Saudi Arabia Reveals Strategies For A New Era Going Beyond Oil

In a step that has the potential to bring about a pivotal change in the region's economic prospects, Saudi Arabia is reportedly planning to establish "the largest fund on earth," of over US$2 trillion in value to help reduce its dependency on oil. The plans for the sovereign wealth fund were revealed by Saudi's Deputy Crown Prince Mohammed bin Salman over a five-hour conversation with news organization Bloomberg in Riyadh, an interview that covered matters such as Saudi's Public Investment Fund (PIF), proposed IPO of the nation's energy supplier Saudi Aramco and other topics. The Prince also said that they were pushing for Aramco's IPO to happen as early as 2017 and they expect to scale up the PIF fund as soon as Aramco goes public.

"The objective is to diversify income. Therefore, IPO'ing Aramco and transferring its shares to PIF will technically make investments the source of Saudi government revenue, not oil," Prince Salman said. The Prince also stated that transferring Saudi Aramco's shares to the PIF will ensure that within 20 years, Saudi will be an economy that doesn't depend mainly on oil and has profits of the PIF and other sources of income. Without disclosing the avenues of investment for the PIF, he said that they had in mind investment opportunities both within and outside of Saudi to capitalize on, to ensure profitability. In the recent past, Saudi Arabia has been unveiling a slew of austerity measures to cope with falling oil prices which includes introduction of new taxes and subsidy cuts. Touching upon other ways the country hopes to boost its non-oil income, Prince Salman said that proposals to impose taxes and levies on luxury items, soda drinks and energy drinks and "restructuring subsidies" were all in the reckoning. He also mentioned that the country was working on a program similar to the Green Card system in the U.S. for expats.

As per the transcript of the conversation released by Bloomberg, on non-oil revenue of Saudi Arabia, Prince Salman said that their target is to have incremental revenue exceeding $100 billion by 2020. "We did a quick fix in 2015 which increased our non-oil revenue by 35%. This year, we're trying to target over $25 billion," he said. On Saudi's stance regarding freezing oil production, the prince said that Saudi will agree to freeze oil production provided that all other producers including Iran, Russia, Venezuela, OPEC countries and others decide to do so.

According to a recent report in The Wall Street Journal, for the first time in months, banks have raised slightly their oil-price forecasts while remaining cautious about crude's outlook. The banks see the international oil-price benchmark Brent crude averaging at around $40 a barrel this year, and West Texas Intermediate, U.S.'s oil indicator, averaging $39 a barrel.

Related: Oil Price Fall A Major Complication In Global Economy, Says NBAD Report