The Public Investment Fund and Salman’s state: the political drivers of sovereign wealth management in Saudi Arabia

Abstract

Saudi Arabia's Public Investment Fund (PIF) has grown from marginal player to the most important economic actor in the Kingdom since 2015. Nevertheless, we know surprisingly little about the political economy of the PIF revamp. Against an unfavorable macroeconomic backdrop, I argue that shifts in PIF organization and orientation are fundamentally driven by the centralization of power within the circles of the Saudi ruling family since the rise of Mohammed bin Salman (MBS). The fund's governance framework and network of insiders forming the board of directors mirror the concentration of authority around MBS. In turn, PIF domestic activities shifted from scattered investment patterns associated with the competing influence of senior decision-makers to a highly authoritative and personalized strategy. Moreover, the PIF's response to COVID-19 further exemplifies the turn from a conservative strategy toward a short-term oriented approach to sovereign wealth management. Going beyond macro-level economic and institutional dynamics, the article introduces the role of political agency in SWF choices by stressing how political actors and the distribution of power within ruling elites shape SWFs. The article thus adds to the scholarship on domestic drivers of SWFs and contributes to debates surrounding the interplay between states and markets under processes of financialization.

Keywords:

• sovereign wealth funds
• elite politics
• Saudi Arabia
• Public Investment Fund

Acknowledgements

The author would like to thank Ewan Stein, Charlotte Rommerskirchen, Lucy Abbott and the anonymous referees for helpful and insightful comments on earlier versions of this article.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

Notes

1 SAMA does not provide any currency breakdown of foreign exchange reserves. Nevertheless, in 2008, SAMA was believed to hold 85% of its foreign exchange reserve in US$(Bazoobandi, 2013).

2 Smith Diwan (2009) judged that 50 to 60 government agencies were involved in foreign investment activities.

3 Data on the Saudi bank sector's market share as of Q1-2020 (Aljazira Capital, 2020b).

4 Data on shareholders from Tadawul as of January 2022.

5 Data from Tadawul as of January 2022.

6 Data on directors and shareholders from Tadawul, Capital IQ, publicly available data from LinkedIn and Hanieh’s (2018) extensive work on Gulf conglomerates.

7 FDI net inflows data from the World Bank as of January 15, 2021, https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD?end=2019&locations=SA&start=2008&view=chart

8 The global CEOs and finance officials who dubbed the event include Stephen Schwarzman (CEO of Blackstone), Christine Lagarde (then director of the IMF), Jamie Dimon (CEO of JPMorgan Chase), AOL’s founder Steve Case, Siemens CEO Joe Kaeser, Blackrock and Uber CEOs Larry Fink and Dara Khosrowshahi, Virgin CEO Richard Branson, and Bill Ford of Ford Motor (Alkhalisi, 2018; BBC, 2018; Stanley-Becker, 2018).

9 Statement from email communications between PIF officials and Abu Dhabi’s daily, The National News (Kamel, 2020).

10 From 2000 to 2019, oil income averaged 81,4% of total state revenues (SAMA annual reports).

Additional information

Notes on contributors

Alexis Montambault Trudelle

Alexis Montambault Trudelle is a doctoral candidate in Politics and International Relations at the University of Edinburgh.