Rob L. Wagner روب لستر واقنر

May 1, 2016

Saudi ‘Vision 2030’ Sparks Praise, Skepticism

Filed under: Uncategorized — Rob L. Wagner @ 04:39
Tags: , , ,

By Rob L. Wagner

The Arab Weekly

1 May 2016

RIYADH – Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz’s ambitious reforms to reduce the kingdom’s dependence on oil and turn to investment, manu­facturing and tourism as a major source of revenue have sparked op­timism among the country’s leading economic analysts but also scepti­cism from some market watchers.

Many economists, however, agree that sweeping reforms to shore up Saudi Arabia’s $98 billion budget deficit is long overdue and a major step towards developing other rev­enue-generating industries is vital to the country’s economic survival.

The centrepiece of Salman’s road map that establishes a vision for Saudi Arabia’s future to 2030 is to is­sue an initial public offering (IPO) of 1-5% interest in Saudi Aramco, the world’s largest oil company with a value estimated at $2 trillion, to capital markets. By floating Aramco on the stock exchange and diversi­fying its investments, the deputy crown prince said the Saudi econo­my would be more resilient.

“I think by 2020, if oil stops we can survive,” Salman told al-Arabi­ya television. “We need it, we need it, but I think in 2020 we can live without oil.”

Anwar Majed Eshki, a former ma­jor-general in the Saudi military and president of the Middle East Centre for Strategic and Legal Studies, said the plan doesn’t mean abandoning oil as a revenue source by 2020.

“The plan doesn’t mean that the kingdom lives without oil but it means that the kingdom is to get ready after the oil era by exploit­ing oil to create the alternatives in different fields, most important of which are minerals, investments, industries and tourism,” he said.

Not all economists are convinced. Jason Tuvey, a Middle East econo­mist at the London-based Capital Economics, said revenue will still come from Saudi oil.

“In a sense I think they are try­ing to pull the wool over people’s eyes,” Tuvey said. “The revenue still comes from Aramco. In short, Saudi Arabia will be dependent on oil for many years.”

John Sfakianakis, director of the Economics Research at the Riyadh-based Gulf Research Centre, is more optimistic. He said that, while the road map is ambitious, even meet­ing only some of the prince’s goals would be a vast improvement to the country’s economy.

“It surely can be achieved if it brings everybody under one um­brella,” Sfakianakis said. “Even if it’s not achieved, halfway is enough to dramatically change the country’s dependence on oil. You need to be ambitious to rid yourself of (oil) de­pendency. It’s easier said than done but if accomplished by only 50% it’s very good.”

Ahmed al-Jundi, an executive analyst at the Jeddah-based archi­tectural firm Diyar Consultants, said Salman’s plans can be accomplished if private and public employers are committed.

“This is an ambitious goal but, however, achievable to a large ex­tent,” Jundi said. “It can be achieved through real reforms in all sectors. The current revenues should be reinvested into different markets to guarantee annual returns. The Saudi work force should be utilised correctly to truly provide people the environment to grow. It’s possible to change the economic balance if the entire government machinery completely and seriously submits to the vision 2030.”

Government cooperation is the crux to whether the prince’s vi­sion can be successful; perhaps the most important element to achieve at least partial success to transform Saudi Arabia’s economy from oil de­pendency to a diversified industry and investments is to control cor­ruption.

“The government’s focus should be on achieving goals; systemis­ing, restructuring and allowing the private sector to participate in the different sectors,” Jundi said. “This would lead to transparency and introduce a system of automatic checks and balances.”

He added: “Transparency is a key and market participants are encour­aged, but the government’s sub­stantial attention to the economy and its youth is what truly increases participation and the general confi­dence.”

Tuvey said that by making Ara­mco more transparent, it will “im­prove corporate governance, not just Aramco but also the public sec­tor”.

Unexpected in Salman’s road map are plans to develop a military industry. The prince said in his in­terview: “Is it logical that we are ranked the third in world military spending and yet we do not have any military manufacturing capa­bilities?”

Eshki said Saudi Arabia has had factories to manufacture light arms in Al-Kharj for 50 years, “but the concentration will be in spare parts and some types of weapons”.

Eshki said the Saudi government will impose a condition on compa­nies selling weapons that they must invest 30% from sales in the spare parts industry.

Saudi Arabia has long struggled to jump-start its struggling tourism industry, which is primarily focused on Muslim pilgrims. But haj pilgrims are limited to visiting the holy cities of Medina and Mecca and umrah visitors have only two weeks to visit.

The Commission for Tourism and National Heritage recently an­nounced “Umrah-Plus,” a plan that extends a pilgrim’s visa to 30 days to allow visits to a broader range of tourist destinations, including Islamic archaeological and heritage sites. Saudi Arabia offers no tourist visas.

Salman wants to go further, not­ing that there are plans to open the largest Islamic museum in the country and allow more tourists into Saudi Arabia. The tourism com­mission has always focused on do­mestic tourists first and then Mus­lims from Gulf Cooperation Council countries. When pressed in his al- Arabiya interview about opening doors to tourist of all nationalities, Salman replied: “Undoubtedly, in line with our values and beliefs.”

Sfakianakis said tourism remains underutilised.

For growth, jobs and recreation, tourism is an untapped potential,” he said. “To be the highest multi­player than all the other sectors, that means (the tourism industry) must create jobs and serve other areas of the economy and generate output. It cuts across a lot of sec­tors.”

Advertisements
TrackBack URI

Blog at WordPress.com.

%d bloggers like this: