RIYADH: Saudi Deputy Crown Prince Mohammed bin Salman on Monday unveiled a bold economic overhaul of the kingdom under the Saudi Arabia Vision 2030 programme aimed at weaning the country off its “addiction” to oil in a bid to prepare the next generation of Saudi leaders for the domestic pressures of youth unemployment and revenues eroded by lower oil prices.

There were few details, and big questions remain over the government's ability to implement the plan, but Gulf investors are already taking cues from quarterly results.

The 30-year-old second-in-line to the throne also serves as the country's defence minister and chairs a committee to oversee economic policy-making.

That committee, the Council on Economic and Development Affairs, has been focused on reorienting the kingdom away from its heavy reliance on fossil fuels, creating jobs and boosting foreign investment.

Lower oil prices pushed Saudi Arabia into a budget deficit of nearly $100 billion last year and a projected deficit this year of $87 billion. Despite efforts to limit reliance on its main export, oil accounted for more than 70 percent of the state's revenue in 2015.

The Vision 2030 is meant to provide a blueprint for sweeping reforms to steer the Opec kingdom away from its decades-long reliance on cheap-to-produce oil.

The ambitious plans include:

  • Restructuring of the Public Investment Fund to make it an international investment power and one of the world's biggest government investment funds
  • Planned sale of a stake of less than 5 per cent in national oil giant Saudi Aramco
  • Restructuring of the housing ministry to increase supply of affordable housing
  • A "green card" system to give expatriates long-term residence
  • Trimming government perks like the estimated $61 billion spent annually on energy subsidies that Saudi citizens have become accustomed to ─ and which have helped secure political patronage for the Al Saud ruling family.

Aramco the 'key to this vision'

During his interview Monday, Mohammad bin Salman said, "Without a doubt, Aramco is one of the main keys of this vision and the kingdom's economic renaissance."

He put the estimated value of Aramco at more than $2 trillion and said less than 5pc would be offered to public shareholders. Subsidiaries of the company would also be part of the share sale, he said.

The Aramco shares would be listed on the Saudi stock exchange, the Tadawul, and on an international exchange, possibly in the United States.

Aramco boasts the world's largest oil reserves and produces some 10 million barrels of crude a day, giving it outsized influence over world energy markets.

It traces its history to a 1933 agreement between the kingdom and the Standard Oil Company of California to develop the country's oil reserves, and has been known as Aramco ─ an acronym for the Arabian American Oil Company ─ since 1944.

The Saudi government took full control of the company in a series of buyouts that ended in 1980.

Public Investment Fund to develop kingdom's cities

The prince outlined plans to develop Saudi Arabia's $160 billion public investment fund and turn it into a $2 trillion sovereign fund that would go into developing the kingdom's cities.

It would include cash generated from the Aramco IPO, an existing $600bn in reserves, and state-owned real estate and industrial areas estimated to be worth $1tr, he said.

Boosting military production

The prince said one way to drive up non-oil revenue is by boosting the kingdom's own military production.

Saudi Arabia was the world's third-largest arms buyer last year, with purchases of more than $87 billion, yet only 2pc was for locally-produced weaponry.

Vision 2030 sets out a goal of localising more than half of Saudi Arabia's military spending and creating a military industries holding company that would be initially fully owned by the government.

Creating employment opportunities for under-25s, women

As another major obstacle facing the Saudi monarchy is unemployment, currently at 11.7pc, the kingdom's focus is on reducing it to 7pc by 2030 and to boost the private sector to alleviate pressures on the government to absorb its growing workforce.

More than half of Saudis are under the age of 25, and in coming years millions will be looking for work and affordable housing. Currently, 70pc of Saudis work in the public sector, where the government spends heavily on wages.

Though the plan stresses the importance of Saudi women in the economy and expanding their job opportunities, it contains little to suggest the kingdom will accelerate its cautious 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 ─ usually a husband or father ─ to travel abroad.

'We don't buy into Vision 2030'

Middle East economist for Capital Economics Jason Turvey said that because plans for the fund reflect a shift of balance sheets rather than any new assets, it will not reduce the government's dependence on oil revenues.

"We don't buy into Mohammed bin Salman's assertion that Saudi Arabia will no longer be dependent on oil by 2020," he wrote.

But investors reacted positively to the sense that the government was acting decisively and the Saudi stock index closed 2.5pc higher at 6,868 points on Monday. It faces technical resistance on the 200-day average, now at 7,031 points.

"The vibes that come out of Vision 2030 are that of reform, dynamism, change and optimism and hence the market's initial reaction has been euphoric," said Shakeel Sarwar, head of asset management at Bahraini firm Securities and Investment Co.

"There is a lot of detail to absorb, but in general sectors including mining, banks and healthcare stocks will be of interest," said Mohammad al Shammasi, head of asset management at Riyadh-based Derayah Financial.

International Monetary Fund director for the Middle East and Central Asia Masood Ahmed said the plan's objective of diversifying the economy away from oil is "exactly the kind of transformation that an economy like Saudi Arabia needs".

"I think the real issue is going to be how to make sure that these very sensible and ambitious objectives can be translated into real changes," he said.

A Bank of America Merrill Lynch report said the changes under King Salman may herald a much more assertive role for royals in energy policy and cautioned that the concentration of power with the deputy crown prince "could raise a succession risk going forward".

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