Saudi Vision 2030: Mirage or Oasis?

In April 2016, spurred on by falling oil prices, Saudi Arabia published its first long term economic strategy. The document, known as Saudi Vision 2030, was followed in June by the ‘National Transformation Program’ (NTP), intended to serve as the practical road map for implementing the new strategy up to 2020. Saudi Vision 2030 and the NTP represent a radical overhaul of the Saudi economic model, challenging a social contract which has guaranteed subsidies and comfortable government jobs for citizens, in return for acquiescence to the absolutist rule of the House of Saud.

The drivers behind Vision 2030 are just as much external as they are internal. Saudi Arabia needs to ensure economic stability to remain a major regional player, particularly with respect to its main regional adversary, Iran. With post-Implementation Day Iran an increasingly attractive prospect to international investors, the Kingdom will need to commit fully to its vision to keep pace.

Saudi Vision 2030 has polarised opinion amongst observers; some lauding the reforming intent, some highlighting the radical approach as unrealistic. Mohammed bin Salman (MBS), the deputy crown prince, chairman of the Council of Economic and Development Affairs and champion of Saudi Vision 2030, has proved equally polarising. MBS is seen either as an ambitious reformer or an overzealous maverick, engaging in ill-advised wars that will leave the Kingdom financially and morally bankrupt. Although MBS is viewed as the figurehead for the proposed reforms, the finer details of Vision 2030 have largely been developed by external advisers, such as strategy consultants McKinsey. This calls into question whether MBS can actually marshal the political and social capital to push through the necessary reforms.

Despite the fall in oil prices providing the catalyst for Vision 2030, there are more long term demographic drivers behind the requirement to re-evaluate the way that Saudi Arabia makes and spends its money. 

Over two thirds of Saudi Arabia’s population is under 30. Within this demographic, unemployment is running at around 50 percent. This figure is set to grow – 1.9 million individuals will enter the work force in the next decade – requiring an expanded public sector to shoulder some of the burden. The absence of a competitive job market could see Saudi Arabia experiencing an exodus of its educated elite or even risking social unrest. In 2011, the Saudi government announced hundreds of billions of dollars in public expenditure as means of preventing the kind of popular mobilisation witnessed elsewhere in the region during the Arab Spring. With oil revenues dropping sharply, the government is unlikely to be able to rely on the same largesse in the next five years. 

Vision 2030 is generic in its policy aims: increase non-oil revenues, reduce spending and diversify national wealth. The NTP is more specific, setting out plans to increase non-oil revenue threefold by 2020, to SAR 530 billion (around USD 141 billion). Vision 2030 and the NTP both target several sectors for growth, including Islamic tourism, which could be a major revenue generator for the Kingdom.

In a much-publicised step, Saudi Arabia also plans to raise funds via an IPO of a small portion of Saudi Aramco, the country’s oil behemoth. Recent media reporting indicates that the IPO will involve a five percent stake, listing shares on the Saudi stock exchange as well as a small number of international markets. Such a move, rumoured for 2018, could constitute the world’s largest IPO, and raise up to USD 100 billion. The proceeds would be channelled into a new centralised public investment fund, which would invest in a broad range of global assets. In a sign of its commitment to alternative capital raising methods, Saudi Arabia took the unprecedented step of issuing sovereign bonds worth USD 17.5 billion in October, a record for an emerging economy. 

There are tentative signs of success: in late November the IMF announced that Saudi Arabia was on track to cut its budget deficit to 13 percent of economic output this year from about 16 percent last year. 

The challenges facing MBS and other proponents of Vision 2030 are manifold. Firstly, MBS and the government must convince the population that austerity measures are essential. Whilst there is a dearth of information regarding the public consensus in Saudi Arabia, convincing citizens that they should pay the price for historic economic and social oversight will not be an easy message to sell. 

One of the unique characteristics of Vision 2030 is its long-term focus. This means a longer period of austerity for a population which is accustomed to a generous, cradle-to-grave welfare system. Accepting Vision 2030 will constitute a substantial shift in mentality for the majority of Saudis, who have grown up with the assumption that they can expect a government job and subsidised lifestyle. 

One of the crucial tests of commitment for MBS and his contemporaries will be their willingness to temper their own personal extravagance. MBS recently purchased a GBP 452 million (USD 572 million) yacht on a whim, shortly after announcing plans to slash public servants’ pay by 20 percent. In the face of pay cuts and tightening public expenditure, a more considered approach to personal spending may be necessary. 

For Vision 2030 to succeed, its ambition must be matched by sustained commitment. Most crucially, Saudi Arabia must make up for lost time by committing to a permanent plan; the strategy cannot be allowed to fluctuate with the price of crude. As such, Saudi Vision 2030 will need to incorporate wholesale, fundamental change, uprooting deep-seated mentalities. The ruling elite must also recognise that austerity cannot be implemented without greater public representation.