Nationalization

Nationalization refers to the process of a government taking control of companies and industries, which generally occurs without compensation for the loss of the net worth of seized assets and potential income. It is the takeover of privately owned assets and resources by government with or without compensation.

Common reasons for nationalization normally include (1) Prevention of unfair exploitation and large-scale labour layoffs, (2) Fair distribution of income from national resources, and (3) To keep means of generating wealth in public control, or (4) Attendance to Government's deficit to avert bankruptcy.

The reason for nationalization is political as well as economic. In principal the objectives of Nationalization are to eliminate concentration of economic power and wealth from the hands of the few.

In a secondary stage, the prime objective behind Nationalization of Banks would be to ensure release of huge amounts held by the Private Banks by way of deposits for the equitable and inclusive growth of the Country's economy and facilitate easy access to credit for the common people affected thereunder.

Today's Saudi Arabia

Saudi spends around 15 percent of its GDP on its military alone.

More than 80 mega projects, each worth upwards of $1 billion, are underway or planned for completion by 2030 in Saudi Arabia making it the Middle East’s largest construction and expansion market by a huge margin.

The Kingdom's construction sector contributes around 8 percent of it’s total GDP, making it the largest construction market in the Middle East. Around 67 percent of construction investment is direct from the government with large-scale projects in the sector for the coming years set to reach over $800 billion.

This year will see many major projects in Saudi Arabia being announced and the ongoing ones gathering pace in line with the objectives in line with its 'Vision 2030' and 'National Transformation Program 2020'. The areas where these dramatic developments will unfold will be in the country’s infrastructure, tourism hospitality, healthcare, education and housing.

The 7 mega projects that will change Saudi Arabia

Red Sea Islands Saudi Arabia has announced last week plans to transform 50 islands and 34,000 sq. km across its Red Sea coast to an international tourist destination. The project situated between the cities of Amlaj and Hawaj aims to attract wealthy travelers from across the globe. Construction is set to break ground in 2019 and it is aimed that the first part of the project is complete by 2022. Construction costs have not been revealed. At this destination, visitors can browse historic ruins in Madaen Saleh dating back to the same ruins in Petra, Jordan.

Al Faysaliya The Kingdom had also announced detailed plants about Al Faysaliya last month. The city situated in the West of Mecca, is set to encompass residential units, entertainment centres, an airport and a sea port. The project will cover a total area of 2,450 sq. km and is expected to be complete by 2050.

Entertainment City Similarly, the Kingdom announced in April plans to construct the largest cultural, sporting and entertainment city in the country. The project is to be situated in Al Qidya located south-west of Riyadh. The project is set to span a total area of 334,000 sq. km. Constituting this area is a Safari designated attraction and an amusement park under the Six Flags entertainment franchise.

King Abdullah’s Economic City King Abdullah’s Economic City is considered as the first city subject to the Kingdom’s free ownership system. This project is run by both EMAAR Economic City, a company subject to the Saudi government’s control and Dubai’s EMAAR which is considered the biggest real estate company in the emirate. It includes establishing a deep sea water port, a 55 sq. km logistics centre, a sporting and entertainment center and more 6500 residential estates.

King Abdullah Financial Center It is expected that King Abdullah’s financial centre, perceived to be the Saudi counterpart to Dubai International Financial Centre, to attract banks and financial service companies, financial auditors and lawyers, the Saudi financial market (Tadawul) and the Capital Market Authority to one place. 

Economic Knowledge City The Economic Knowledge City, which is the first city in the Kingdom of Saudi Arabia to be part of the Saudi Smart Cities development program, located in Madinah, will focus on intellectual property, knowledge-based industries, medicine, hospitality, tourism and multimedia. Residents in the city, which holds an area of 4.8 sq. km, will be able to commute to Mecca and Jeddah through the Haramain High Speed Rail.

Prince Abdulaziz Bin Musa’d Economic City This is a 156 sq. km multipurpose city situated in Ha’l north of the Kingdom. Apart from having a residential area, it will also include an international airport, hotels, shopping centres and entertainment facilities.

The top 10 Saudi Arabia infrastructure projects

Saudi Arabia is the Middle East’s biggest market, which has some of the biggest infrastructure projects in the world with almost $50 billion invested, with about $43.8 billion allocated for transport, telecommunications, water, agriculture and other related infrastructure. Additionally, it has several railway projects in the pipeline.

