask.
- tomp 11y ago> Why should the House of Saud govern, and not be replaced by a democracy? How would that fix any of the issues that SA is facing right now?
- etaty 11y agoThis article has be to read next to the articles about SA and 9/11, and Obama veto. This is pure bullshit. SA have the same system of the Catholic Church and the European kingdoms during middle age, they protect each other.
- ck2 11y agoIt is hilarious that rather than let women drive, the Saudis are building a billion dollar rail system to get around the problem. Now fathers will teach their daughters, oh you don't have to drive (or even be allowed to ride a bicycle) because you can just take the train.
- 1024core 11y ago> you can just take the train. .. but only if the train has separate coaches for women!
- 21 11y agoRelevant joke: A young Saudi prince studying abroad receives a call from his father asking him if everything is alright. He tells his dad that he is feeling ashamed that everyday he goes to college in his brand new Lamborghini while all the other students take the train. His father replies: "I understand your shame son, take this 50 million dollars and buy yourself a train".
- viach 11y agoHeh, with this money it could work for some time
- alanwatts 11y agoAssuming the dollar remains strong. Oil is the single commodity which drives the greatest amount of demand for the dollar. So, in theory, a drop in demand for oil could signal a drop in demand, and thus value, of the dollar.
- bayesian_horse 11y agoSaudi Arabia's problems are an indication that Islam is a bigger problem for Muslims themselves than it is for anyone else. Innovation and technology just doesn't thrive in an illiberal society.
- actionwords 11y agothe majority of modern science was created in european illiberal societies.
- alanwatts 11y agoBack in the day, Islamic society actually made many great notable scientific discoveries: https://en.wikipedia.org/wiki/Science_in_the_medieval_Islamic_world#Notable_fields_of_inquiry https://en.wikipedia.org/wiki/Science_in_the_medieval_Islami...
- desireco42 11y agoYes, unfortunately those days are long gone.
- Retric 11y agoIslam only dates back to 610 with one person. So, I am not sure how 'Islamic' the area was around 900-1000. After all, Christianity to a long time to become central in Europe. In 300 they where only something like 10% of the Roman population. Not to mention looking very different from 'Modern' Christianity.
- geon 11y agoThat doesn't really have much to do with islam, though.
- u_me_him 11y agoIt does have everything to do with Islam. It teaches intolerance. Remember that Islam is not just the book, it is the people that practice it.
- return0 11y agoI actually think this is good news for them. Aside from the self-promotion and the dick-size contest that is typical of the region's princes, laying money for investments away from oil is going to force them to change. They can't really expect free trade without also free flow of people, and ideas. For a society that essentially keeps its citizens in the infantile stage this will be quite a shock. Bringing the relative openness of dubai to SA sounds quite revolutionary for their standards.
- jordache 11y agothe open court yard looks nice with arbian themed decoration.. Look closer and there is a f-ing lazy boy recliner in front of the TV.. LOL it's like a college apartment...
- gotchange 11y agoActually, this report should be celebrated but for the completely different reasons that this wannabe boy king could be the last in House of Saud to rule the bulk of the Arabian Peninsula. Usually when an inexperienced, reckless and spoiled brat succeeds in a corrupt and undemocratic political system, it's likely the final chapter of that system because the new power holder/grabber would wreck the house beyond repair thinking that he's instituting reforms when he's really undoing all the hard work done by his tyrannical but savvy predecessors to keep things together. Kudos to Mohammad Salman and I wish him all luck in his endeavor and that he outperforms the likes of Mohammad Reza Pahlavi or King Farook of Egypt in destroying monarchy in their respective lands. Also, it's very intriguing that there was not a single political item on his "reformist" agenda and yet Bloomberg managed to portray him as some kind of a visionary man that will emancipate women by finally granting them the right to own and drive cars as in other neighboring reactionary countries like Qatar, and restructuring the economy away from fluctuating oil revenues to another rent-seeking investment banking venture to finance the lavish lifestyle of their family, House of Saud. I guess those IB fees and pending privatization deals do make wonders to Bloomberg's editorial policy. Money talks, bullshit walks indeed.
- sLm 10y agoIt's difficult to see it that way because being young or old is not really the criteria for the Saudi leaders. It's the opposite for this man, because the education is the biggest factor. The previous king hasn't even completed high school, and he was just... way too simple and knew nothing about politics. This guy got a bachelor's degree in politics and he's already received super positively in Saudi Arabia from both the religious and non-religious, especially because they have already seen a lot of positive changes done by him in the past few years.
- sakri 11y agoCome on, don't be so harsh, the poor guy only has one wife!
- willholloway 11y ago> it's likely the final chapter of that system because the new power holder/grabber would wreck the house beyond repair thinking that he's instituting reforms when he's really undoing all the hard work done by his tyrannical but savvy predecessors to keep things together. This. For example, every post-Stalin U.S.S.R leader. The watering down started with Kruschev [1] and culminated in Glasnost. What followed was the period of humiliation, poverty and looting at "the end of history" ie the 90's. This is key to understanding the popularity of Putin.
