By Camellia Carbonaro
On Monday, April 25, Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman announced that the kingdom would deviate from its dependence on oil. Huffington Post reported that the country has released a blue- print entitled Vision 2030 that seeks to increase Saudi Arabia’s non-oil revenue from $43.6 billion to $267 billion by 2030. Prince Mohammed claims that his national transformation program will enable the kingdom to live without oil within four years.
This venture was brought about by the latest urgency caused by an unsustainable fiscal policy and economic structure, as well as the dropping revenue from energy sales. Reuters reported that, despite the country’s oil wealth, its people are still facing a 30 percent youth un-employment rate and an economic downturn. PBS NewsHour reported that the regime is currently stuck in a $100 billion budget deficit. During his first international news conference, Prince Mohammed declared that he would not allow his country to be at the “mercy of commodity price volatility or external markets” by helping kick the country’s “oil addiction.” He further explained that the addiction has been what has “disrupted the development of many sectors in the past years.”
According to Reuters, this will be no small feat — the distribution of oil revenue to client groups has been what has held the country’s economy and society together, even more so than conservative religion. Almost three-quarters of the government’s budget, especially defense, comes from oil revenues. The new plans would tear up the pre- existing social contract between the ruling al Saud and the kingdom’s population, which is, needless to say, very risky, according to Reuters.
The strategy involves the development of other sectors such as mining, manufacturing, retail, tourism, pilgrimage and healthcare. Prince Mohammed is looking to reimagine the country as a logistic hub for East-West trade and as a center for financial services, defense manufacturing and small- to-medium-sized enterprises. This would involve Saudi Arabia selling shares in Aramco and building a $2 trillion sovereign wealth fund. The plans also included changes that push for women to have a bigger economic role and that offer green cards to foreign Arabs and Muslims. While the prince claims that improvements in government efficiency and restructuring are key to attaining this goal, Reuters is one of many critics contending that the prince is being naïve in thinking it would be this simple.
John Kemp, a Reuters market analyst, said that “true diversification requires developing industries which have nothing to do with the extraction of oil and spending of oil-related revenue.” In other words, while pilgrimage may work, the proposed transformation into a center for finance, logistics and manufacturing would be incredibly difficult. Kemp advised that Saudi Arabia’s rulers must first make their country more attractive to outside companies so they can be able to compete with other simpler alternatives like the United Arab Emirates. The Economist suggested that in order to attract investment, the government should create a more trustworthy image; they should clarify the privatization plans for their utilities and show how they can balance their books.