The Government of Saudi Arabia has approved a new dramatic economic plan that is set to move the country away from its current economic dependence on oil.
The man behind the plan, titled Vision 2030, is 31-year-old Deputy Crown Prince Mohammed bin Salman, the favoured son of ruler King Salman.
According to the Vision 2030 plan, Saudi Arabian non-oil revenue will be increased from 163.5bn riyals ($43.6bn, £29.9bn) last year to 600bn riyals ($160bn, £110bn) by 2020, and 1 trillion riyals ($267bn £183bn) by 2030.
In addition, the plan calls for the share of non-oil exports to rise from 16% to 50%.
“We will not allow our country ever to be at the mercy of commodity price volatility or external markets,” Prince Mohammed said at his first news conference with international journalists, who were invited to a Riyadh palace for the event.
The Vision 2030 plan, he told the Saudi-owned Al-Arabiya news channel, would ensure, “we can live without oil by 2020”.
At the center of the plan is the restructuring of its Public Investment Fund (PIF), which is slated to focus on Saudi investment abroad. PIF will be funded, at least in part, through the selling of shares in Aramco, the Saudi Arabian Oil Company.
Among the reforms Deputy Crown Prince Mohammed bin Salman announced in his interview were:
- Share offering of less than 5% of Aramco, a company he valued at up to $2.5tr (£1.7tr)
- Some of the proceeds will go towards a sovereign wealth fund worth $2tr
- A new visa system will allow expatriate Muslims and Arabs to work long term in Saudi Arabia
- Steps to diversify the economy, including investment in mineral mining and expanding military production
Just selling 1% of Aramco would create the biggest initial public offering (IPO) in history, the Prince said, outperforming record breaking IPOs from the likes of Facebook and Alibaba.
The plan to shift the Saudi Arabia economy also includes measures to increase the number of women in the workforce. “We believe women have rights in Islam that they’ve yet to obtain,” the prince stated.
One former senior US military officer who recently met with the prince told Bloomberg that the royal told him he’s ready to let women drive, but is waiting for the right moment to confront the conservative religious establishment, which dominates social and religious life.
Saudi Arabia economy and oil
Over 70% of Saudi government revenues came from oil in 2015 but falling prices have hit the oil rich nation hard.
According to Bloomberg, last year the prince’s advisers discovered Saudi Arabia was ‘burning through its foreign reserves faster than anyone knew, with insolvency only two years away’. The drop in oil value had left the nation’s budget close to $100bn in the red.
Oil prices are still less than half the peak of $115 a barrel seen in June 2014, and although creeping up ever so slightly since the beginning of April, the prince said the reforms would go ahead regardless of an increase in prices.
“The vision has nothing to do with crude prices,” he said. “If the oil price goes back up it would greatly support the vision but it does not need high prices. We can deal with the lowest prices possible.”
Feedback on Saudi Vision 2030
The reaction to the Saudi Vision 2030 plan has been mixed but some economists feel that there wasn’t enough in the way of detail in the plan, specifically the source of non-oil revenue.
“There was very little that was new in the Saudi government’s ‘Vision 2030’ and there are still several key areas that policymakers have yet to address,” said Jason Tuvey, an economist for Capital Economics’ Middle East division.
“We don’t buy into Mohammed bin Salman’s assertion that Saudi Arabia will no longer be dependent on oil by 2020. In short, we were hoping for more.”
However, others such as Ihsan Bu-Hulaiga, head of the Joatha Consulting, were more positive. He told Arab News: “It is important to know that Vision 2030 is based on exploiting comparative advantages of Saudi Arabia. For the last 70 years, we developed with one comparative advantage, which is oil.”
“This vision is not asking for anything in essence except to take advantage of other resources of additional comparative [value] the country is blessed with.”