Syed Rashid Husain
A NEW Saudi Arabia, significantly different from the recent past, is rising on the horizon. Faced with major challenges, on economic and social fronts, the country is on the move. Transformation is under way. ‘Vision 2030’ unveiled by Deputy Crown Prince Muhammad Bin Salman, second deputy premier and minister of defense, on April 25, will not only transform the Kingdom but has the potential to ensure its prosperity for decades to come, analysts are emphasizing all around.
The Kingdom is in a hurry. It has little time at its disposal. It wants to diversify, away from oil. And indeed, there are reasons for that. By nature, the oil business is cyclical in nature and with the Saudi economic engine growing, it being a G20 member, it cannot afford now to handle the ups and down of the oil business.
In recent months, Saudi Arabia had been on receiving end — on the economic front. The news pouring in was not encouraging and positive. The Kingdom recorded a budget deficit of SR367 billion ($98 billion) in 2015 and this year too, the projections are that it would be faced with a budgetary deficit of SR326 billion.
Riding on reserves, accumulated over the years, Riyadh was able to sustain this era of low oil prices. Yet, the reserves were being liquidated — slowly and gradually — impacting every sphere of national economy.
In view of the situation, the International Monetary Agency said last October that if the trend continued unchecked, Saudi Arabia, once one of the most powerful economies in the world, could be bankrupt by 2020. As per Bloomberg, the situation was even grimmer. Last year Saudi Arabia was burning through its foreign reserves faster than anyone knew, with “insolvency by early 2017” and not five years as projected by IMF.
Plummeting oil revenue had resulted in an almost $200 billion budget shortfall. This was scary — to say the least.
Kingdom needed to do something and on a fast track. Some past diversification drives in Saudi Arabia did not yield the expected results. The $10 billion King Abdullah Financial District, for example, begun in 2006, sits largely unleased today. A ghostly monorail track snakes through some 70 buildings, including five brand-new glass-and-steel skyscrapers.
Major construction companies in the Kingdom have been in the midst of a crisis, unable to pay arrears to their workers. Saudi Binladin Group reportedly had to fire some 77,000 employees recently.
And while the inflow was getting slower, wastage was all around. Mohammed Al-Sheikh, Prince Muhammad’s advisor tells Bloomberg that “there was roughly between 80 to 100 billion dollars of inefficient spending” every year, about a quarter of the entire Saudi budget.
With oil prices weak, and apparently continuing to stay weak in the near future, all this was not sustainable for the Kingdom any further. This had to change — and indeed — fast enough.
And out of this necessity, emerged, ‘Vision 2030’ with emphasis on diversifying away the Kingdom from the cyclical oil revenues. The salient features of the program, unveiled on April 25 by Deputy Crown Prince Muhammad Bin Salman, are:
Increase in non-oil governmental revenue from SR163 billion to SR1 trillion;
Increase the private sector’s contribution in the economy from 40% to 65% of GDP;
Raising the share of non-oil exports in non-oil GDP from 16% to 50%;
Increase in foreign direct investment from 3.8% to the international level of 5.7% of GDP;
Increase in the localization of oil and gas sectors from 40% to 75%
Promoting public–private partnership remains the cornerstone of this program. However, in order to generate the finances and to diversify the economy away from oil — on a permanent footing — a number of very interesting and bold initiatives have been envisaged under the program.
There is now a growing emphasis on promoting religious tourism on scientific grounds in the country. Today, there are eight million people who come to Saudi Arabia for Umrah every year. As per the plan, in 2020, some 15 million people will come to Saudi Arabia for Umrah, and by 2030, this number is projected to hit 30 million.
As per Prince Muhammad Bin Salman, the infrastructure to accommodate the fast growing numbers of religious tourists in the country is already there. “The new Jeddah Airport will serve this vision in a very big way, Al-Taif Airport will also serve this vision in a very big way as it will receive large numbers, and accommodate these numbers. The infrastructure of Makkah is strong. Haramain Train will support these figures. Now, we are trying to finish the Makkah Metro as soon as possible,” he told Al-Arabiya.
Saudi Arabia also plans to widely open its door for tourism for all nationalities, indeed, “in accordance with our values and beliefs,” the prince added. And all this means additional income for the country too. From Umrah and Haj, the Kingdom could generate revenues of over SR200 billion ($53b) by the year 2020, Saad Bin Jameel Al-Qurashi, a former member of the National Haj and Umrah Committee of the Makkah Chamber of Commerce and Industry was quoted as saying.
In order to broaden the non-oil revenues, making the Kingdom less dependent on the rigors of the oil price fluctuation and volatility, a plan to tax the wealthy is also on cards. As per the ‘Vision 2030,’ Riyadh now planned to generate at least an additional $30 billion from subsidy reform and another $10 billion from value added tax.
This would also handle the issue of inefficiency. Discussions have been on for years now that low petrol and utility prices in the Kingdom were breeding inefficiency and wastage in the overall system. This correspondent is witness to the debate raging in the corporate corridors of Saudi Aramco in Dhahran on the issue. Minister Khaled Al-Faleh, as Aramco CEO, has been pleading the case to overcome inefficiency in the sector by bringing gas prices in line with the market prices. Yet, the political will to enforce any such change seemed lacking in past. The current scenarios have forced that to change, as people at the helm today are ready to make long-term structural changes. And though, petrol prices were raised in last budget, yet many feel, that in order to reduce the domestic consumption, there is still room here — especially if the regime targets people with more or bigger cars.
‘Vision 2030’ is also targeting the expatriate community living in the Kingdom, who currently have little investment avenues within the Kingdom and are forced to remit their income overseas. The new system wants to capitalize on this funding source by giving long-term residency rights to expats living in the Kingdom for a considerable period of time and by allowing them to legally invest in the country and buy property. The permanent residence, or “green card”, system in the Kingdom will generate around $10 billion annually through reduced remittances and other sources, besides bringing in billions of dollars in foreign investment, say economic experts.
The plan will abolish the existing sponsorship system for holders, who will be required to pay zakat and value-added tax, if any, besides premiums on insurance, etc. The plan, to be implemented over the next five years, would permit the long-term expats to own property and undertake commercial, industrial and related activities.
“From information available now, it is expected that the system will generate at least $10 billion in revenues annually, although the real picture will emerge after green cards are introduced,” Mohammed Al-Anqari, economy and financial markets analyst, was quoted as saying by media recently.
The expat community in the Kingdom is elated at the announcement. A senior Pakistani business executive in Dhahran, who has been living and working in the Kingdom for more than three decades now and was lately looking at investment options in Bahrain to ensure his stay in the region — even after possible retirement — was elated at the news. Once implemented, it would provide him with the opportunity to invest here and live the rest of his life in the Kingdom — his second home for decades.
Another senior, well respected and well established surgeon, working for a major private hospital in Al-Khobar was not only positive about the news but appeared keen to invest his savings in the Kingdom. After all Saudi Arabia presents the best of the two worlds — in more than one sense.
The vision presents a ray of hope. Much would now depend on its implementation. The Kingdom is literally at a cross road now. Once the plan gets implemented, a different, confident and strong Saudi Arabia would emerge.