Dissecting Saudi Arabia’s Vision 2030
Hirak Jyoti Das, Research Associate, VIF

Saudi Arabia’s Vision 2030 document notes that the path to their future lies in three pillars, i.e., its status as the centre of the Muslim and Arab world; its desire to emerge as a global investment powerhouse and as the epicentre of trade connecting Asia, Europe and Africa. In terms of socio-cultural efforts, it aims to upgrade infrastructure in Mecca and Medina and increase the number of Haj pilgrims from eight million in 2015 to 15 million in 2020, and eventually to 30 million every year by 2030. It also plans to build the largest Islamic Museum in the world and redouble the number of the United Nations Educational, Scientific and Cultural Organization (UNESCO) world heritage sites in Saudi Arabia.

The Vision document admitted that the available opportunities in culture and entertainment do not fit with the rising aspirations of its people and the economic structure. Therefore, new avenues of entertainment and platforms for cultural outreach were also enumerated in the vision in which the household spending for cultural and entertainment activities would be raised from 2.9 per cent to six per cent and more than 450 clubs for entertainment and cultural activities would be created by 2020. Moreover, the government sought to focus its efforts on improving the quality of life by focusing on preventive care and integrating health and social care, modernising social welfare system, providing a better sense of security and achieving environmental sustainability. It seeks to increase the average life expectancy from 74 years to 80 years and improve its position in the social capital index from 26 to 10. It aspires that three Saudi cities would be ranked among the top 100 cities in the world.

In the economic dimension, oil is admittedly the key pillar for Saudi Arabia’s economy contributing 40 per cent of its Gross Domestic Product (GDP), 90 per cent of its export earnings and 88 per cent of its government revenue. However, oil as a commodity is highly fickle and prone to price fluctuations. It, therefore, sought to diversify the capabilities of the economy and expand investment option to reduce its dependence on oil in future development prospects. The new economic plan relies heavily on liberalisation and privatisation of state-owned assets that would provide new and diverse sources of revenues. These steps according to the document would boost its financial resources and economic stability and would be utilised for future investment.

The government has planned to transform Aramco from an oil producing company into an international industrial conglomerate and develop a Public Investment Fund which would endeavour to become the largest sovereign wealth fund in the world. They planned to raise the Investment Fund’s assets from SAR 600 billion to SAR 7 trillion. It would focus on strategic sectors that require intensive capital inputs to establish corporations and new economic sectors. The Saudi vision aspires to become one of the top 15 economies in the world and localise oil and gas sectors from 40 per cent to 75 per cent. It focused on future defence procurement in which 50 per cent of military equipment would be locally produced by 2030. Moreover, it seeks to improve its ranking in the global competitiveness index from 25 to the top 10 position; increase foreign direct investment in GDP from 3.8 percent to 5.7 percent; raise the share of private sector in GDP from 40 percent to 65 percent; improve its ranking in Logistics Performance Index from 49 to 25; increase the share of non-oil exports in non-oil GDP from 16 percent to 50 percent; and raise non-oil government revenue from SAR 163 billion to SAR 1 trillion.

In terms of governance, the document highlighted the role played by the government to tackle corruption as well as create strategic food reserves; better use of water; providing its citizens with greater economic security; efficient and speedy decision-making by replacing supreme councils with the Council of Political and Security Affairs and Council of Economic and Development Affairs and overall government restructuring programme. Saudi Arabia wants to raise Government Effectiveness Index from 80 to 20; improve its ranking in E-Government Survey Index from 36 to the top 5 positions; increase household savings from six per cent to 10 per cent of total household income and increase the non-profit sector’s contribution to GDP from less than 1 per cent to 5 per cent.

In its efforts, it would emphasise on multi-faceted education and training its citizens in line with future market needs; narrow the gap between outputs of higher education and the requirement of the job market; support small and medium-sized enterprises (SMEs) raising its contribution to the GDP from 20 per cent to 35 per cent; build advanced technologies and entrepreneurship; provide scholarship opportunities in the subjects that serve Saudi national priorities and provision for determination of skills required for each socio-economic sector, and provide vocational training. The document laid special attention on the role of women in rebuilding Saudi society and economy and plans to increase its participation in the workforce from 22 per cent to 30 per cent. It also seeks to lower the rate of unemployment from 11.6 per cent to seven per cent. It aims that at least five Saudi universities would be ranked among the top 200 universities in the world.1 Allied to the vision, on 24 October 2017, Saudi government unveiled its plans to establish a mega city with a 26,500 sq km business zone called NEOM, an amalgam of Neo and Mustaqbal( meaning ‘future”) with an estimated cost of US$ 500 billion.2

