Fintech in the Middle East: Saudi Arabia Might Be Shifting Economic Focus from Oil to Financial Technology

Crude oil production in Saudi Arabia slowed down considerably last year, from 10,643 BBL/D/1K in December 2018 to only 9,890 BBL/D/1K in November 2019. Steady and continuous drops in crude oil production may be attributed to several different factors, such as the attendant impact on output, and attacks on the country’s oil fields.

Multiple reports suggest that Saudi Arabia has been trying to persuade other OPEC member nations to cut down production by as much as 400,000 barrels per day. But the Saudi government has denied this. OPEC, one of the world’s largest energy-focused alliances, has cut down its production by 1.2 million barrels (each day) since January of last year, which will be extended through to March 2020. OPEC member countries aim to maintain more stable oil prices by reducing production.

Saudi Arabia’s economy has been able to face the increasing pressures in the global oil market due to its diversification strategies. The Saudi Arabian Riyadh Bank, one of the largest financial institutions in the Middle East region, recently revealed that it had invested $26.7 million into a Fintech startup investment program.

Riyadh Bank CEO Tariq Al Sadhan emphasized the need for updating the nation’s financial and technology infrastructure, especially with the latest developments taking place in the global Fintech industry. The ongoing growth and development of this fund is vital to the research and development (R&D) efforts for local startups.

Saudi Arabia’s Monetary Authority (SAMA) has reportedly issued more than a dozen Fintech licenses for this experimental program.

Saudi Arabia’s national wealth fund (the Public Investment Fund, or PIF) has become the main growth engine of the nation’s economy. The PIF fund has teamed up with Japan’s Softbank Group by establishing a $100 billion investment fund (in 2016) for the technology industry. The partnership is only the beginning, as the PIF fund has a planned (estimated) investment value of $2 trillion.

The firm had been planning to secure capital of $100 billion via a public sale of a small stake in Saudi Aramco, the country’s energy company.  The Saudi Arabian Aramco IPO had gone on sale recently and spiked by 10% to $9.38, which gave the firm a $1.88 trillion valuation, making it the world’s largest publicly listed company. The IPO was introduced on the Saudi Arabian Tadawul, and it easily broke previous records set by Chinese billionaire Jack Ma’s Alibaba IPO, which had been valued at only $25 billion in September of 2014.

The Saudi Aramco led to a huge surge in buying activity in stock markets. At present, the oil giant is worth considerably more than its current $1.7 trillion valuation. But the large investment is still a lot less than what Saudi Arabian residents had been hoping for, mainly because of declining interest from foreign investors.

Saudi Aramco’s chief executive had been expecting a share price of 32 Saudi riyals (per share). The $2 trillion target amount is projected to reach its full potential by the end of this decade. The fund had assets totaling $150 billion in various Saudi Arabian firms (in August 2018), which include the Saudi Telecom Company, Saudi Basic Industries Corporation, and the country’s National Commercial Bank.

The fund has now been tasked with supporting and improving the nation’s economy, and even though it took nearly 40 years to establish, it has been growing quickly.

The sovereign wealth fund had grown to $300 billion in various assets (as of May 2019). Saudi Arabia then shifted its focus towards China for seemingly promising business opportunities. Approximately $50 billion was invested into the American economy during 2018 and 2019, and now the nation’s government is expecting steady growth and development from these strategic investments.

Substantial investments in Saudi Arabia’s budding economy and global markets should allow the PIF fund to establish a commanding international presence with billions of dollars worth of strategic deals across the Middle East region, Asia, Europe, and North America.

The Public Investment Fund teamed up with Blackstone in 2017, in order to establish a $100 billion investment in US-based infrastructure. Around $20 billion in investments reportedly came from Saudi residents. However, Saudi Arabia’s partnership with SoftBank’s Vision Fund appears to have captured greater attention, as it’s focused on Silicon Valley firms. The fund reportedly invested $3.5 billion in Uber technologies in 2016.



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