RIYADH: Saudi Arabia is preparing to shift its $925 billion sovereign wealth fund away from a focus on real estate gigaprojects that have dominated its development goals for the last decade, a source with direct knowledge of the plans told Reuters.
Crown Prince Mohammed bin Salman, the de facto ruler of Saudi Arabia, known as MbS, introduced his Vision 2030 plan in 2016 to transform the economy with a focus on large real estate projects.
The sovereign fund, Public Investment Fund (PIF), has been the driving force for financing the plan.
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The original strategy included developments such as NEOM, a futuristic city in the desert by the Red Sea, and a plan to host international winter sports in the kingdom’s northern mountains, with ski slopes largely using manmade snow.
NEOM, with a projected population of 9 million, and other projects have faced repeated delays.
Driven by a determination to secure more sustainable near-term returns for PIF, the new strategy aims to narrow the focus to other existing developments, such as logistics, mineral exploitation and religious tourism, said the source, who asked not to be identified due to the sensitivity of the matter.
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The kingdom is also betting on investment in artificial intelligence, and data centres powered by its vast hydrocarbon and other energy resources, the source said.
PIF did not have an immediate comment when contacted by Reuters on the strategy shift.
NEW PIF PRIORITIES EMERGE
The repositioning comes as pressure mounts on PIF and its portfolio companies to generate better returns in the near term, the source said.
Analysts have said many of the gigaprojects have not yet yielded sufficient returns to justify their lofty price tags, as several remain far from completion, while other PIF investments have had a mixed track record.
PIF’s current five-year investment strategy ends this year and the fund is expected to unveil an updated strategy soon that will detail its new priorities, a banking source told Reuters.
The fund’s board in recent days approved a new “core strategy”, a separate source familiar with the matter told Reuters.
The new plan bets on the kingdom becoming a global logistics hub, the source with direct knowledge said, with recent disruptions in Red Sea shipping routes underscoring the importance of resilient supply chains.
The kingdom holds large undisclosed reserves of rare earth minerals, which the source said will be a focus as part of efforts to expand its mining sector.
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The updated strategy also emphasizes expanding religious tourism to the holy cities of Mecca and Medina.
MbS this month announced a project at Mecca’s Grand Mosque which adds around 900,000 indoor and outdoor praying spaces.
At the kingdom’s flagship investment forum FII this week, AI dominated discussions and renderings of hyper futuristic cities adorned displays in the main auditorium, as a robot walked around the conference centre’s halls.
Humain, a PIF-owned AI company set to spearhead Saudi Arabia’s push into the booming sector, has said it will build around 6 gigawatts of data centre capacity. Asked about funding, CEO Tareq Amin told reporters on Tuesday: “Let’s just put it this way – everything we ask for, we get.”
The kingdom will continue to invest strongly in the oil and petrochemicals sector, while renewables will supplement this, the source said.
PIF’s annual average return between 2017 and 2024 was 7.2%, its most recent annual report shows, down from an average of 8.7% at the end of 2023 as it booked impairments on projects.
In the last year PIF has also signalled plans to scale back international investments as its gigaprojects stalled. PIF Governor Yasir Al-Rumayyan a year ago said the fund was aiming to bring international investments down to between 18% and 20% of its total portfolio from 30%.
The Red Sea Global project, a collection of ultra-luxury hotels, is among the gigaprojects farthest along but occupancy is averaging around 40%, its CEO told local media in September.
PIF also recently made a big push into gaming, a favourite pastime of MbS. PIF in September announced its backing for a $55 billion buyout of Electronic Arts, the developer behind the popular “Battlefield” and “Madden NFL” video games.
Some projects tied to global events are already delayed, most notably Trojena, which is scheduled to host the 2029 Asian Winter Games. Saudi officials are considering postponing the kingdom’s hosting of the games until 2033, according to sources.
Work on NEOM’s “The Line” – billed as an indoor city 170 kilometres long and 200 metres wide – has been scaled back to focus on completing a 2.4 km stretch to include a World Cup stadium.
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