Haramain High Speed Rail ($11.1 bn): Project covering a new 450 km high-speed rail line linking Saudi Arabia's holy cities of Makkah and Madinah to Jeddah and to the new King Abdullah Economic City being constructed at Rabigh. The project is aimed at delivering pilgrims to Saudi Arabia's two holy cities much more quickly and involves the construction of up to 150 bridges. It is set to complete next year.

Jeddah Metro ($8.5 bn): The project will include three lines. The main one will be a 67 km line with 22 stations connecting Makkah Road with Obhur, while a Blue Line containing 17 stations will run from the new King Abdulaziz International airport to the Old Airport Road. A third Green Line will run for 17 km along Palestine Road and will also have a branch line to Jeddah's old airport.

Riyadh Metro ($7-8 bn): Plans for the six-line, 85-station metro network planned for Saudi Arabia's capital seem to be moving along at pace. The six-line network is being built with a view to providing an integrated public transport system to a city whose roads are already incredibly busy, and whose population is projected to grow by 40 percent by 2030.

King Abdulaziz International Airport ($7.2bn): Work on the new $4bn terminal building is the centrepiece of a wider $7.2bn redevelopment of Jeddah's King Abdulaziz Airport. The remaining $3.2bn of work includes plans for the world's tallest control tower (135m), a major new transport terminus linking to the Haramain High-Speed rail route and a new 4-lane tunnel for ground service equipment being built underneath the airport's runway.

Saudi Landbridge ($7bn): The Red Sea to the Gulf rail line is an integral part of the GCC’s connected rail network. Italferr has been awarded a $37m contract by the Saudi Railways Company (SAR) to design the Landbridge – a 950km line between Riyadh and Jeddah, and a second 115km line between Dammam and Jubail. Transit times for freight between Jeddah and Dammam will be reduced to 18 hours, compared with the current sea voyage of 5-7 days, with capacity for 8m tonnes of freight a year.

Makkah Grand Mosque redevelopment ($24.4bn): A project that will see the considerable expansion of the main pilgrimage site for Muslims. It will cover the redevelopment of 400,000m2 on the northwest and northeast of the mosque as well as new stations for the arrival of passengers from the Haramain High Speed railway. The main gate will also be expanded, with a view to increasing the mosque's capacity to 2.5m worshippers.

Jabal Omar Development ($5.3bn): Project linked to the expansion of Makkah's Grand Mosque which will see more than 2.2 million m2 of land nearby redeveloped and a total of 38 new towers created containing hotels and serviced accommodation for the millions of pilgrims each year. Developers say the 38 towers are likely to be managed by 28 different companies, and a total of 13,500 new hotel rooms will be added once work completes by the end of 2017.

King Abdullah Port expansion ($2bn): The country’s newest port on the west coast is located in King Abdullah Economic City. The planned expansion will put it on a par with the busiest trans-shipment hub in the Middle East, Dubai’s Jebel Ali Port, which is expected to reach a capacity of 19m TEU later this year. It currently has an annual capacity of 1.3m twenty-foot equivalent units, which is expected to rise to 4m TEUs in two years and 7 million in 2018.

Jubail II ($80bn): A 22-year industrial project that is getting a massive expansion. This project will have the effect of double the population of the area. When completed, it will be composed of 100 industrial plants, 800,000 cubic meter desalination plant, miles and miles of railways, roads and highways, and an oil refinery producing at least 350,000 barrels per day. The entire project is slated to be finished in 2024.

Northern Border Security Project ($1bn): Saudi Arabia is constructing a 965km high-tech wall along its border with Iraq and its 1,000-mile southern border with Yemen. It involves an intruder alarm system, underground movement sensors, and 40 watchtowers with night vision, thermal imaging cameras and radar. There will be seven command-and-control centres and 38 communications towers connected by a 1,450km long fibre-optic network to each other and the Ministry of the Interior in Riyadh.

Other over the top expenditures

Neom Mega-city This Mega-city, will be independent of the Kingdom's "existing governmental framework," it will be built across 26,500 square kilometers (10,231 square miles) near the Red Sea. According to the fund's statement, its land mass "will extend across the Egyptian and Jordanian borders."

Weapon Deals Saudi Arabia sealed an arms deal with The United States during president Trump's visit worth $350 billion over 10 years and $110 billion that will take effect immediately, it was hailed by the White House as "a significant expansion of the security relationship" between the two countries.

Saudi Arabia also signed agreements worth billions of dollars to buy helicopters, Airbus jets and two possible nuclear reactors from France. The signing in Paris came as Saudi Arabia is seeking to bolster its military capabilities while it is leading a coalition against so called extremists in neighboring Yemen.

