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'The family silver is up for sale': How the Saudi Aramco share offering marks the start of big changes for the kingdom

Camilla Hodgson
Saudi Energy Minister Khalid al-Falih arrives to attend the Saudi-US CEO Forum 2017, ahead of the arrival of the U.S. President Donald Trump, in Riyadh, Saudi Arabia May 20, 2017. REUTERS/Hamad I Mohammed

Thomson Reuters

LONDON — Saudi Aramco's share offering is likely to occur when the price of oil rises, and it will herald changes in the way the traditionally closed kingdom does business, according to an investment adviser.

Saudi Aramco has been "disproportionately reported on," Mark O'Connell, the CEO of the investment advisory firm OCO Global, says, given the other changes occurring across the Gulf and in Saudi Arabia in particular that O'Connell says are "far more interesting."

The flotation, he says, is aimed at "replenishing their federal reserves." But it does comparatively little to further Saudi's Vision 2030, the state-led drive to diversify the country's oil-based economy, encourage international investment, and change the media perception of it as a "closed, desert kingdom."

Saudi Aramco is estimated to be worth about £1.5 trillion, or $2 trillion, and is deliberating over which financial centre to sell 5% of its shares in. It has drawn media attention in the UK in particular after the regulator Financial Conduct Authority proposed relaxing stock market rules, which has been seen as a move to attract the company to list in London.

Given that the price of oil is low — West Texas Intermediate crude was at $49 a barrel on Tuesday — Saudi Aramco may wait to float until the price picks up again, McConnell says. Earlier this year, both the UK and France announced plans to ban the sale of both diesel and petrol cars from 2040, but airplanes generally still rely on oil, and the price of oil has historically been cyclical.

"I think I would still bet the farm on the future of oil for our generation," O'Connell says.

The most interesting aspect of the Saudi Aramco flotation, he says, is the principle that "the family silver is up for sale." Some Saudis, he says, are unhappy that their national wealth is planning to be sold off, with foreign investors in line to have a degree of oversight in the company.

On a wider level, the flotation plays into Saudi's Vision 2030, O'Connell says. This new "everything's for sale" model is likely to affect all areas of the Saudi economy and all regions of the country, he says — and, regardless of whether this is well received, Saudis have no choice but to diversify, given the long-term lack of sustainability of oil.

Historically, a large portion of the Saudi population has worked for the state: Sixty-seven percent of the entire workforce (excluding non-Saudi workers) were employed by the public sector in 2016, according to a government report last year. Pubic-sector wages for Saudi nationals have also consistently been higher, on average, than private-sector wages since 2011, and the average was almost double in 2015.

But much of the public sector is now also being privatised, as the abundance of highly paid, public-sector employees begins to be unsustainable. This has opened up "huge opportunities across the board," O'Connell says, from education to healthcare to transport.

"I've never seen change, and the pace of change, as I've seen in the last couple of years," O'Connell says. "And it's accelerating." This, he says, is the "liberalization of Saudi, from a business point of view."

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