Aramco and reform

Abdel-Moneim Said
Friday 20 Dec 2019

The IPO of Saudi Arabia’s Aramco is not just an economic event: it is a political statement, confirming the kingdom’s determination to pursue comprehensive reform, writes Abdel-Moneim Said

Needless to say, I am not very familiar with the Egyptian stock market and even less so with stock markets abroad. But I do know that they serve an important economic indicator — one of many. Economists tell us not to rely on just one. A “bundle” of indicators is needed to determine an economy’s health or frailty, and whether an economy is on an upswing and a road to recovery, or the reverse.

But certainly, Wednesday, 11 December 2019, will go down in history as a landmark in both Saudi history and global economic history. It is a landmark that occurred several years after the beginning of the major reform process launched in 2015 along with the Saudi “Vision 2030”. At the time it was announced that the economic flagship of this process would be to list five per cent of Saudi Aramco’s shares firstly on the Saudi stock exchange (Tadawul), and then in international exchanges. It took four years for this to happen. But better late than never, as they say.

One of the best things about this event is that it offers a useful lesson about reform and how it happens. The economic, social and cultural transformations that have taken place in Saudi Arabia during the past few years had previously been unimaginable. This is not to say that reform had not existed before this. It is just that it was extremely slow and always accompanied by choruses of caution and appeals take it more gradually. Even Western powers, which had frequently urged reform, had warned of the political and social consequences of reform.

The Saudi leadership had a different view. They were convinced that genuine reform could not be put off any more than it already had been because the world had not stopped moving and progressing, and because the kingdom had the right to live in a way commensurate with its capacities and its place in the world. Also, Saudi Arabia was not just an oil exporter but also a country where young people formed the demographic majority and expressed the outlooks and aspirations of a new generation that was familiar with the world abroad, meaning that it was time to let that world get to know them better.

When the time came for Aramco to take its anticipated step, the Saudi reform environment was prepared to accept it. Before this, the world had been looking at Saudi Arabia with hopes that one day women would be allowed to drive. That day came. Reform was a process of women’s liberation, not just for mothers and sisters but for women as partners in state-building in an evolving nation with a deep and long history. The realisation had struck that it was no longer possible to import skills and labour from every corner of the globe when, at home, there was an army of women endowed with the highest academic degrees from the world’s best universities.

Vision 2030 was not just about the rediscovery of the Saudi human being of both genders but also about the rediscovery of the nation and its history. It is a land teeming with antiquities dating back millennia. This has changed the outlook on tourism, adding cultural tourism to the long-established pilgrimage tourism. It has also opened new perspectives on the kingdom’s Red Sea shores.

In this context, the Saudi-Egyptian maritime border agreement was instrumental to reshaping Saudi geography in a westward direction, just as Egyptian geography has been shifting outwards from the Nile Valley and eastwards towards Egypt’s Red Sea coasts. The Egyptian and Saudi visions converge physically at the juncture from the Gulf of Aqaba to the Sinai where the Saudi NEOM cross border urban project is planned. Reform is changing not just history but also geography. The kingdom is changing so much and so quickly that every time you visit it again, you discover something new.

When they set 11 December to list Aramco shares on Tadawul, the announcement itself was a significant step. Setting the price of the initial public offering (IPO) was another step. Generating subscriptions from companies and organisations marked the third step towards the great day, the day that kicked off a kind of race. Riyadh had initially given Aramco a valuation of $2 trillion.

Western estimates felt that this was excessive, perhaps because of the decline in world oil prices. While they were sure that Aramco would be among the top traded companies in the world, their valuations ranged around the $1.5 trillion mark. Then, no sooner did trading begin than the company’s worth soared to $1.88 trillion, surpassing Apple’s $1.2 trillion and Microsoft’s and Alibaba’s $1.1 trillion. And that was just the first lap. The information keeps pouring in. One significant item is that Tadawul has risen to the world’s ninth biggest stock market, surpassing the German and Canadian exchanges. This would not have happened had Aramco not been listed.

The event has generated considerable excitement in the international press, perhaps because a non-Western company — an Arab one, moreover — has surpassed all other companies in the world. But the determination to proceed with the IPO was also a kind of act of defiance against the difficult circumstances that arose from the Iranian-sponsored strike against Aramco facilities.

Practically and economically, this was not the time to list shares on the market. One would have thought that such violent circumstances called for a delay. As it turned out, it was just the right time, because listing the company on the stock exchange was not just an economic decision. It was an important part of the comprehensive economic reform processes that Saudi Arabia has been pursuing at many levels, one of which is to diversify the Saudi economy beyond the oil industry to the manufacturing industries, service industries, tourism and other sectors.

Surprisingly, although the kingdom was never a socialist country, the oil-based nature of the economy put the government in control of all other economic sectors, leading it to intervene in the market, prices, wages, production and consumption. The transformations of recent years reflect a process of liberating and stimulating the Saudi economy. It is perhaps little wonder, therefore, that Saudi Arabia has leapt to the fore in the World Bank’s Doing Business report. The Saudi economy has opened its doors to the private sector and, as a consequence, it is showing a new dynamism in many investment areas. This is Vision 2030 in action.

Although only a limited percentage of Aramco has been put on offer on the exchange, the action marks an important point in the course of a reform process that continues to pick up pace, a point that converges with many others to define the direction in which Saudi Arabia is moving. One of the greatest advantages of this event is that it will draw attention to the great strides in reform that have already taken place in just five years. Imagine what things will be like another 10 years from now.

*The writer is chairman of the board, CEO and director of the Regional Centre for Strategic Studies.

*A version of this article appears in print in the 19 December, 2019 edition of Al-Ahram Weekly. 

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