A financially successful Saudi Arabia means big changes for the global economy. The nation has accumulated two-trillion dollars in a Sovereign Wealth Fund (SWF), a state-owned investment fund. The fund was created because oil currently represents 70% of the country’s total revenue (known as Gross Domestic Product or GDP) and like savvy investors, Saudi Arabia wants to diversify.
To put the power of a two-trillion dollar fund into perspective, it is enough money to buy the world’s four largest publicly traded companies. This initiative is called Vision 2030 and is managed by Deputy Crown Prince Mohammed bin Salman (age 30).
We cannot be sure about where the SWF will invest, but a large portion will likely be put into opportunities outside Saudi Arabia. The financial and defense industries have often been mentioned. In May 2016, the SWF invested $3.5 billion in Uber.
Prosperity doesn’t come without challenges. In recent years, Saudi Arabia has been raising cash to fund budget deficits due to low oil prices.
Saudi Arabia is also struggling to create job opportunities. Two-thirds of the nation’s 29 million residents are under the age of 30, with some accounts stating the younger population lacks the education and skills needed to succeed in the private sector. Improving the skills of such a large part of the population will mean reworking the country’s social system, which will be difficult.
Can they be successful? Frankly, they don’t have much choice. The ruling family, the House of Saud, is estimated to have more than 15,000 members. To remain in power, the ruling family will have to start paying taxes and begin supporting cultural changes such as allowing women to work and drive. They will also need to address the lack of jobs and ensure their citizens have the necessary skills to compete in the global workforce.
Why does it matter? The SWF will be a significant investor and when there are more buyers than sellers, prices tend to soar. Much of what they buy will be United States-based and should result in jobs for Americans. A growing world economy helps all nations, especially the United States. It’s a changing world and let’s hope capitalism will show the way.