What Happened
On Feb. 25, Saudi Arabia's King Salman issued eight royal orders designed to jump-start the country's Vision 2030 program after nearly four years of mixed results. The most notable of these orders included converting the General Investment Authority into a full Ministry of Investment and creating tourism and sports ministries. The new Investment Ministry will be headed by the former energy minister and Saudi Aramco CEO, Khalid al-Falih. Al-Falih is no stranger to the international scene, and his return to prominence as Saudi Arabia's first-ever investment minister likely means that he once again will become a visible Saudi delegate abroad.
Why It Matters
The creation of a Ministry of Investment is clearly designed to boost investment into the kingdom back to previous levels and beyond. But the appointment of al-Falih — who just six months ago served as the face of the country's massive oil industry — to head the ministry perhaps signals this intent the most. Al-Falih served as Saudi Arabia’s energy minister (and concurrently chaired Saudi Aramco) from May 2016 to September 2019. During these years, he earned the reputation of standing up to Crown Prince Mohammed bin Salman on certain issues. He notably pushed back against accelerating the Saudi Aramco initial public offering (IPO), expressing doubt that it was even needed. This ultimately led to his removal from both positions in September, but his resurfacing as the country's first-ever investment minister signals that he nonetheless remains a trusted technocrat both in and outside the kingdom.
Al-Falih's return could also signal a recognition by the crown prince that the Saudi Aramco IPO process was, in fact, botched and rolled out too quickly. But perhaps most importantly, al-Falih's appointment may indicate that the crown prince realizes the greater pitfalls of chasing such big, high-profile announcements. Al-Falih may also be more willing than others to push back on prioritizing certain projects. It will thus be important to track whether Saudi Arabia starts winding down its pursuit of megaprojects at home and abroad, including the country's large investments into companies such as Uber and Tesla, which have been criticized as having more to do with prestige than profit.
The creation of the tourism and sports ministries also fits into Saudi Arabia’s Vision 2030 plans, which include building up new sources of non-oil revenue. Riyadh, for example, is hoping to become more of a magnet for regional and global tourists. The National Transformation Plan, which is one of the "realization" plans under Vision 2030, aims to have the contribution of tourism to gross domestic product increase by 39 percent between 2017 and 2020. Riyadh has worked hard over the past year to boost the appeal of tourists visiting Saudi Arabia, including holding an increasing number of concerts, hiring social media influencers and issuing its first tourism visas starting in September. And there are some promising signs that this is working, with Saudi Arabia so far granting some 400,000 tourist visas. But while the country's religious sites will always make it an attractive destination, its ambitious tourism plans, such as the creation of the futuristic city of Neom, is unlikely to ever reach the heights of what Riyadh desires.
Background
The International Monetary Fund recently warned Saudi Arabia to take a more measured response in boosting capital spending as the kingdom rolls out some of its Vision Realization Programs in the coming years. Since Saudi Arabia’s Vision 2030 program launched in 2016, the majority of its most important targets have either been adjusted downward, delayed or missed entirely. Riyadh, for example, has had to postpone its original 2020 target to balance its budget by three years to 2023, which is one of the country's more important plans for fiscal sustainability.
The highly anticipated Saudi Aramco IPO in December has also largely failed to live up to the kingdom's expectations. Just days after the IPO launched, the national oil firm's market value hit Crown Prince Mohammed's target of $2 trillion. But Saudi Aramco's value has since declined to near its initial selling price amid falling oil prices. And the company's current share price may still be artificially high because of pressure put on Saudi families and companies to prop up the value.
