The Saudi Vision of a Diversified Economy

By Henry Srebrnik, [Charlottetown, PEI] Guardian

 

This past June 21 King Salman bin Abdulaziz Al Saud of Saudi Arabia named his son Mohammed bin Salman, 31 years old, as the new crown prince, as well as deputy prime minister.

He replaced 57-year-old Mohammed bin Nayef, the king’s nephew. Unlike his siblings, the new crown prince did not go abroad to study, instead choosing to be beside his father. He studied in Riyadh schools and later pursued law from King Saud University.

Prince Mohammed, as chair of the Council for Economic and Development Affairs, is also the chief architect behind “Vision 2030,” an ambitious economic and social development plan which seeks to recalibrate the economy to end the country’s near-total dependence on oil revenue, which has been declining in recent years, while making the country a “trade hub” and “investment powerhouse.”

The Saudi economy has faltered, yielding an annual gross domestic product (GDP) growth of only 0.8 per cent between 2003 and 2013, less than most emerging economies. 

The proposal, unveiled in April 2016, calls for the creation of a huge sovereign wealth fund to be funded by an unprecedented initial public offering (IPO) of a 5 per cent stake in the state energy behemoth Saudi Aramco.

Traditionally, the Saudi royal family largely left the operation of the energy industry to technocrats, but Prince Mohammed has taken a more direct role. He has also made pronouncements on oil production policy that sometimes seemed to undercut more experienced Saudi energy officials.

“The problem is that he is unpredictable, and it is not clear who he is relying on for advice,” said Paul Stevens, a Middle East oil analyst at Chatham House, a research group based in London.

The plan also aims to slash unemployment by 2030 and help Saudi women reach 30 per cent of the workforce by that year. (He said the driving ban for women could be changed in coming months.)

It seeks to reduce the role of the public sector and bureaucracy while simultaneously empowering the private sector to become the main employer and vehicle for economic growth.

The plan identifies eight sectors that, if properly utilized, would generate at least 60 per cent of Saudi economic growth. These include mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, healthcare, finance, and construction. 

The contribution of the private sector to the GDP would rise from 40 per cent to 60 per cent, thus lowering unemployment from 11 per cent to 7.6 per cent. 

“Investors had doubts that Vision 2030 is real or that the man behind it would actually be the ruler of Saudi Arabia. Those doubts will largely evaporate after this,” according to Ayham Kamel, director for the Middle East and North Africa at the Eurasia Group, in London. 

But Mohammed’s far-reaching proposals require altering the social contract that has kept the family in power since his grandfather founded the kingdom. “Vision 2030” will create a more competitive economy that may cause hardship among those less talented and entrepreneurial.

Also, low wages in labour-intensive manufacturing industries do not appeal to Saudis accustomed to high-paying jobs in the public sector, which employs about 70 per cent of the indigenous workforce. 

What the country needs is heavy investment in vocational education, which the vast majority of Saudis reject and consider beneath them.

So there are, not surprisingly, complaints from a society that has become accustomed to cradle-to-grave largesse from the Saudi state. 

Also, privatizing the economy and the subsequent influx of foreign investors and technicians, along with their families, are bound to strain the conservative rules of Saudi society, still based on tribalism, absolutism, and opposition to religious heterodoxy.

For the plan to succeed, Saudi society would have to loosen the restrictions that the religious establishment has imposed on society and adopt the values of moderation, tolerance, discipline, equity, and transparency – which would undermine the very basis of the state.