File image

Dubai - Saudi Arabia will spend at least half the money it raises by selling shares in the state oil company on domestic investments, Deputy Crown Prince Mohammed bin Salman said in a rare televised address to a nation that’s shown signs of uncertainty over his austerity plans.

The Saudi sovereign wealth fund will use proceeds from the initial public offering in Saudi Aramco to develop domestic arms manufacturing, the mining industry and the entertainment sector, Prince Mohammed said in an interview on state television. He said the share of IPO profits to be spent within the kingdom “won’t be below 50 percent, and could reach 70 percent.”

The share-sale is due to take place next year. Without it, the kingdom could take decades to develop its economy and new industries, he said.

Prince Mohammed, 31, used the interview to highlight planned investments, cash transfers and construction projects that he says will help revive an economy stuck in the worst slowdown since 2009.

Excluding oil, Saudi output barely grew last year after the government slashed spending and suspended some allowances for state employees, a significant change for a public accustomed to generous handouts.

‘That isn’t true’

Some Saudis have complained privately and on social media about lower incomes and higher costs, and there were online calls for protests on April 21, spurring authorities to take unusual policing measures in the capital Riyadh.

The day after, King Salman reversed some of the cuts, ordering the resumption of bonuses and allowances for state employees that had been suspended in 2016.

That decision was possible because austerity measures succeeded in their goal, helping the country avoid recession and reducing the budget deficit sufficiently that the perks can now be resumed, Prince Mohammed said in the interview.

Wealth Fund, Spending and IPO: Key Remarks by Prince Mohammed “The suspension of allowances was temporary and was to be reviewed periodically,” he said. “It was reviewed in the appropriate time after our oil revenue improved.’’

The prince rejected the idea that public pressure had played any role. “That isn’t true,” he said. “The deficit fell 44 percent below our projections. Why? Because of austerity measures.” He also said that the government’s non-oil revenue exceeded expectations in the first quarter of this year.

Oil, which had dropped to the lowest in more than a month, extended declines after the prince’s comments before recovering on Wednesday.

Royal countdown

It was the second time that Prince Mohammed, who’s amassed unprecedented powers over everything from defence to the economy since his father became king in 2015, has addressed the Saudi public via domestic television. On the previous occasion, in April last year, he announced details about the Vision 2030 plan to transform the Saudi economy.

On state television, the build-up to the event stretched out for hours. The broadcaster showed a clock counting down second-by-second toward the interview’s start time, along with a picture of Prince Mohammed, as local commentators extolled his transparency and willingness to communicate directly with his people.

Prince Mohammed said that all reform measures have side-effects. “These new programs, which are being launched, will start yielding results by the end of 2017 and more strongly in 2018 and 2019,’’ he said.

Read also: Timely SA-Saudi trade boost for local economy

He cited the effort to build a defence industry, saying that Saudi Arabia spends as much as $70 billion a year on its military and aims to include local content in all its arms deals. 

The government also plans home-building programs, with housing to be made available free or at low cost to poorer Saudis, Prince Mohammed said.

The government, which has recently turned to local and international bond markets, has room for more borrowing to finance spending, though it won’t allow debt to exceed 30 percent of gross domestic product, Prince Mohammed said.