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One Year On, Saudi Arabia’s Vision 2030 Encounters Problems

Prince Mohammed bin Salman
Prince Mohammed bin Salman announces Saudi Arabia Vision 2030, Riyadh, Saudi Arabia, 26 April 2016. Photo Flickr

A year after Deputy Crown Prince Mohammed bin Salman announced his new economic plan, Saudi Vision 2030, the situation doesn’t seem to go towards the best and the first signs that this plan would eventually fail appear.

The plan’s main aim is to reduce Saudi Arabia’s dependence on oil by introducing a more diversified economic portfolio. It involves raising the kingdom’s share of non-oil exports from 16 per cent to 50 per cent of non-oil gross domestic product (GDP) as well as localizing the renewable energy and industrial equipment sectors, boosting tourism and developing the private sector.

As the oil price continues to fall, the implementation of the plan is becoming increasingly important. The Trading Economics website observed a significant drop in Saudi Arabia’s GDP, from $753.83 in 2014 to $646 in 2015. In 2014, according to the website Statistica, the estimated average inflation rate amounted to 2.69 per cent compared to the previous year. It is expected to rise to 4.7 per cent in 2018, then remain steady at around 2 per cent until 2020.

The plan looks good on paper, but is costly to realize. As such, several measures have been taken to finance the vision, including higher taxes on imported goods, price increases for gas, water and electricity, and cuts in welfare spending as well as various financial supports such as study grants and interest-free home loans.

However, an expert Dr Ali Alyami, director of the Center for Democracy and Human Rights in Saudi Arabia (CDHR) cautioned that the plan will fail if the ruling family does not change its lifestyle. “The Saudi government has been able to stay in power by paying off its people and the international community through assistance and contracts, but now this extravagant lifestyle is squeezing people. I don’t think it will lead to anything from the people, as they still need to have food imported from abroad.”

Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics (PIIE), said that he is yet to observe the impact of these measures on the Saudi economy. “In fact, the biggest policy change Saudis have made contradicts the plan,” he told Fanack. “They agreed to control the oil price by cutting it, like they did in 2014, which suggests nothing has changed. It highlights the fact that they have not been able to get nearly enough money to sustain the current economic model, even by making budget cuts.”

He added: “The plan has several major components. One relates to oil and is failing today, but it takes time. Another is to increase private sector employment, especially of Saudi nationals, but nothing has really changed. They didn’t fire public workers and as far as I can see, they haven’t dramatically reduced migrant workers’ employment [9 million foreign and migrant workers are estimated to live in Saudi Arabia, almost a third of the population of 31 million]. Unless they do that, a shift towards private sector employment for Saudis will fail. The third issue is that the government wants to sell off a lot of it assets, the big one being Aramco [the national oil company]. But here lies the problem: the value of Aramco is linked to the oil price and the amounts produced. The government estimates this at around $2 trillion, but it’s very doubtful whether private investors will pay that much, and I don’t think that oil prices will rise any time soon.”

The ongoing war in Yemen is another major expense on Saudi Arabia’s balance sheet. In addition, unemployment increased to 5.7 per cent in the third quarter of 2016, from 5.60 per cent in the quarter before, according to Trading Economics. Although this is lower than the peak of 6 per cent reached in 2014, the July 2016 rate of 5.7 per cent is not far off.

The plan’s focus on private innovation and entrepreneurship is also problematic. “For this, you need to have a base of social and economic freedom,” the expert said. “There is the question of women, who can’t access some parts of the workforce. Plus, if they cannot drive, how will women go to work?”

In 2012, the Organization for Economic Co-operation and Development’s Development Assistance Committee (OECD DAC) issued a report on gender equality, which stated that ‘women’s economic empowerment is a prerequisite for sustainable development and pro-poor growth’. In 2013, 34 per cent of Saudi women were unemployed, according to the Central Department of Statistics and Information (CDSI).

There is also the question of tourism, one of the development tools important to any country’s economy. “The only thing they planned to do is to increase the number of Hajj pilgrims and build an Islamic Arts Museum, which are not going to create many jobs,” the expert said. “They also want to compete with Dubai on developing a major logistics hub, which is smart, but the big difference is that you can buy a beer in Dubai. I mean, it’s not rocket science.” Tourism and travel represented 2.5 per cent of GDP in 2015, and was estimated to be 4.4 per cent in 2016.

According to several observers, the plan’s goals, although positive for Saudi Arabia in the long-term, are not compatible with country’s political, social and economic context. “Basically, the regime could collapse by implementing their own plan, but they might also collapse if they don’t,” Kirkegaard explained. “They are in deep structural trouble, and that’s not counting the geopolitical pressure they face over their continued involvement in Syria and Yemen.”