{"id":51612,"date":"2016-05-02T00:42:37","date_gmt":"2016-05-01T22:42:37","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/saudi-arabia-heading-towards-a-post-oil-era\/"},"modified":"2019-12-31T00:41:29","modified_gmt":"2019-12-30T23:41:29","slug":"saudi-arabia-heading-towards-a-post-oil-era","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/saudi-arabia-heading-towards-a-post-oil-era\/","title":{"rendered":"Saudi Arabia heading towards a post-oil era\u2026"},"content":{"rendered":"

Monday 25Apr, Saudi Deputy Crown Prince Mohammed bin Salman (2nd in line for the throne) presented the much
\nawaited national transformation plan \u201cSaudi Vision 2030\u201d, an ambitious plan that aims at reducing the kingdom
\nreliance on oil exports revenues. The sustained decline in oil prices over the past 18 months may have helped in
\nsetting the ideal conditions for the 30-year old prince to push forward his ambitious economic and social reform plan,
\na first step towards the Kingdom transition to a post-oil era. A new chapter is to be written, but is left to see if the
\nultraconservative Kingdom will manage to embrace the changes and challenges ahead.<\/strong> <\/em><\/p>\n

It has taken a long time to Saudi Arabia to embark on a reform wave, but it seems that after eight decades of oil
\ndependency, and under the current context of sustained low crude oil prices that pushed Saudi Arabia into a budget
\ndeficit of nearly $100bn last year (15% of GDP), the time has come for the kingdom to think of a post-oil era. And
\nit was on the state TV, and following the approval of King Salman bin Abdulaziz, that the 30-year old Deputy Prince
\nMohammed bin Salman (MbS) unveiled the \u00abSaudi Vision 2030\u00bb plan on Monday 25Apr. <\/p>\n

A wide range of reforms\u2026 <\/strong><\/p>\n

Although the full National Transformation Programme will be revealed late May, major lines concerning a vast range
\nof matters were announced: from the stimulation of the private sector, the reduction of government
\nsubsidies and spending (defense and military expenses) to the creation of new jobs in the private sector
\n(openly supportive of higher participation of woman in the labour market, better condition for foreign workers), this
\nambitious plan aims to diversify the economy and allow the country to reduce its reliance on oil exports
\nrevenues from more than 80% actually to 50% by 2030. Hydrocarbons revenues do actually represent 90% of
\nthe kingdom budget. Following the announcement, Saudi Arabia\u2019s Tawadul index put on 2.53% to 6,858 on
\nMonday, its highest level since January.<\/p>\n

\"gcc_stock_exchanges.jpg\"<\/a><\/p>\n

\u00ab Saudi Vision 2030 \u00bb plan main goals<\/strong>
\n
? To rise from the current position of 25 to the top
\n10 countries on the Global Competitiveness Index
\n
? To increase foreign direct investment from 3.8%
\nto the international level of 5.7% of GDP
\n
? To increase the private sector\u2019s contribution from
\n40% to 65% of GDP
\n
? To raise the share of non-oil exports in non-oil
\nGDP from 16% to 50%
\n
? To increase non-oil government revenue from
\nSR163 billion to SR1 Trillion
\n
? Slashing unemployment from 11.6% to 7%,
\nincreasing women\u2019s participation in the labour
\nforce from 22% to 30%<\/quote><\/p>\n

Mohammed bin Salman, evoking a very dangerous \u201caddiction to oil\u201d, announced amongst the main features of the
\nplan the IPO of the national oil company Saudi Aramco and the creation of a Public Investment Fund. With
\nthe objective to convert the company into a holding, in attempt to build a more transparent environment and bring
\nindependence from the central government as financial and information will be disclosed, up to 5% of the
\ncompany whose value is estimated at some $2tn will be offered. Also, a sovereign fund \u2013 the largest in the
\nworld, estimated at $2tn to $3tn – will be created from the restructuration of the existing Pubic Investment Fund
\n($600bn), the ownership of the Aramco expected to be transferred to the fund. <\/p>\n

He also stated the kingdom will try to meet its military needs domestically by localizing over 50% of the military
\nequipment spending. Initially focused on small parts and basic ammunition making, and on maintenance and support
\nservices, this decision may have an impact on international industries in the mid-term. SA has one of the most
\nimportant military budgets in the world, with $46bn allocated to defense in 2015 and a 2016 budget of $57bn.<\/p>\n

The plan was built under the assumption of oil prices of $30\/bbl, which means the country has somewhat
\npriced-in a sustained low-oil price scenario \u2013 in line with their recent policy that focus on keeping the market share,
\nin detriment of high crude oil prices (may that be sign for fellow OPEC member countries?…). On the low oil price
\nimpact on the Saudi finances, the spending cuts that have been set in place to curb the low oil prices impact have
\nstarted to show its effects: according to the IMF, Saudi Arabia\u2019s break-even oil price will drop by 30%, from
\n$94.8\/bbl to $66.7\/bbl as a result of the spending curbs that have been set in place following the recent oil price rout, the highest drop amongst MENA and OPEC countries. <\/p>\n

\u2026likely to shake the foundations of an ultraconservative society<\/strong><\/p>\n

Prince MbS, the 2nd in line for the throne, is the power behind the King and the brain behind this ambitious plan. He
\nhas cumulated unprecedented powers since his father ascended to the throne early 2015, acting as the Defense
\nMinister and concentrating power over all economic matters as the chairman of the Council of Economic and
\nDevelopment Affairs. His meteoric ascension and sound influence was set on display over the recent Doha talks (on
\noil production freezing), where he emerged as the voice of the world\u2019s top oil exporter country, putting aside the long
\nterm Saudi Minister of Petroleum Ali Al-Naimi.<\/p>\n

Despite the costly and criticized action in Yemen he\u2019s driven, and beside his efforts to push Iran\u2019s influence in the
\nregion away, MbS popularity amongst the Saudi youth is high. With 50% of its population under 25 and 70% of the
\npopulation under 30, that support could prove a major asset, a capital one, for the mise-en-oeuvre and success of the
\nVision 2030 plan. <\/p>\n

But the path ahead may not be an easy one as the wide range of social reforms that implicitly derive from
\nthe economic objectives of Vision 2030 may find some resistance in a highly bureaucratized society,
\nwithin the ultra-conservative clericals and even within the royal family as they may come to toggle a
\nlong-dated scheme of favoritism-for-loyalty. Indeed, the plan states a higher participation of woman in
\nthe labour market and makes reference to the need of \u00abmore entertainment\u00bb in the kingdom, both
\nproposals that may come to test very quickly the Saudi social status-quo.<\/strong>