(Bloomberg) -- A few years from now, an American executive flying into Saudi Arabia could disembark from an airline founded by its sovereign wealth fund and order an Uber, a company in which the same fund owns a 4% stake. Whisked across the capital, the executive might check into a boutique hotel in a former palace, also owned by the Public Investment Fund.

Attending the PIF’s annual conference, they could sip coffee farmed through a venture led by the fund, then sign a deal with a PIF-owned defense firm. That evening, the executive might catch dinner and a movie at a complex developed by its entertainment arm, flying home without touching a single business not linked to the PIF.

As Crown Prince Mohammed bin Salman races to diversify Saudi Arabia’s oil-dependent economy, the $620 billion PIF — which he chairs — is taking center stage, supplanting a pedigreed business class to become one of the most powerful institutions in a fast-changing economy.Receding is the conservative Islamic kingdom of old, which lived off its oil revenues while cautiously investing in safe US treasuries and disbursing lucrative state contracts.  This is Saudi Inc. And its self-styled Founder is ripping up the rule book.   

In the space of five years, the PIF’s become a major international investor, snapping up US blue chips like Uber and investing in electric cars. It’s also made forays into sports, buying UK soccer team Newcastle United and investing $200 million in an international golf venture. 

That’s given MBS, as the de facto ruler is known, more clout on the international stage, with Western officials looking to the world’s biggest oil exporter to help temper raging inflation and pour petrodollars into a sputtering world economy. US President Joe Biden will visit Riyadh mid-July, forced to rethink his promise to turn MBS into a “pariah” over the 2018 murder of Washington Post columnist Jamal Khashoggi.  

But it’s at home that the PIF’s made the biggest impact, transforming the economy with its own brand of state capitalism. The PIF aims to invest at least $40 billion a year in Saudi Arabia and has already created 54 new companies, branching into sectors from real estate to luxury cruises.  Critics say it’s part of a broader accumulation of power that’s seen Prince Mohammed, 36, take control of oil policy, security, domestic and foreign affairs, jailing critics and silencing independent voices. Saudi executives also raised concerns, initially saying they felt crowded out by an entity so rich and connected few can compete."MBS does not care too much for the inherited structures of either the Saudi state or Saudi business and wants to build a new Saudi Arabia,’’ said Steffen Hertog, an associate professor at the London School of Economics. “He completely revamped (the PIF) and turned it into the main vehicle for his diversification strategy, bypassing most of the established government and, more visibly, the established private sector.”Set up in 1971 as part of the Finance Ministry, the PIF was initially charged with providing loans to develop the economy and owned a significant percentage of the Saudi stock market but was little known abroad. 

Then, in March 2015, the fund was “reborn,” its website declares, and placed under MBS.Amid the thousands of princes that populated his rarified world, MBS saw himself as a disrupter. Just 29 years old when his father became king, he looked to tech entrepreneurs like Steve Jobs and Mark Zuckerberg as role models, he told Bloomberg in 2016. “If I work according to their methods, what will I create?’’ he said at the time. As the prince began to vigorously expand his authority, the PIF became a key tool, giving him that opportunity to run the new Saudi Arabia more like a tech startup than the slow-moving bureaucracy it had been.He recruited Yasir Al-Rumayyan, a Saudi banker, as governor.  A year later, when he launched his Vision 2030 to overhaul the Saudi economy and end its reliance on oil,  the PIF was at the forefront. MBS said it would have assets worth more than $2 trillion by 2030, making it the world’s largest sovereign wealth fund.  

Since 2017 — when MBS pushed aside an older cousin to become heir to the throne — the PIF has doubled in size, partly because of transfers from the central bank and the IPO of a stake in state oil giant Aramco. 

In the process, it’s increasingly overshadowed former power centers like the finance ministry, economy ministry and central bank to become the country’s main growth engine.

That expansion has ruffled feathers among the business elite.

Saudi Arabia has been a monarchy since its founding, but power was more decentralized a decade ago and important merchants enjoyed their own measure of influence. 

