Uber deal signals more aggressive Saudi investment drive

Saudi Arabia's surprisingly high-profile injection of $3.5 billion into Uber signals a more aggressive global investment presence by a kingdom trying to wean its economy off oil.

San Francisco-based Uber, a smartphone app that connects passengers and drivers around the world, said on Wednesday the funding from Saudi Arabia's Public Investment Fund would help Uber's global expansion.

The PIF acted roughly six weeks after Deputy Crown Prince Mohammed bin Salman announced a wide-ranging plan to transform the kingdom's oil-dependent economy.

At the heart of the Vision 2030 plan is a revamped PIF.

"Like many, I am caught off guard by this massive investment in Uber," said Michael Maduell, president of the US-based Sovereign Wealth Fund Institute which studies public investment funds.

"However, it telegraphs to the world that Saudi Arabia will be a major player when it comes to sovereign wealth fund investing in the future."

Vision 2030 aims to turn the PIF into the world's largest state investment fund, with $2 trillion in assets.

These would include proceeds from the sale of state-owned real estate and other property, as well as roughly $100 billion from a share offer for less than five percent of state oil firm Saudi Aramco.

Profits from the investment fund would help economic diversification and provide an alternative to oil revenues that have fallen by about half since 2014. The collapse has accelerated Saudi efforts to move away from petroleum which still accounts for the bulk of government income.

"The Public Investment Fund will not compete with the private sector, but instead help unlock strategic sectors requiring intensive capital inputs," Vision 2030 says.

"This will contribute towards developing entirely new economic sectors and establishing durable national corporations."

The aim is to participate "in large international companies and emerging technologies from around the world", the plan adds.
Maduell said that in future moves, he would not rule out PIF's working with US industrial firms to expand manufacturing in the kingdom.

It may also seek exposure to venture-backed companies.

- 'PIF on the prowl' -

"I see PIF on the prowl for strategic development investments with leading companies to spur job growth, enhance sector diversification and prosperity in the country," he told AFP.

The head of the PIF, Yasir Al Rumayyan, said in a statement about the Uber deal that it fits with Vision 2030.

It is an investment which marks a new approach by Riyadh, a European diplomat said.

With such a major stake abroad, the government is "following the example of Prince Alwaleed", the diplomat said.

He was referring to the kingdom's most high profile businessman, Prince Alwaleed bin Talal, whose Kingdom Holding Co has interests ranging from the Euro Disney theme park and Four Seasons hotels to News Corporation and Citigroup.

Late last year Kingdom Holding became the second-largest shareholder in Twitter, and invested more than $100 million in Lyft, a San Francisco-based rival to Uber.
Christopher Dembik, an economist at France's Saxo Bank, said the PIF is adapting to the transformations under way in the Saudi economy and pursuing a diversification strategy which is not particularly risky.

Uber is part of the so-called gig economy in which people work flexibly and without labour benefits.

Dembik said the business model is proven and still represents significant growth opportunities.

Other potential PIF targets in that category could be Airbnb, the online site for accommodation, or US-listed "fintechs", financial start-ups which use computer and Internet technology to develop innovative financial services and applications.

"It's of course a significant strategic choice on the part of Saudi Arabia but one whose scope should not be exaggerated," Dembik told AFP, explaining that the fund will not abandon traditional sectors such as real estate.

Although Uber is the kingdom's first major foreign investment since Vision 2030 was unveiled, PIF last year acquired a 38 percent stake in the engineering unit of South Korea's Posco for $1.1 billion.

Prince Mohammed, who leads the country's main economic development council, told Bloomberg News in an interview published April 1 that PIF was looking at "two opportunities outside Saudi Arabia" in the financial industry.

Only about five percent of the fund is currently invested abroad, Bloomberg News said.

Source: AFP