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Saudi Arabia approves

ambitious plan to move
economy beyond oil
15,year plan includes diversification,
privatisation of state assets, tax increases and
creating a $2tn sovereign wealth fund

Ian Black Middle East editor

@ian_black
Mon 25 Apr 2016 18.06 BST

Saudi Arabia has approved an ambitious

strategy to restructure the kingdom’s oil-
dependent economy, involving
diversification, privatisation of massive state
assets including the energy giant Aramco, tax
increases and spending and subsidy cuts.

King Salman bin Abdulaziz announced

cabinet backing for the Saudi Vision 2030 plan
in a brief televised announcement on Monday
in which he called on his subjects to work
together to ensure success. Shares on the
Riyadh stock market rose sharply.
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Under Salman, who came to the throne in

early 2015, economic strains have been the
backdrop to rising tensions with regional rival
Iran, the threat from Islamic State, the wars in
Syria and Yemen, and a sense that the
kingdom’s decades-long relationship with the
US is fraying.

Mohammed bin Salman, the king’s son and

deputy crown prince, gave details of the
economic reforms in a pre-recorded TV
interview – part of a proactive media strategy
designed to advertise a sense of dynamism
and change in response to oil prices, which
have fallen from more than $100 a barrel in
early 2014 to about $40 this month.

Elements of the long-heralded 15-year

blueprint include the creation of a $2tn Saudi
sovereign wealth fund, as well as strategic
economic reforms called the National
Transformation Programme.

Bin Salman confirmed that the kingdom

would sell off about 5% of Aramco, which will
become a holding company with subsidiaries
listed via an initial public offering. Oil was a
“dangerous” addiction, he told al-Arabiya TV.
“The vision doesn’t need high oil prices,” he
added. “We can live without oil in 2020.”

Aramco is estimated to be the world’s most

valuable company, while the wealth fund
would be the largest of its kind. Overall the
plans aim to make the Arab world’s largest
economy depend on investments rather than
energy to fill government coffers in the years
to come.
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“The vision is a road map of our development

and economic goals,” the prince said.
“Without a doubt Aramco is one of the main
keys of this vision and the kingdom’s
economic renaissance.”

The fund will include current assets of around

$600bn, as well as returns from the sales of
Aramco shares and state-owned real estate
and industrial areas estimated to be worth $1
tn.

Bin Salman, 30, is not only young in a country

long ruled by old men but famously energetic
and assertive. He seems genuinely popular
but is also resented for his unprecedented
concentration of power – as defence minister
and chairman of the Council of Economic and
Development Affairs. Critics call him reckless
– especially over the war in Yemen.

Economic reform has often been discussed

before but the sense of urgency has grown
since the government ran a record budget
deficit of nearly $100bn last year. Plans to
boost non-oil revenues with taxes will take
years to have an impact, leaving spending
cuts and foreign investment as the main way
to bring state finances under control.

In recent years Saudi Arabia has relied on oil

revenues for about 90% of its budget. Earlier
this month it took out a $10bn five-year loan
from a consortium of global banks – its first
sovereign loan since 1991. The new strategy
builds on the work of several prominent
international consulting firms, who have been
paid $1.25bn in fees this year.

Subsidy cuts, already under way, look set to

be challenging, with Saudis used to cheap
petrol, water and energy – while polls show
they still expect them to continue. Bin Salman
said the reforms are intended to eliminate
housing and unemployment problems and
ensure help reaches those most in need.

Last Saturday, the king sacked the water and

electricity minister, who had drawn criticism
for his handling of price increases, including a
suggestion that citizens upset over high water
bills dig their own wells.

Social factors are a key driver for the new

policy. With half the Saudi population under
25, job creation is vital if the kingdom – which
has no national representative institutions –
wants to avoid the social unrest that has
fuelled Arab spring protests across the region.
But the introduction of even indirect taxes
may lead to demands for change that could
undermine the autocratic system.

A “green card” system is to be launched

within five years to allow expatriate Arabs and
Muslims to live and work long-term in the
country, Bin Salman said. Tourism – apart
from the annual hajj pilgrimage – and mining
would be used to generate new revenues. A
holding company for military industries
would also be set up.

Bin Salman had suggested earlier that what

Saudi Arabia was planning was similar to the
Thatcher-era privatisation of state industries
in Britain in the 1980s.

Experts and analysts have called this the

biggest economic shakeup since the founding
of Saudi Arabia. “The vision and ambition is
out there and the proof now will be on the
execution and the ability to continue to amass
support from society in general and the
business community specifically,” John
Sfakianakis, director of economics at the Gulf
Research Centre in Riyadh told the Guardian.

“Due to Mohammed bin Salman’s age, pace

and sense of accountability, society is
embracing these plans. Now is the time for big
economic changes that the country hasn’t
embarked on since 1932. The dynamism and
determination to deliver has not been seen
before and Bin Salman and his team know
they have to deliver. Economic necessity
dictates that Saudi Arabia reforms now.”

It is unclear whether the economic shake-up

will lead to the kind of social changes many
believe are needed to truly modernise the
country: allowing women to drive, for
instance, opening up the legal system, or
ending the kind of human rights abuses that
attract far more attention abroad than in the
kingdom itself.

Explore more on these topics

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