Saudi Arabia announces grand plan to end ‘addiction’ to oil, transforming into ‘investment-driven economy’
Saudi Arabia is a country near-synonymous with the oil industry, but now the kingdom is moving to end what it calls its “addiction to oil” with a new plan.
The plan, known as Vision 2030, was announced Monday by Deputy Crown Prince Mohammed bin Salman, the fast-rising 31-year-old said to be at the helm of Saudi Arabia’s plans to modernise its economy. In an interview with al-Arabiya news channel conducted in his palace in Riyadh, Mohammed said that under the plan, the country will exist “without any dependence on oil” by 2020 and would soon be a “global player” on the world investment stage.
That would mark a big change. Since large quantities of oil were discovered in the then-nascent Saudi kingdom in 1938, the oil industry has come to dominate the country’s economy. Revenue from the industry earned the Saudi government billions and enabled the ruling royal family to offer generous benefits to Saudi citizens. In recent years, the oil industry had accounted for an estimated 90 per cent of the government’s income.
However, as oil prices plunged from US$100 a barrel in 2014 to less than half that amount in 2015, the kingdom’s coffers have been hit badly. Last year, the country ran a deficit of US$98 billion, about 15 per cent of its gross domestic product. There are widespread fears that without reining in its profligate spending, Saudi Arabia risked financial disaster: a report from the International Monetary Fund released in October warned that the government could run out of money within five years.
Perhaps the most immediate action under the Vision 2030 plan, which was approved by the Saudi cabinet on Monday, will be the sale of shares of the state-owned oil giant Aramco. Although less than 5 per cent of the shares will be sold, the size of Aramco - Mohammed says the company would be valued at up to US$2.5 trillion - means that it is already being described as the largest IPO in history.
Some of the money earned from this sale would be used to help create a US$2 trillion sovereign wealth fund that would invest abroad. In his interview with al-Arabiya, Mohammed also suggested that the IPO would serve to open up Aramco - and, by extension, the insular Saudi economy - to scrutiny. “People in the past used to be upset that Aramco’s files and data are not announced, [or that they were] unclear and not transparent,” he said, adding that if Aramco is listed on the market, it will have to publish data every quarter.
Mohammed has played down the plan’s link to falling oil prices, adding that the country had to reform regardless. The “Saudi addiction to oil” had caused it to neglect other aspects of the economy, he told al-Arabiya. The new plan, he said, would turn the country into an “investment-driven economy.”
There are still widespread doubts about Vision 2030, however. The IMF has called the plan an “ambitious, far-reaching effort,” but it has also noted that how it is implemented will be key. In the widespread social media discussion of the plan on Monday, some Saudis expressed doubt that the royal family - wrestling with its ever-present regional rivalry with Iran and the threat of Islamist extremism - would ever allow true reform.
Another issue may be the meteoric rise of Mohammed himself, who was rocketed to a position of vast power in the country after his father became king in January 2015 and is widely suspected to be aiming for the throne himself. Although much of his work has focused on reforming Saudi Arabia’s economy, he is also thought to be behind the kingdom’s sometimes aggressive foreign policy moves, including the controversial Saudi-led military intervention in Yemen.
“The Kingdom would need to be a much more transparent place to encourage greater U.S. investment,” Bruce Riedel, a senior analyst at the Brookings Institution, said in an e-mail. “With the succession issue up in the air and the rise of [Prince Mohammed] there is much uncertainty about the future.”
