Saudi Arabia’s Vision 2030 wants to break its “addiction” to oil . . .
Reuters reports that “Saudi Arabia’s cabinet has agreed to implement a broad reform plan known as Vision 2030, which is expected to involve sweeping change to diversify the country’s economy beyond dependence on oil exports, state media reported on Monday.” On that Monday 25 April 2016, an ambitious programme of reforms of how Saudi Arabia’s Vision 2030 could allow it to live without oil in 2020 by simply transforming it into a global financial power.
Prince Mohammed bin Salman said that Riyadh wanted more than multiply the capital allocated to its sovereign investment fund, by up to €1.650 billion compared with the current 600 billion. To do this, the state is envisaging plans to sell off up to 5% of the capital of ARAMCO.
The 31-year-old prince climbed in a flash within the Saudi power structure since his father ascended to the throne 15 months ago. Little known until then, he is considered today as one of the main proponents of the transition of Saudi Arabia towards the post-oil era.
“We have developed some sort of addiction to oil in Saudi Arabia,” Prince Mohammed said in an interview shown on Al Arabiya TV, adding that Riyadh should break its addiction to oil revenues.
The plan, he detailed includes also reforms aimed at changing the social structures of the country, for instance by promoting women’s employment as well as improving foreign workers status.
World economists and analysts believed well before the now one year and half old drop in the price of oil, the country’s budgetary structures would be untenable in the long run and these could also be exacerbated by the ensuing difficulties.
The budget deficit of last year reached last year 15% of the gross domestic product (GDP) and the 2016 budget forecasts yet another deficit of greater magnitude.
At the centre of the “Vision 2030” unveiled in the above mentioned presentation is the restructuring of the Saudi Public Investment Fund, destined according to prince Mohammed to become a nucleus of international investment, that should bring in funds through the sale of shares of ARAMCO.
“We have restructured the Fund. We have integrated new assets in the Fund, ARAMCO and other assets, and solved problems of the assets currently held by the public investment fund, both in terms of companies and projects”, he said before adding “Live without oil” by 2020, is our objective.
“According to some initial informative data, the Fund will control more than 10% of the overall investment capacity.”
And to prepare its partial privatization, ARAMCO will be reorganized in differing holdings of the energy sector and the prince suggested that all should be valued at $2,000 billion, adding that up to 5% of the capital would be sold in an initial public offering. The Prince explained how ARAMCO, having huge oil reserves in the Kingdom, enjoys a valuation such that even the placing on the market of 1% of its capital would be the largest initial public offering ever.
He said that several subsidiaries of ARAMCO should be introduced as stock, other public companies, pointing out that these operations would enhance transparency of the accounts of these companies and limit corruption.
This policy will increase the share of the private sector in the economy of 40% to 60%, reduce unemployment from 11% to 7.6% and take non-fuel related revenue to (Saudi Riyal) SR1,000 billion against 163 billion today, but did not specify how and by what means.
“Vision 2030” plans also to go passed 22% to 30% share of women in employment, although this has already significantly increased these past five years.
It is also based on the establishment within five years of a system of “Green Card” allowing expatriate workers to live and work permanently in the country.
“I think that by 2020, if the oil stops, we will be able to survive”, says Prince Mohammed, explaining that his plan was safely based on the assumption of a $30 a barrel.
“We need, it is a fact, but I think that in 2020 we will be able to live without oil.”