-- At a gleaming white hangar on Saudi Arabia’s western coast last year, the kingdom’s business and political elite gathered to applaud one of Crown Prince Mohammed bin Salman’s riskiest bets yet.The first electric cars assembled in Saudi Arabia with Lucid Group Inc. twinkled under factory spotlights, designed to show the world how a kingdom built on oil could draw in foreign capital to become a global hub for the industries of the future.The short-term reality is more complicated.
Scaling up to the 2030 goal seems out of reach for now as foreign investors remain cautious, according to conversations with bankers, lawyers who advise investors and people with knowledge of Saudi Arabia's fundraising efforts.That’s led to a reckoning for the government as it weighs up the possibility of self-funding a larger portion of its economic remake on a tight timeline. Already, it has started to cut back on megaprojects designed to revamp its $1.1 trillion economy.
“If we don’t have clear evidence of more funding by the end of the year, then it’s certainly worth asking where the money is going to come from for these projects,” said David Dawkins from London-based investment data firm Preqin, which analyzes Saudi trends. “They are insanely expensive.”Delays approving regulations for Neom have left question marks for investors.
How Saudi Arabia spends its cash will resonate around the world given its investing footprint now extends from a London airport to golf and private equity, making it a critical source of funds for Wall Street and governments alike. As the kingdom fills in the financing gaps at home, it will be leaning on earning money from the way it knows best: oil.That realization is ushering in an approach that consolidates spending power in the hands of the PIF.
Yet for all that the cuts have restricted supply, prices remain below what the crown price requires to fund his grand ambitions. When accounting for domestic spending by the PIF, the kingdom needs crude of at least $108 a barrel to balance its budget, according to Bloomberg Economics. Brent’s jumped in recent weeks but remains below $90.The PIF is feeling the pinch already. It controls assets of about $900 billion but had just $15 billion in cash reserves as of September.
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