Saudi Vision 2030:A Kingdom’s Blueprint for Economic Diversification-Will the Reforms Succeed?

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EXCERPTS

PRECURSORS FOR SAUDI ECONOMIC DIVERSIFICATION

Saudi Arabia’s economy was also reeling from the plunge in crude oil prices. (Refer to Exhibit I for overview of Saudi Arabia). The slump in oil prices from highs of above $100 a barrel in mid-2014 to under $30 a barrel in 2015 had thrown the kingdom into turmoil, prompting substantial budget cuts and other measures that observers feared could spark social unrest. Since petroleum accounted for roughly 80 percent of the kingdom’s annual budget, the reduced oil prices left the economy with a deficit of nearly $100 billion in 2015, equivalent to about 15% of economic output. In 2016, it was estimated that the economy would again suffer a deficit of $87 billion. The country’s benchmark Tadawul All Share Index (TASI) also tumbled 17%. Moreover, the country’s reserves decreased from $746 billion in 2014 to $616 billion in 2016.

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THE SAUDI VISION 2030

Concerned over the declining dependency of countries on oil, Saudi Arabia undertook to transform the kingdom’s oil-dependent economy. The country planned several measures to restructure the economy and in light of such efforts, Prince Mohammed announced Vision 2030. He led the biggest economic shakeup since the founding of Saudi Arabia in 1932. Prince Mohammed, who was also head of the Economic and Development Affairs Council and the National Transformation Program (NTP), had almost unbridled concentration of power and therefore, spearheaded the plan...

VISION 2030 AND THE SAUDI OIL INDUSTRY

Saudi Arabia, home to the largest reservoirs of crude, was the world’s largest exporter of crude oil. However, the country’s addiction to oil had led to a disturbed development of many sectors for many years. As Prince Mohammed said, “We have become addicted to oil in the Kingdom of Saudi Arabia, and this is dangerous, it has blocked the development of many sectors in the past years. In 2020, I think we will be able to live without oil. We will need it, but we can live without it.”..

THE TWO SIDES OF THE PROGRAM

Vision 2030 attracted cautious praise in global and domestic policy circles. In the kingdom, the initial reactions were positive with the country’s Saudi Tadawul All-Share Index closing 2.5% higher on the day at 6,868 points. It was considered to be the foundation for Saudi Arabia and the Arab region to take a historical leap. As per analysts, the Vision was important for Saudi Arabia in three ways: it was crucial for the long-term viability of the country’s economy; it laid the foundation for the kingdom’s ability to compete with its rivals during the period of low oil prices; and it posed a challenge to similarly oil-dependent countries in near and far off regions...

LOOKING AHEAD

Saudi Vision 2030 aimed to propel the kingdom’s ranking from the world’s 19th largest economy to the top 15. Economists believed that it would take many years for the plan to be implemented and the results to become visible. Prince Mohammed himself opined it would take time to see the reforms translate into growth. According to him, “We don’t expect it in the early years because they are years of reform, but after the years of reform we will expect very high growth...

EXHIBITS

Exhibit I:Saudi Arabia Overview

Exhibit II:Crude Oil (Petroleum) OPEC Reference Basket*

Exhibit III:Saudi Arabia GDP

Exhibit IV (A):Comparison of Saudi PIF with other Country’s Funds

Exhibit IV (B):Buying Power of Saudi Public Investment Fund (in $ Billion)

Exhibit V:Executive Program under Vision 2030