That old business class was dealt a devastating blow in 2017, when Prince Mohammed mounted a controversial anti-corruption campaign, detaining dozens of royals, businessmen and former officials in Riyadh’s Ritz-Carlton hotel. Most were accused of untoward dealings, pressured to hand over assets, released and banned from traveling abroad.

Prince Alwaleed bin Talal, long counted among the world’s richest men, was removed from Forbes’ billionaire list in 2018 due to a lack of transparency over what had happened to his wealth. Once a glamorous jetsetter, he hasn’t left the region since being freed from the Ritz, though he told Bloomberg shortly after that he harbored no hard feelings. The PIF bought a 16.87% stake in his Kingdom Holding in May.

A skyscraper he was building -- once envisaged as the world’s tallest -- appears to have stalled, its partly-finished husk a reminder that priorities have shifted under MBS, who’s launched new megaprojects through the PIF.  The most ambitious of those is Neom, the futuristic new city he’s building on the Red Sea. 

While a new elite, including Al-Rumayyan, has risen, it lacks even the limited independence of the old, owing everything to MBS and largely moving with him in lockstep.

Saudi officials want to inculcate “the spirit of capitalism among the populace, but they don’t necessarily want a robust, independent private sector,” said Andrew Leber, a researcher at Harvard University who focuses on political economy in the Middle East. “There’s more of a sense of, what do we actually need the private sector for? If we can invest directly in particular companies, why do we need to bargain with these outmoded family firms?”A top-down approach isn’t new for Saudi Arabia, where family businesses relied for decades on lucrative government contracts. When MBS unveiled Vision 2030, he called for a market-driven transformation, an idea bolstered by management consultants and investment bankers who became key advisers.  Since then, Saudi Arabia has implemented capital market reforms, cleared hurdles to foreign investment  and started privatizing state enterprises. But it’s the PIF behind the wheel. Concerns were raised as early as 2018, when Kuwaiti retail billionaire Mohammed Alshaya confronted Saudi ministers during a panel at Davos, asking whether they were incentivizing private businesses or competing with them.Indeed, professionals are leaving the private sector in droves to join the PIF and related firms, which dangle packages they can’t match. Asked about the PIF’s approach, a spokesperson said in a written response: “It’s about developing sectors that aren’t active today, developing ways of business that aren’t active today. PIF is enabling and supporting the private sector to make that transition.”

One Saudi executive who spoke on condition of anonymity in a country where even mild criticism isn’t tolerated, said he initially felt worried, even angry, as the PIF expanded, splashing around billions of dollars he couldn’t dream of matching. 

But he’s since turned believer, saying the fund jump-started an economy that had atrophied and a system that wasn’t fit for the digital and globalized world. 

Sitting near the pool of his modernist Riyadh villa, the executive compared the last few years to “riding a tsunami,” saying he’d had to manage his own business more aggressively but had adapted and survived.

At Davos in 2018, Finance Minister Mohammed Al-Jadaan responded to Alshaya by saying the fund was creating an ecosystem for the private sector to join. 

“What the government is doing is looking at sectors, industries, specific investments that are either too large for the private sector to take risk on, or are new,” he said.

Many point to the PIF’s purchase of a controlling stake in US electric carmaker Lucid Motors as an example of how it’s incubating non-oil industries that wouldn’t otherwise get off the ground. Saudi Arabia struggled for years to persuade automobile manufacturers to open facilities in the country, but Lucid signed a deal in February  to do just that, potentially creating a path for others. The PIF said in an emailed statement it was acting as a “cornerstone investor” to enable and “crowd-in’’ the private sector. The fund said it was investing in 13 sectors identified as having the potential to deliver a competitive advantage regionally and globally, generate returns, localize jobs and accelerate the transfer of knowledge into the kingdom. 

The state played a crucial role in building economies around the world, including powerhouses like China and South Korea. But both began their industrialization as lower-income societies, with larger populations and cheaper local labor, economists say. Saudi Arabia is already middle- to high-income country, and there’s no precedent for remaking an oil-dependent economy while preserving living standards."It's great as a force for incubation, as a force for transformation,” said Karen Young, a senior fellow at the Middle East Institute in Washington  “The question is: when do you step back?"

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