Saudi Arabia’s vision of getting its economy off oil

Published: June 10, 2016
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The country must modernise its economy and liberalise its bureaucracy slowly but steadily. King Salman bin Abdulaziz Al Saud is shown in the photo by Reuters

The country must modernise its economy and liberalise its bureaucracy slowly but steadily. King Salman bin Abdulaziz Al Saud is shown in the photo by Reuters

When Salman bin Abdulaziz Al Saud took the reign of Saudi Arabia in 2014, his country was experiencing a host of challenges, falling petroleum prices being one of them. Yet, he went on with certain radical decisions. Many suspected palace conspiracies will take a toll on him. But the outside speculations fell flat and raised questions of the world’s knowledge about Saudi Arabia and its conservative society.

After cabinet shakeups and consolidation of political power, the monarchy concluded that crude oil was yesterday’s gold. The country must modernise its economy and liberalise its bureaucracy slowly but steadily. The future of this mineral-rich nation lies in the hands of the king’s son, the Deputy Crown Prince and the finance and defense minister, Mohammed bin Salman.

How Saudi Arabia plans to shake up its economy

New visions, new dimensions?

The 30-year termed 2015 ‘a year of quick fix’, 2016 ‘a year of organised quick fix’ and 2017 ‘a year of vision’. Riyadh is gearing swiftly towards reducing its traditional dependence on petro-chemicals by 2020 by diversifying the economy and adopting a new social contract –liberalising the state-society relationship.

Saudi Vision 2030, the document finally approved, comes at a time of turmoil in the Middle East as well as the global economy and geopolitics. Prima facie, the strategic shift marked by setting up its first Initial Public Offering by selling shares in Aramco to private sector and turning the Public Investment Fund into $2 trillion worth of sovereign wealth fund, another first for the kingdom, will give an unexpected impetus to the global economy.

While Riyadh aims to raise Foreign Direct Investment from 3.8% of GDP to the international standard of 5.7%, it also aims to manufacture half of the military hardware it needs. Currently, Saudi Arabia spends whopping $81 billion a year on military affairs. While initially the country aims to attract top European and American arms manufactures to set licensed production plants, it eventually aspires to become self-reliant for high-tech military needs.

How Saudi Arabia turned its greatest weapon on itself

Muslim countries, Turkey, Pakistan, Egypt, Indonesia and Malaysia which are already part of Saudi military coalition, will pool in their high skilled manpower and experiences. The joint venture may not only end western reliance for military equipment but also make the production financially viable given the volume of the prospective market.

But more dramatic are the plans to issue green cards for citizenship leading to gradual erosion of much-criticized sponsorship system, and the issuance of tourist visa for all nationalities, with caveat that the visitors will respect the local culture and traditions. Hosting 30 million visitors a year, however, is a mammoth undertaking for a country such as Saudi Arabia.

It may not be immediately clear but signs are that Saudi Arabia has gone through considerable introspection to abandon few laws attracting a negative global image, the top being refusal for driving rights for women. One noted indication in the Vision 2030 is increasing women’s workforce participation by 30%.

The plan also aims to create jobs for the youth, which is two-third of the country’s population as the country has a fair share of foreign PhD holders. But the youth largely has shown little interest in work, thanks to the state subsidies. Thus, the document aims to increase the existing unemployment rate of 7% to 11.6%.

Countering challenges

The ambitious vision is a statement of self-confidence by the rulers. King Salman’s reign already stands out from his predecessor owing to aggressive foreign and defense policies. Hence, the plan will face greater challenges from within the kingdom; from fiscal to social and religious conservatives.

Change is coming to Saudi Arabia

Saudi initiatives towards belt-tightening have already faced criticism. Thus, the plan addresses the question of reducing the subsidies in a less alarming manner. Prince Mohammad has already witnessed a 16% decline in the country’s foreign exchange reserves, partly due to Yemen war and petroleum prices. He aspires to make the economy sustainable if oil prices fall as low as $30 per barrel from that of $45.

Moreover, internal opposition, austerity measures, regional geostrategic environment such as prolonged Iranian intervention in Syria, likely uprising in Bahrain, spilling conflict in Yemen are factors set to undermine Saudi Arabia’s capacity to follow the vision. Thus, Riyadh cannot achieve the mammoth task of restructuring its economy along unprecedented lines without shrewd and groundbreaking diplomatic actions.

Although for Pakistan diversification of Saudi Arabia’s economy comes as good news. The country will have a bigger appetite for its skilled manpower and specialists, which remain underutilised in the existing lackluster conditions. In the short run, however, low skilled or unskilled labour may be laid off faster than expected straining Pakistan’s economy as well as Egypt’s or Indonesia’s.

Naveed Ahmad is a Pakistani investigative journalist and academic with extensive reporting experience in the Middle East and North Africa. He is based in Doha and Istanbul. He tweets @naveed360

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Reader Comments (4)

  • Fahim
    Jun 10, 2016 - 6:43PM

    They will do it. Recommend

  • Karachiwala
    Jun 11, 2016 - 12:15AM

    @Naveed Ahmad

    Please re-Title your piece >>”Saudi Arabia’s vision of getting its economy off oil”
    and change it to something like >> How saudia arabia plans to avoid Syria/Libya/Bahrain/Iraq like situation inside KSA.

    when you mention this>>>
    After cabinet shakeups and consolidation of political power, the monarchy concluded that crude oil was yesterday’s gold.

    i thought you will discuss about the new Tech or commodity that will change KSA oil based economy…. But nill. zilch… all of your piece is about how to modernize culture or liberate some of it.

    Otherwise, if you really want to write about >>”Saudi Arabia’s vision of getting its economy off oil”
    I give you a HINT: ENERGY EXPORTER – KSA is building huge power stations, and will be exporting power to different continents through cables under sea.

    please research that, and write about that.

    Thanks,
    DanishRecommend

  • I. Khan
    Jun 11, 2016 - 1:51AM

    Saudi Arabia’s vision of getting its economy off oil may not work, the only other option they have is to make money from Pilgrims coming Saudi Arabia for Haj or Umrah.
    In last ten years the cost of Haj and Umrah from Canada has doubled, Pilgrims have to stay in hotels in Mecca and Medina owned by saudi Royal family and pay huge money.Recommend

  • Asad Hasan
    Oct 31, 2016 - 3:01PM

    It’s very unfortunate that the Kingdom of Saudi Arabia has decided to enhance the visa charges from pilgrims coming for Hajj and Umrah. Taking enhanced fees in the name of Islam is very regrettable. Just because Allah Subhane Ta’lla has bestowed KSA with the geographical location of these holy places, it is almost a duty of KSA to keep the visa charges for these holy places at normal levels so more and more pilgrims may benefit from a requirement (Hajj) which a compulsory tenet/pillar of Islam. We are told a normal Umrah visa fee for person is now around Rs. 54,000. Many pilgrims are poor and cannot afford such high fees. KSA government is requested to review these visa fees and bring them back to the previous level.Recommend

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