- joosters 11y agoThe article mixes up the plans to diversify from oil production with all the talk about helping the worse-off. These are two separate issues, and changing one won't magically help the other. Right now, Saudi has a huge income from oil. If they divest well, they could have a huge income from investments. In either case, the lot of the poor in Saudi Arabia doesn't change. Unless they change how they allocate the money, the rich will get richer and the poor will get poorer.
- baltcode 11y agoIt is sort of linked. The working class and middle class will have a better access to meaningful and diverse jobs in diversified free economy compared to a rent seeking one. It will also be in the state's best interest to educate more people for these kinds of jobs in order to grow the economy and keep them off welfare, crime, and violent opposition.
- oldmanjay 11y agoThe current global trend is for the rich to get much richer and the poor to get slightly richer. This is a simple factual metric. It is unprecedented in history and continues despite the narrative of liberalism that the poor are getting poorer.
- known 11y agoIs it difficult for Saudi to adopt/customize https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Norway https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...
- electriclove 11y agoWhat does he mean by: “We don’t care about oil prices—$30 or $70, they are all the same to us,”
- desireco42 11y agoI see them collapsing before they get better. They are pretending to be stronger and more important than they actually are. Their army is corrupted and can be beaten by ragtag rebels from Yemen. The only thing aside from oil that they have is Mecca and Hajj.
- return0 11y ago> only thing aside from oil Do they need anything more than oil? Many here pretend to be ready to crusade to save SA women, or install democracy or anything, but are they willing to impose a trade embargo to SA? Obvious answer is no.
- desireco42 11y agoI don't think I would suggest trade embargo, seems that US lost ability to talk, embargo is only way we can give feedback. We don't really need their oil that much. We could mend relationships with Venezuela which is closer (again, mend,not make a coup) and most of our production is local anyway with fracking being popular. So it is not like we don't have any choice. I am disqusted with SA, over many things. Also, to be clear, as someone who is not politician, I am just suggestion options, I wouldn't presume I know exactly what US government should do, but this can give you idea where I am coming from.
- Retric 11y agoMost interesting thing I saw was apparently even multi billionaires still end up with several remotes on their table. That's just sad.
- counterstriker 11y agoPR? [edit] SA have been in the press lately for another reason. [Saudi Threat to Sell U.S. Assets Could Hurt, but Mostly the Saudis](http://www.nytimes.com/2016/04/20/business/international/saudi-threat-to-sell-us-assetscould-hurt-but-mostly-the-saudis.html http://www.nytimes.com/2016/04/20/business/international/sau...) Is there another side to their story? [The Real House of Saud](https://www.youtube.com/watch?v=TmSRWXCosxc https://www.youtube.com/watch?v=TmSRWXCosxc) Abby Martin, (formerly with RT) conducts an expose.
- surfmike 11y agoThey could start by ending domestic oil subsidies. Saudi Arabia uses a huge amount of oil and people pay a fraction of the real cost at the pump. http://www.economist.com/blogs/freeexchange/2012/04/oil http://www.economist.com/blogs/freeexchange/2012/04/oil
- asamm 11y agoThis family has been the cause of so much destruction and pain in the region and beyond. What do they do? Export Wahabism to a lot of Muslim countries, and that is the mother of Taliban, ISIS and many other terror groups.
- rkrzr 11y agoTLDR: Saudi Arabia wants to turn itself into a hedge fund to be less dependent on oil. What could possibly go wrong?
- Zenst 11y agoWas a recent article about how the government used to employ nearly everybody on good wages, now with the demise of government jobs and the reality that the golden pay day from oil is not infinite and more volatile in today's economic and environmental awareness climate. The need to invest in alternative industries is paramount. The country has invested lots into education and with that many highly qualified people who have no goverment jobs find the public sector in that country very spartan. The drive to change that and produce TAX revenue outside of oil is the key factor here. Sure the country has other issues, but they are totaly diferent topics and some may see this as PR spin, but isn't any goverment touched or provate company annoucement PR one way or another. Way I see it is a step in the right direction for the country and a good move, let us not lambaste it upon other area's and surely some praise for the good moves as well as lambasting the bad moves should be equally viewed. This is a good move, nothing to do with other issues and if anything only touches those other issues in a way that helps address them at the core. After all people without money and jobs are people with time to ponder alternative avenues of life choices with some seeing them as the only way, that is how many get drawn down the darker paths of life. This helps prevent that. Another way to view this is - what harm can come from this initiative and with that I have nothing to add. So it is a good thing.
- droithomme 11y ago$2 trillion / 28 million population = $71k per person.
- undersuit 11y agoI've always hoped the Saudis would take all their money and make the peninsula green. https://goo.gl/maps/8XXa4zSxHAL2 https://goo.gl/maps/8XXa4zSxHAL2 They've already got this massive farming operation in the middle of the desert. With 2 trillion they could desalinate so much water. Pricing is something like 1000 gallons of seawater for a few dollars, $2 trillion could desalinate a millionth of the ocean.