King Salman as well announced a big arms deal with the Kremlin, which includes the advanced S-400 long-range air defense system. The memorandum of understanding the King signed with Russian President Vladimir Putin covered the production in Saudi Arabia of Russian anti-tank missiles, rocket launchers, and Kalashnikov rifles.

Foreign Involvement Saudi Arabia provides foreign assistance to many countries and organization, its developmental aid amounts in the billions per year and is second only to the United States of America. The Yemen war estimated cost is $200 million per day for Saudi Arabia. Intervention in Syria and Iraq, support for the Palestinian cause as well as Lebanon’s political imbalance are but a few of the hidden money-pits of the Kingdom.

Privatization of State Enterprises The centerpiece of the privatization is the planned Initial Public Offering (IPO) of Saudi Aramco, the country's Oil company and the source of all its wealth. The more than $2 trillion Saudi Aramco's IPO is part of a transformation plan, envisaged by the Crown Prince, who's seeking broad-based privatization to boost the reserves of the Kingdom.

End of the best of times

"We're Doomed for Bankruptcy' unless changes are made", said a Saudi Official during the Euromoney Saudi Arabia conference. It’s common knowledge for anybody that follows international news that the more than two-year-long crash in global oil markets has caused pain across the sector, with little immunity offered.

Oil majors have lost billions, with over 350,000 layoffs in the sector globally, while oil-producing nations, ranging from U.S. shale-oil producers, to OPEC members, to the world’s largest oil producer Russia, have felt the pain.

Saudi Arabia, once thought immune to any prolonged downturn in oil prices, has also felt the pinch as prices have trended downward from $115 per barrel in mid-2014 to a low in the $20s-range in January, followed by a rebound to the high $40s to low $50s range.

The Kingdom ran a record high budget deficit of $98 billion last year with an estimated $87 billion deficit forecasted for this year. Low oil prices have hit Riyadh’s state coffers so hard that it made it first international bond sale last week, worth $17.5 billion, to bring in much needed cash.

In order to rein in expenses, the Saudi Government has done what was once thought unthinkable – cutting costs and expenditures. At the beginning of the year, Saudi state media reported that the Finance Ministry would cut spending, adopt new taxes and reduce price subsidies for fuel, water and power.

A January report in Al-Monitor said that gas price hikes and subsidy cuts had shaken Saudi citizens. In May, Saudi Arabia announced that it was trying to wean its economy off of oil, stating that more shake ups were coming - in an effort to let its citizens know that the best of times, were in effect, over.

The Saudi Government also announced new leadership at some of the Kingdom’s most important institutions, including the powerful Oil Ministry and Central Bank. A half-dozen other Ministries and Commissions were reformulated, eliminated or saw new heads appointed in an effort to improve Government responsiveness and efficiency, The Wall Street Journal said.

Moreover, in September top Saudi officials had their salaries cut by at least 20%, and their car and phone allowances sequestered. Ordinary workers lost 11 days’ pay when the Government moved to the Gregorian calendar. Annual leave has been capped at 30 days.

Saudi Arabia definitely would not go into bankruptcy by 2018!

As it is the largest exporter of Oil in the world exporting up to 10 billion barrels every day. Yes due to the recent decrease in prices of oil and the industry, such doubts may arise. But we still need oil on a daily basis for every country to run, as long as there is need for oil, the Kingdom won’t go bankrupt.

Saudi Arabia also has religious tourism, which generates around $22 billion every year!

If the Kingdom does go bankrupt, the Gulf Cooperation Council (GCC) will undoubtedly provide the Saudis with financial aid. The GCC is a council of the Gulf countries that include Kuwait, Saudi, Qatar, Bahrain, United Arab Emirates and Oman (although Qatar is out for the moment). Even the IMF and World Bank would likely also provide financial assistance to the Kingdom.

Thus, Saudi Arabia's newly formed anti-corruption committee has arrested at least 17 Princes and top Officials, according to a list obtained by CNN. Saudi Crown Prince Mohammed bin Salman’s decision to arrest scores of the country’s most prominent officials and business elites under the so called banner of 'Anti-corruption Purge' was a remarkable power play, an unprecedented move designed to concentrate all authority in the Gulf State in one man’s hands. But the radical shake-up was also about something else: preparing for life after Oil.

In other words Nationalization of wealth!

Food for thought!