Saudi Arabia on Monday announced a long-term reform programme ‘Vision 2030’ that is an ambitious attempt to move Saudi Arabia beyond oil, the backbone of its economy for decades.
“This is not a dream. This is a reality that will be achieved, God willing,” the main architect of the diversification plan, deputy crown prince Mohammed bin Salman, told reporters.
What is ‘Vision 2030’?
The “Vision 2030” plan aims to transform an economy that has for decades relied mainly on Saudi Arabia’s vast oil resources.
Saudi Arabia said it would create the world’s largest sovereign investment fund and sell 5% shares in state energy giant Aramco under a vast plan unveiled to transform its oil-dependent economy.
Proceeds from the sale will help create the world’s biggest government investment fund, with a value of $2 trillion, whose profits can provide an alternative to oil revenues that have been hit by the dramatic fall in crude prices since 2014.
If it works, Saudi Arabia “can live without oil by 2020”, prince Mohammed said.
The plan foresees social change in one of the world’s most conservative societies. Other measures include increasing household spending on entertainment to boosting the domestic defence industry and bringing more women into Saudi workforce.
What does the plan envision?
The reform programme aims to propel the kingdom from its ranking as the world’s 19th largest economy to the top 15.
It also includes major structural reforms, privatisations and efforts to increase government efficiency, the prince said. The domestic defence industry will be built up to account for as much as 50% of military spending, from two percent now.
Under the plan, the share of non-oil exports will rise from 16% to 50% of non-oil Gross Domestic Product.
What are the challenges ahead?
Analysts have long warned that the Saudi system, which counted on oil for 73% of state revenues last year, is deeply bureaucratic and inefficient.
Analysts said the plan’s boosters could face an array of obstacles, one factor being the level of support behind 30-year-old prince Mohammed, the principle architect of the plan.
“... Authorities will be coming up against significant vested interests within the royal family, the business elite and the religious establishment,” London-based Capital Economics said in a briefing paper.
Others are concerned the plan is very ambitious and questioned its timing.
The collapse in oil prices -- from more than $100 a barrel in early 2014 to around $40 a barrel this month -- has underscored the dangers. “Saudi should have started this kind of programme when the oil price was high,” an oil industry source said. “It needs time, a long time, to develop.”
Though the plan also stresses the importance of Saudi women in the economy and expanding their job opportunities, it contained little to suggest the kingdom would accelerate its pace of social reforms. Women were granted the right to vote and run in local council elections for the first time last year but are still banned from driving and need the approval of a male relative to travel abroad.
Other analysts were more positive about the outcome. “Why can’t we achieve it, like countries in the region such as the UAE and Qatar?” asked Mohammed al Shumaimri, who leads a financial consultancy group in the Red Sea city of Jeddah.
“The proposed giant sovereign wealth fund will enable Saudi to diversify sources of income... Privatisation of state-owned companies will reduce corruption because it will initiate accountability,” he told AFP.
Saxo Bank analyst Christopher Dembik said the kingdom’s still-significant financial reserves and political stability, allow for optimism over the difficult process.
How did Saudis react?
On Twitter, a popular outlet in the tightly controlled kingdom, Saudi reaction was mixed.
“What transformation is this? It’s already late, might as well make it 2035 just in case,” user @salShabanH wrote.
But many others praised the plan and in particular Prince Mohammed. “No worries for a nation whose vision is being planned by a man like this,” @alobisan wrote.
Saudi citizen Sultan Tamimi, who at 27 is a couple of years younger than the prince, said “the nation was reborn” by the plan, which showed “ambition and youthful spirit”.