The Gulf state at the present stage is faced by two certainties in the external and internal levels. The external factor is the volatility of oil prices and its consequences on the national budget, and the internal factor is a large number of young and educated labour force seeking employment. According to Adeel Malik, the traditional method of buying social peace was done by disseminating rents to its citizens via salaries, subsidies and welfare measures. However, the social pact has become susceptible to cracks due to uncertainty in oil prices and increasing expenditure and employment commitments.3 The Vision 2030 entailed an initial public offering of the Saudi oil giant, Aramco at US$ 2 trillion in its efforts to overhaul the economy and raise more than US$ 100 billion in the sovereign wealth fund. However, several analysts have estimated its value at US$ 1 trillion. However, Saudi Aramco has shown its unwillingness to fully disclose its finances and reserves required to be listed in the international stock market. The Saudi authorities feared that listing the company in the New York Stock Exchange would make it vulnerable to legal threats from shareholders and victims of 11 September 2011 attack.4

At the same time, the overambitious timetable and indifference by international investors have watered down its initial eagerness to sell five per cent of its shares. From the Saudi perspective, it requires high oil prices to fund the national budget and secure a valuation for Aramco closer to US$ 2 trillion. Eventually, on 22 August 2018, King Salman announced its decision to cancel the sale of five per cent of Aramco’s shares.5 Aramco presently is in talks with Saudi petrochemical company, Saudi Arabian Basic Industries Corp. (SABIC) for the acquisition of US$ 70 billion strategic stakes and integration, which may raise its valuation.6 Aramco aims to expand itself from an exporter of crude oil to utilise its oil to create petrochemicals and fuel for export. It would stabilise the oil giant in the context of low oil price by integrating refining and petrochemical projects and create non-oil revenue. It would essentially transfer resources from one government pocket to another, rather than actually creating additional resources. However, the government strategy is likely to focus on raising money through bonds rather than equities.7

In order to balance the budget, the Saudi government is required to maintain oil prices at US$ 80 per barrel. Presently, the crude oil prices have partially recovered and Saudi Arabia’s crude price is currently in the range of US$ 65.67 to US$ 67.32 per barrel. This is still below the level needed to achieve a balanced budget. Therefore, the dilemma for Saudi Arabia is if it has to maintain this price range, the Kingdom has to cut production, thus affecting overall revenue. The rise in oil price to US$ 70 per barrel has relieved the pressure and helped to reduce the budget deficit. However, the present price leaves little scope to undertake major reforms. Therefore, if the strain continues, the government would have to temper with the sovereign wealth fund to meet with current expenses rather than act to it. While, Saudi Arabia remains the largest exporter among the Organization of the Petroleum Exporting Countries (OPEC) states, its capacity to affect swing production, i.e. raising production to reduce oil prices or reducing production to increase prices, is limited due to its fiscal needs as well as a rise in the share of shell oil in the global market. The domestic economic situation has therefore complicated the diversification plans.

The Kingdom, in order to achieve success in its diversification model and economic reforms would require political restructuring, which the present regime is unwilling to commit. Moreover, it also requires the presence of a truly independent private sector which can create economic influence resulting in political interference. The Saudi regime would be extremely suspicious of the growth of an independent private sector that may challenge and mould the government’s policies.8

Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud, popularly called as MBS, was declared as the royal heir after King Salman ousted his nephew Muhammad bin Nayef from the succession race by royal decree on 21 June 2017. The Crown Prince was branded as a reformist figure willing to accommodate a moderate understanding of Islamic laws in the Kingdom. He is responsible for the government’s push to allow women to drive and was seen as a key figure in the economic diversification plans. The Saudi government, however, has continued its policy of suppression against political and human rights activists and writers such as Nadhir al-Majed for talking to internal media and human rights organisation about the plight of Shias within the Kingdom; Abdulaziz al-Shubaily, the founder of Saudi Civil and Political Rights Association (ACPRA), Ahmed al-Musheikhis, the founding member of the Adala Center for Human Rights as well as Essam Koshak, Waleed Abu al-Khair, Mohammed al-Qahtani, Abdullah al-Hamid, Fadhil al-Manasif, Sulaiman al-Rashoodi, Abdulkareem al-Khodr, Fowzan al-Harbi, Saleh al-Ashwan, Abdulrahman al-Hamid, Zuhair Kutbi Alaa Brinji, Mohammed al-Oteibi and Abdullah Attawi. According to Human Rights Watch, between 2011 and 2017, at least 20 people have been convicted by Saudi courts.9

