Saudi prince reveals economic vision

25 April 2016

Deputy Crown Prince Mohammed bin Salman unveils main points of kingdom’s strategy to diversify its economy in next 15 years

Saudi Arabia, Opec’s top oil producer, has announced its much-anticipated economic vision, a plan which outlines the broader reforms to cut its dependence on hydrocarbons and sets the tone of its social agenda for the next 15 years.

The kingdom’s Deputy Crown Prince Mohammed bin Salman al-Saud, who has been driving the country’s economic agenda, revealed the “Vision 2030’’, which he said will transform the country into a global investment power house and wean its economy off crude by 2020, UK news agency Reuters cited the prince as saying in his first nationally televised interview.

Prince Mohammed is also the defence minster of the country and heads the Council for Economic and Development Affairs (CEDA).

“I think by 2020, if oil stops we can survive,” the royal said. “We need it, we need it, but I think in 2020 we can live without oil.”

Earlier, Saudi Arabia’s cabinet approved the plan at a special session on 25 April, and mandated CEDA to establish the framework and mechanisms to implement it.

Saudi Arabia has been forced to introduce sweeping reforms due to crude prices plunging from a mid-2014 peak of $114 a barrel to about $40 a barrel for most of 2016. The kingdom has embarked on spending cuts to compensate for shrinking oil revenues. The SR444.5bn ($118.5bn) oil proceeds in 2015 represented 73 per cent of the kingdom’s total revenues. This is 23 per cent less than the income generated from the sale of crude a year earlier.

Fund restructuring

As part of the reform plan, the state-controlled Public Investment Fund (PIF) has been restructured to become a hub for Saudi investment abroad, partly through a share sale of the world’s biggest oil producer, Saudi Aramco, said Prince Mohammed.

“We restructured the fund,” the royal said. ”We included new assets in the fund – Aramco and other assets – and we fixed the problems of the current assets that the [PIF] owns, both in terms of companies and other projects. Initial data says the fund will have control over more than 10 per cent of global investment capacity.”

The kingdom could list Aramco as soon as next year or in 2018, and transfer the remaining ownership to the PIF to inflate its size to about $2 trillion, which will make it among the biggest state funds in the world, according to Prince Mohammed’s interview with US-based news agency Bloomberg.

Saudi Arabia, the biggest regional economy, is also mulling plans to monetise some of its assets as part of the broader economic reforms and has identified about 146 companies in which it plans to sell stakes to public or strategic private investors. Aramco is on top of that list.

The deputy crown prince confirmed his plans to list less than 5 per cent of the oil giant’s shares, and said a listing will value Aramco at more than $2 trillion and all financial information related to the oil major will be disclosed.

In an interview with the Dubai-based Al-Arabiya television news channel, Prince Mohammed said he intends to convert Aramco into a holding company and Its subsidiaries will also be listed and the its board will be elected.

Readjusting plans

The prince said the kingdom will continue to spend on infrastructure projects and the country’s reform plan will not require major spending, but will involve restructuring. The government is set to restructure the Housing Ministry to help more citizens buy homes.

The state subsidies should not go to the rich, said Prince Mohammed, adding that he aimed to reduce unemployment among Saudi nationals to 7 per cent from 11.6 per cent. The reform agenda also includes the introduction of a “green card’’ system within five years to enable expatriate Arabs and Muslims to live and work long-term in the country, the royal said.

While the kingdom’s Vision 2030 plan paints the economic reform agenda with a broader brush, the National Transformation Plan (NTP) is the detailed roadmap on how the kingdom will prepare itself for a longer low-oil-price era. This has yet to be formally announced.

The NTP is expected to pinpoint the steps including its bid to privatise the state assets and how it will generate alternative revenue streams in order to achieve the economic diversification it desires.

Saudi Arabia’s Ministry of Economy and Planning, along with several other government bodies and ministries, have been charged with laying out the NTP, which Prince Mohammed has previously said will be announced 30-45 days after the economic vision was made public.

See also

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications