Breakingviews columnists have been chronicling Aramco’s three-year IPO journey – from its mooted $2 trillion valuation to its imminent listing. Read the new e-book here:
Amazon and Aramco would seem to have little in common apart from their shared first letter. The Saudi giant sucks oil from Arabian sands and sells it to energy-thirsty nations, sending the proceeds back to its controlling monarchy. Amazon sells stuff online, ships it to customers rapidly and reinvests the profits to destroy the economics of every industry it enters.
But there’s also another risk from what might be called the “Aramazon effect”: a shortsighted race to the bottom that sticks the winners with long-term curses their leaders, communities and institutions may live to regret. Investors in particular have protested considerations by the London Stock Exchange and regulators to water down listing, governance or disclosure requirements to assuage the Saudis. The Investment Association, which represents fund managers overseeing nearly $10 trillion of client money, has lobbied the Financial Conduct Authority not to move forward with the creation of a so-called “premium listing” category for companies controlled by sovereigns, as Aramco would be.
Amazon doesn’t kidnap people and beat them in the Riyadh Ritz-Carlton. But the contest to host its second headquarters has unleashed a similar fox-in-the-henhouse tizzy. The danger is that the winner of the competition, whom Amazon promises will see 50,000 new jobs and some $5 billion of capital investment, winds up fiscally constrained by piling incentives, tax breaks and other concessions that, in the end, produce no greater financial benefit.
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