Between May and August 2018, several women’ activists including Samar Badawi and Nassima al-Sadeh who have been campaigning for the abolition of male guardianship system and women’s right to drive were arrested. The continuing onslaught against human rights and political activists has tarnished the reputation of the Crown Prince as a reformist figure and impacted its Vision 2030 framework.10

At the same time, Saudi Arabia’s military adventures in Yemen against the Houthi armed movement, that took control over large swathes of territory since March 2015, had initially received international and regional backing as the conflict was seen through the lens of a proxy war with Iran. However, in subsequent years, the human and material cost of the conflict has made Saudi involvement quite unpopular. According to the United Nation (UN), at least 1,248 children have lost their lives in Yemen between March 2015 and October 2018.11

Moreover, the Saudi government on 4 November 2017, arrested 49 people including 11 princes and four ministers on the charges of corruption. Prominent arrests are Prince Alwaleed bin Talal who controls the investment firm Kingdom Holding and is one of the world’s richest men, owning or having owned major stakes in 21st Century Fox, Citigroup, Apple, Twitter etc., Prince Miteb bin Abdullah, the head of National Guards, Ibrahim al-Assaf, a former finance minister, Adel Fakieh, economy minister, and Prince Turki bin Abdullah, a former governor of Riyadh. Major business figures including Bakr bin Laden, chairman of the big Saudi Bin Laden construction group, and Alwaleed al-Ibrahim, owner of the MBC television network, were also detained.12 By 17 November 2017, a total of 208 individuals were held for questioning. The government purges in November 2017 ended after the detainees were released in which the Saudi government extracted around US$ 107 billion in settlements.13 These steps were aimed at funding the economic diversification plans. However, the arbitrary nature of the arrests caused anxiety among international investors and according to the United Nations Conference on Trade and Development (UNCTAD), the foreign direct investment (FDI) inflow to Saudi Arabia dropped from US$ 7.5 billion in 2016 to US$ 1.4 billion in 2017. 14

The killing of prominent Saudi journalist, Jamal Khashoggi inside the Saudi Consulate on 2 October 2018 led to an international public outcry against the Gulf state. A large number of international observers have been highly skeptical of the Saudi government’s version of the events and the murder has been linked to the Crown Prince. It shook investor confidence in the regime crucial to fulfilling its vision of building a technology-driven modern economy. 15

On 11 October 2018, nine days after the killing, Richard Branson of Virgin group announced his decision to pull back from two tourism projects and called off a discussion about US$ 1 billion investment with the Public Investment Fund in Virgin Galactic and Virgin Orbit space companies.16 Media groups such as The New York Times and CNN also backed out as the media sponsors of the Future Investment Initiative, popularly known as “Davos in the Desert”, held on 23 to 25 October 2018. Moreover, Viacom CEO Bob Bakish, Arianna Huffington from the Huffington Post, Los Angeles Times owner Patrick Soon-Shiong, Uber CEO Dara Khosrowshahi etc. cancelled their participation in the event.17 In a major setback, JP Morgan Chase and Blackstone Group also cancelled its participation. The members of NEOM Advisory Board such as former US Energy Secretary and CEO of Energy Futures Initiative Ernest Moniz; Tim Brown, CEO of IDEO, entrepreneur Sam Altman and Dan Doctoroff, CEO of Alphabet also dissociated from the Saudi initiative.18

At the present stage, the ambitious plan to diversify the economy is suffering from roadblocks arising from a number of internal and external factors such as the death of Khashoggi, continuing suppression of political activism within the Kingdom, arrests of political and human rights activists, Saudi Arabia’s protracted involvement in Yemen and government purge leading to the arrests of members of the royal family, ministers and officials in November 2017. The Saudi policy reflects an approach driven by economic reforms without sincere socio-political initiatives. The lack of firm socio-political initiatives is likely to affect in long-term economic interests of the Kingdom.

