Saudi ‘Vision 2030’ sparks praise, scepticism
RIYADH - Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz’s ambitious reforms to reduce the kingdom’s dependence on oil and turn to investment, manufacturing and tourism as a major source of revenue have sparked optimism among the country’s leading economic analysts but also scepticism from some market watchers.
Many economists, however, agree that sweeping reforms to shore up Saudi Arabia’s $98 billion budget deficit is long overdue and a major step towards developing other revenue-generating industries is vital to the country’s economic survival.
The centrepiece of Salman’s road map that establishes a vision for Saudi Arabia’s future to 2030 is to issue an initial public offering (IPO) of 1-5% interest in Saudi Aramco, the world’s largest oil company with a value estimated at $2 trillion, to capital markets. By floating Aramco on the stock exchange and diversifying its investments, the deputy crown prince said the Saudi economy would be more resilient.
“I think by 2020, if oil stops we can survive,” Salman told al-Arabiya television. “We need it, we need it, but I think in 2020 we can live without oil.”
Anwar Majed Eshki, a former major-general in the Saudi military and president of the Middle East Centre for Strategic and Legal Studies, said the plan doesn’t mean abandoning oil as a revenue source by 2020.
“The plan doesn’t mean that the kingdom lives without oil but it means that the kingdom is to get ready after the oil era by exploiting oil to create the alternatives in different fields, most important of which are minerals, investments, industries and tourism,” he said.
Not all economists are convinced. Jason Tuvey, a Middle East economist at the London-based Capital Economics, said revenue will still come from Saudi oil.
“In a sense I think they are trying to pull the wool over people’s eyes,” Tuvey said. “The revenue still comes from Aramco. In short, Saudi Arabia will be dependent on oil for many years.”
John Sfakianakis, director of the Economics Research at the Riyadh-based Gulf Research Centre, is more optimistic. He said that, while the road map is ambitious, even meeting only some of the prince’s goals would be a vast improvement to the country’s economy.
“It surely can be achieved if it brings everybody under one umbrella,” Sfakianakis said. “Even if it’s not achieved, halfway is enough to dramatically change the country’s dependence on oil. You need to be ambitious to rid yourself of (oil) dependency. It’s easier said than done but if accomplished by only 50% it’s very good.”
Ahmed al-Jundi, an executive analyst at the Jeddah-based architectural firm Diyar Consultants, said Salman’s plans can be accomplished if private and public employers are committed.
“This is an ambitious goal but, however, achievable to a large extent,” Jundi said. “It can be achieved through real reforms in all sectors. The current revenues should be reinvested into different markets to guarantee annual returns. The Saudi work force should be utilised correctly to truly provide people the environment to grow. It’s possible to change the economic balance if the entire government machinery completely and seriously submits to the vision 2030.”
Government cooperation is the crux to whether the prince’s vision can be successful; perhaps the most important element to achieve at least partial success to transform Saudi Arabia’s economy from oil dependency to a diversified industry and investments is to control corruption.
“The government’s focus should be on achieving goals; systemising, restructuring and allowing the private sector to participate in the different sectors,” Jundi said. “This would lead to transparency and introduce a system of automatic checks and balances.”
He added: “Transparency is a key and market participants are encouraged, but the government’s substantial attention to the economy and its youth is what truly increases participation and the general confidence.”
Tuvey said that by making Aramco more transparent, it will “improve corporate governance, not just Aramco but also the public sector”.
Unexpected in Salman’s road map are plans to develop a military industry. The prince said in his interview: “Is it logical that we are ranked the third in world military spending and yet we do not have any military manufacturing capabilities?”
Eshki said Saudi Arabia has had factories to manufacture light arms in Al-Kharj for 50 years, “but the concentration will be in spare parts and some types of weapons”.
Eshki said the Saudi government will impose a condition on companies selling weapons that they must invest 30% from sales in the spare parts industry.
Saudi Arabia has long struggled to jump-start its struggling tourism industry, which is primarily focused on Muslim pilgrims. But haj pilgrims are limited to visiting the holy cities of Medina and Mecca and umrah visitors have only two weeks to visit.
The Commission for Tourism and National Heritage recently announced “Umrah-Plus,” a plan that extends a pilgrim’s visa to 30 days to allow visits to a broader range of tourist destinations, including Islamic archaeological and heritage sites. Saudi Arabia offers no tourist visas.
Salman wants to go further, noting that there are plans to open the largest Islamic museum in the country and allow more tourists into Saudi Arabia. The tourism commission has always focused on domestic tourists first and then Muslims from Gulf Cooperation Council countries. When pressed in his al- Arabiya interview about opening doors to tourist of all nationalities, Salman replied: “Undoubtedly, in line with our values and beliefs.”
Sfakianakis said tourism remains underutilised.
For growth, jobs and recreation, tourism is an untapped potential,” he said. “To be the highest multiplayer than all the other sectors, that means (the tourism industry) must create jobs and serve other areas of the economy and generate output. It cuts across a lot of sectors.”