Saudi Arabia will continue to buy foreign agri assets to ensure its food security, as it implements a plan to limit its dependence on oil exports over the next 15 years.
With oil prices continuing to slump, the kingdom plans to sell a 5 percent stake in Aramco, the state-owned oil company valued at $2 trillion, and diversify its economy over the next 15 years. The diversification plan, Vision 2030, aims to raise the share of non-oil exports from 16 percent to 50 percent of GDP.
Central to the program is a transfer of ownership of Aramco to the country’s Public Investment Fund (PIF). The Saudis hope to build the PIF into the world’s largest sovereign wealth fund, increasing its assets under management from 600 billion riyals ($160 billion; €141.7 billion) to more than 7 trillion riyals ($1.87 trillion; €1.65 trillion). By broadening its investment base, the kingdom hopes the PIF can fund the government without taxing Saudi citizens.
As the country attempts to insulate itself from the energy markets, it will also continue its strategy of investment abroad to protect itself from volatile global food markets.
“We will continue to build safe and sufficient strategic food reserves, to better guard against emergencies,” an English translation of the plan released by state-owned al Arabiya English reads.
The plan calls for “strategic partnerships” with countries rich in agricultural resources, in addition to promotion of aquaculture and ruling out major irrigation projects.
Since 2008, the country has backed off from its decades-long self-subsistence efforts which relied on expensive irrigation projects and crop subsidies to boost agricultural production to 5 percent of GDP.
The PIF’s agricultural investment arm, the Saudi Agricultural and Livestock Investment Company (SALIC) has actively acquiring food and agribusiness assets around the world since its formation in 2011. SALIC paid $188 million for a 20 percent stake in Brazilian beef producer Minerva in Januar.
Saudi Arabia’s plans to diversify comes amid a broader move from sovereign wealth funds (SWFs) to limit their exposure to the energy sector.
“Despite the continued interest of sovereign wealth funds in the energy sector, some funds seem to be diversifying their natural resources holdings in response to low oil and gas prices,” Selina Sy, premium publications manager for data provider Preqin, recently told Agri Investor.
A recent report from Preqin found that agriculture was the second most commonly targeted natural resources strategy for SWFs, thanks in part to strong risk-adjusted returns and projected growth in global food demand.