State-owned oil giant Aramco’s new public offering comes at a critical time for Saudi Arabia, as the kingdom seeks to attract investments to diversify its oil-dependent economy.
Up to $12 Billion Expected from Share Sale
The sale of approximately 1.5 billion shares, expected to be listed on the Riyadh stock exchange next week, could generate up to $12 billion. This move aligns with Crown Prince Mohammed bin Salman’s strategy to utilize the country’s vast oil wealth to fund his ambitious Vision 2030 reform program. However, analysts caution that this doesn’t eliminate doubts about the feasibility of some mega-projects, such as the futuristic $500 billion megacity, Neom.
A Budgetary Boost, Not a Long-Term Solution
Robert Mogielnicki of the Arab Gulf States Institute in Washington asserts, “The money raised is more of a budgetary boost than a long-term remedy for funding needs.”
Riyadh previously announced that some Vision 2030 projects would be delayed beyond 2030, while others would be accelerated. Finance Minister Mohammed al-Jadaan acknowledged in May that the reform program has been revised due to recent “shocks” in the global economy.
Investor Reluctance and FDI Challenges
Torbjorn Soltvedt of Verisk Maplecroft points out the core issue: foreign investors are hesitant to “commit to major long-term projects in Saudi Arabia.” While flows to the Saudi stock exchange have increased, efforts to stimulate foreign direct investment (FDI) have not been very successful.
Government Subsidies and Aramco as the “Cash Cow”
In 2016, Prince Mohammed first floated the idea of listing 5% of Aramco’s shares. However, due to concerns about transparency and national resource ownership, Riyadh ultimately listed only 1.5% on the Saudi stock exchange in 2019. This raised $25.6 billion but, as Soltvedt notes, “did not have the transformative impact that an international listing would have had.”
Efforts to attract FDI haven’t met Vision 2030’s target of 5.7% of GDP. Ellen Wald, author of a book on Aramco, explains, “What drives foreign investment in non-energy projects in Saudi Arabia is solely government subsidies: free land and energy, low-cost labor, etc.” She attributes Aramco’s public offering to the kingdom’s sovereign wealth fund seeking more investment capital, with Aramco serving as its reliable “cash cow” due to its profitability.
Optimism Amidst Delays and Progress
Saudi analyst Mohammed ben Saleh offers a more optimistic perspective, stating that Vision 2030 is “on the right track” and highlighting the 4.6% growth in non-oil GDP in 2023. He acknowledges that “Saudi Arabia is engaged in a huge national transformation project, and it won’t happen overnight.”
This is evident in the most publicized projects like Neom, with its ski resort and mirrored skyscrapers planned for the desert. Recent reports suggest Neom’s goals have been scaled back, though authorities haven’t denied these claims.
Other projects, like the Red Sea Global project, are making progress, with two seaside resorts opened last year and 14 more hotels planned by the end of 2025.
Jim Krane of Rice University acknowledges that Vision 2030’s “giga-projects” have “certainly been delayed,” but notes that this isn’t surprising given their immense scale.
Future Aramco Offerings?
As expenses mount for events like the 2030 World Expo and the 2034 World Cup, analysts suggest further Aramco share sales could be on the horizon and would likely generate significant interest due to the company’s immense assets and low-cost oil production.