References:
  1. Kingdom of Saudi Arabia. “Vision 2030.” April 25, 2016. Accessed March 13, 2019. file:///C:/Users/HIRAK/Downloads/Saudi_Vision2030_EN.pdf
  2. Garfield, Leanna. “Saudi Arabia just announced plans to build a $500 billion mega-city that's 33 times the size of New York City.” Business Insider. October 24, 2017. Accessed March 13, 2019. https://www.businessinsider.in/Saudi-Arabia-just-announced-plans-to-build-a-500-billion-mega-city-thats-33-times-the-size-of-New-York-City/articleshow/61210205.cms
  3. Malik, Adeel. “Can Saudi Arabia diversify its economy without an Aramco IPO?” Al Jazeera. September 4, 2018. Accessed March 13, 2019. https://www.aljazeera.com/indepth/opinion/saudi-arabia-diversify-economy-aramco-ipo-180904072248249.html
  4. DibChristopher, Tom. “Massive IPO for Saudi oil giant Aramco reportedly stalled by indecision over where to list shares.” CNBC. January 29, 2018. Accessed March 14, 2019. https://www.cnbc.com/2018/01/29/saudi-aramco-ipo-stalled-by-indecision-over-where-to-list-shares.html
  5. Paraskova, Tsvetana. “Saudi King Stepped In To Call Off Aramco IPO.” Oil Price. August 28, 2018. Accessed March 12, 2019. https://oilprice.com/Energy/Energy-General/Saudi-King-Stepped-In-To-Call-Off-Aramco-IPO.html
  6. Arabian Business. “Saudi Aramco reveals ambitions beyond $70bn SABIC deal.” Arabian Business. October 24, 2018. Accessed March 15, 2019. https://www.arabianbusiness.com/energy/406757-saudi-aramco-reveals-ambitions-beyond-70bn-sabic-deal
  7. Business Standard. “Saudi Aramco to decide in first half on financing SABIC buy – CEO.” Business Standard. February 20, 2019. Accessed March 15, 2019.
    https://www.business-standard.com/article/reuters/saudi-aramco-to-decide-in-first-half-on-financing-sabic-buy-ceo-119022000887_1.htmlb
  8. Malik, Adeel. “Can Saudi Arabia diversify its economy without an Aramco IPO?” Al Jazeera. September 4, 2018. Accessed March 13, 2019. https://www.aljazeera.com/indepth/opinion/saudi-arabia-diversify-economy-aramco-ipo-180904072248249.html
  9. Human Rights Watch. “Saudi Arabia: Intensified Repression of Writers, Activists.” Human Rights Watch. February 6, 2017. Accessed March 14, 2019. https://www.hrw.org/news/2017/02/06/saudi-arabia-intensified-repression-writers-activists
  10. Human Rights Watch. “Prominent Saudi Women Activists Arrested.” Human Rights Watch. August 1, 2018. Accessed March 14, 2019.
    https://www.hrw.org/news/2018/08/01/prominent-saudi-women-activists-arrested
  11. UN News. “Saudi Arabia must halt air strikes in Yemen, says UN panel.” UN. October 11, 2018. Accessed March 15, 2019. https://news.un.org/en/story/2018/10/1022852
  12. Kirkpatrick, David. D. “Saudi Arabia Arrests 11 Princes, Including Billionaire Alwaleed bin Talal”. The New York Times. November 4, 2017. Accessed March 13, 2019. https://www.nytimes.com/2017/11/04/world/middleeast/saudi-arabia-waleed-bin-talal.html
  13. Sabah, Ziad and Algethami, Sarah. “Saudi Arabia Collects $107 Billion as Prince Ends Crackdown.” Bloomberg. January 31, 2019. Accessed March 12, 2019. https://www.bloomberg.com/news/articles/2019-01-30/saudi-arabia-recovers-107-billion-in-anti-corruption-campaign
  14. UNCTAD, “World Investment Report 2018: Saudi Arabia.” UNCTAD. June 6, 2018. Accessed March 13, 2019. https://unctad.org/sections/dite_dir/docs/wir2018/wir18_fs_sa_en.pdf
  15. Fanack. “Murder of Khashoggi Threatens Vision 2030.” Fanack. November 13, 2018. Accessed March 14, 2019. https://fanack.com/saudi-arabia/economy/murder-of-khashoggi-threatens-vision-2030/
  16. Cavaliere, Victoria. “Richard Branson temporarily suspends ties with Saudi government.” CNN Business. October 12, 2018. Accessed 11 march 2019. https://edition.cnn.com/2018/10/11/business/branson-saudi-khashoggi/index.html
  17. Gold, Hadas. “Media sponsors drop out of Saudi conference after journalist goes missing”. CNN Business. October 12, 2018. Accessed 11 march 2019. https://edition.cnn.com/2018/10/11/media/saudi-conference-media-sponsors-khashoggi/index.html
  18. Thompson, Mark. “Business backlash over Khashoggi threatens Saudi Arabia's economic dreams”. CNN Business. October 12, 2018. Accessed 13 March 2019. https://edition.cnn.com/2018/10/12/business/saudi-arabia-khashoggi-business-backlash/index.html

Image Source: https://cdn.images.express.co.uk/img/dynamic/22/590x/saudi-oil-economy-782978.jpg

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