It is very likely to be the world’s largest ever initial public offering. The sale of five percent of Saudi Aramco is expected to value the company at over $2 trillion. This will establish it as by far the most valuable business on the planet. But the part-privatization of Aramco is even bigger than this.
It is the first move in Deputy Crown Prince Mohammed bin Salman’s Vision 2030. This is dedicated to weaning the Kingdom off what the prince rightly describes as its “addiction to oil”. The plan envisages the private sector expanding from 45 to 60 percent of Gross Domestic Product. It looks to a radical expansion in manufacturing which currently accounts for just about a quarter of non-oil activity. This will strengthen the country’s economic base and draw in further strategic investment. It will also create private sector jobs. It will see unemployment tumble from the present 11.6 percent to seven percent or lower.
The corollary of such private sector employment growth is a shrinking of the role of public employment. This is likely to happen on two fronts. The first is the planned overhaul of the bureaucracy, to cut out waste and streamline procedures. The restructured Ministry of Commerce and Investment has been shorn of its industrial responsibilities. It is now focused on the mechanics of economic growth. It is dealing with practicalities of business. It is producing much-needed insolvency legislation. It will be the first such law in the Gulf states. It will give comfort to both domestic and foreign investors. Internationally, the Kingdom already scores highly on the speed and efficiency with which new companies can be established. This is being boosted by a reduction in the initial investment required. The minimum capital has been cut from SR2 million to SR500,000.
The second, and no less important front is in the new “Super-Ministry” for Energy, Industry and Mineral Resources. It is headed by Khalid Al-Falih, a widely-respected former Saudi Aramco technocrat. Aramco has always been a center of excellence. With new creation of the new ministry, that excellence moves to the center of government.
Aramco CEO Amin Al-Nasser said this week that the company would continue its global expansion. It was looking to a series of joint ventures. These included projects in China, Indonesia, the US and Vietnam. 
Meanwhile, the Public Investment Fund is to hold the Kingdom’s stake in Aramco along with other key interests including the international petrochemicals giant Saudi Basic Industries Corporation. The Fund was set up in 1979 to take stakes in local companies. It is now being transformed into the Kingdom’s sovereign wealth fund. It will have well in excess of $2 trillion in assets. This substantial financial underpinning will give the fund ready access to financial markets.
The Saudi Aramco IPO has already made world’s financiers sit up and take very close interest. Investment bankers are clearly interested in the fee income from such a huge deal. But long-term investors also see profitable returns from buying in to the listing. Analysts are already predicting that the issue will be significantly oversubscribed. The IPO will also boost transparency. As international fund managers better appreciate the available opportunities throughout the Kingdom their appetite for other local assets will increase.
The changes represented by the 84-page Vision 2030 plan are fundamental. They are also rooted in reality. The price of oil has fallen from historic highs and is likely to remain around its current levels for some time. Yet demand is also increasing. The Kingdom is prepared to increase its output to help meet that demand.
For some oil-producing countries, the fall in revenues is causing the abandonment of investment. Governments are drawing in their horns. Not so here in the Kingdom. Reduced income from hydrocarbon is being taken as a prime opportunity. The desire to boost the non-oil sector of the economy has been long-standing. Some strides have been made. But they were not enough. The decline in oil price has given impetus for radical change. Vision 2030 is designed to transform the economy. One example stands out. The Kingdom is a major investor in defense equipment. Manufacturing jobs will be created by the establishment of localized defense industry plants. With every new strategic investment by international companies also come the transfer of technology and management expertise. 
Saudi Aramco, which sits at the heart of Vision 2030, already has a proven record as a highly capable and efficient business organization. And it is providing the template for the visionary reordering of the Kingdom’s economy.

Source : Arab News