The kingdom of Saudi Arabia is such an established feature of today’s Middle East that it comes as something of a surprise to realize that it is less than a hundred years old. It was only in 1932 that Abdul Aziz ibn Saud, after a 30-year political and military struggle against local warlords and the Ottoman empire, named the area that he had conquered “Saudi Arabia”, and proclaimed himself its first king.
It was doubtless with an eye to the eventual centenary celebrations of the monarchy and the kingdom that in April 2016 Saudi’s dynamic young deputy crown prince, Mohammad bin Salman Al Saud, launched Saudi Vision 2030, an ambitious plan to revitalize the nation. If it succeeds, by 2032 Saudi Arabia will have been transformed from its current dependency on oil revenues into a modern, thriving, entrepreneurial society, its prosperity underpinned by flourishing industrial, financial, economic and commercial sectors.
Saudi Vision 2030 has been described as a “neo-liberal blueprint”. It envisages, among hundreds of initiatives, privatizing entire sectors of the economy, cutting subsidies, courting investors at home and abroad, streamlining government services, and going public with the national oil company, Saudi Aramco.
The plan is partly a response to the dramatic fall in oil prices post-2014. “We will not allow our country ever to be at the mercy of… commodity price volatility or external markets,” the deputy crown prince has said.
A number of factors contributed to the drop in oil prices. The rate of growth of economies such as China, India and Brazil began to slow, and with it their demand for oil. Meanwhile the US and Canada began increasing their efforts to produce oil themselves. In the US private companies began extracting oil from shale formations, using the process known as fracking, while Canada began extracting from Alberta’s oil sands, the world’s third-largest crude oil reserve. As a result the two North American countries were able to cut their oil imports sharply, putting further downward pressure on world prices.
Russia also pressed ahead. Its oil extraction in 2016, an increase of 2.5 percent on the previous year, set an all-time record.
Saudi Arabia itself contributed to the fall in the oil price. Faced with letting prices continue to drop or cutting production, and thus ceding market share, Saudi kept its production stable. It reckoned that low oil prices offered less of a long-term disadvantage than giving up market share. But the policy took its toll. In 2015 alone Saudi’s net foreign assets fell by $115 billion, and they continued to fall throughout 2016. The rate of the drawdown prompted the International Monetary Fund to warn that Saudi’s reserves could be exhausted within five years, assuming oil prices remained low and public spending was not curtailed. Saudi’s low oil price policy undoubtedly sharpened awareness of the need to reduce the country’s reliance on oil revenues.
One of the key issues Saudi Vision 2030 aims to tackle is unemployment. With nearly three-quarters of the population under the age of 30, Saudi Arabia faces a potentially huge rise in the number of young people coming into the job market in the next few years. Diversifying the economy, and thus employing more domestic labor, will depend in part on expanding Saudi Arabia’s manufacturing base. For example, whereas Saudi Arabia currently imports 98 percent of its military needs, one of Vision 2030’s ambitious goals is to manufacture 50 percent of all military gear and hardware, including sophisticated aircraft, inside the kingdom.
Saudi Vision 2030 also plans to expand its less robust industries through direct investment. The country’s sovereign wealth fund – the Public Investment Fund (PIF) – is slated to lead this effort, and the proposed transfer to the Fund of Aramco shares would boost its resources to some $2 trillion, making it the largest sovereign wealth fund in the world. These huge assets will be used to fund development projects under the plan.
In the retail sector national Saudis represent just 20 percent of the workforce. Under Vision 2030 retailers can for the first time be completely foreign-owned, and this reform could create one million new retail jobs as early as 2020. In addition to expanding youth employment, the plan seeks to raise the percentage of women in the overall workforce by 2030 from 22 to 30 percent.
One early success story arising from Vision 2030 is the Riyadh metro, an impressive $20 billion project already under construction. EU Commissioner for Transport Violetta Bulc visited the project, an integrated urban rail and bus system, in January 2017. She described it as “the biggest global project in urban mobility.”
“The timeframe is very demanding,” she said, “but so far they’re keeping to the deadlines well.” It is scheduled for completion in 2019.
Bulc believes her delegation laid the foundation for the EU to work more closely with Saudi Arabia on the implementation of Vision 2030, leading to further trade, business and investment exchanges.
Britain’s prime minister, Theresa May, included Riyadh in her first overseas trip after triggering Bexit, running the risk of criticism from human rights and left-wing activists who want Britain to cut military ties with the Saudis over allegations of war crimes in Yemen. Her trip underlines her commitment to investing in Britain’s long-standing alliance with the Saudis and other Gulf states.
She has personal experience of the importance of Britain’s relationship with the Saudis from the six years she spent as home secretary, where part of her brief was to oversee the operations of MI5, the UK’s domestic security service. Over the years, Saudi intelligence officials have provided information that has helped thwart a number of major terrorist attacks against Britain, including the plot to blow up a number of flights from Heathrow to the US.
But it is trade not security that weighs heaviest on Theresa May’s mind at the moment. Having closer ties with the Saudis offers post-Brexit Britain a new world of economic opportunity outside the confines of the EU. Under Vision 2030 the Saudis are planning to develop a whole range of new industries and technologies, spending trillions of dollars and creating a wealth of commercial opportunities that Britain will be eager to exploit.
Saudi Vision 2030 is only just off the launching pad. The hugely ambitious project will doubtless run into problems as it proceeds. To keep it on track will require a sustained effort, and as a start a conference scheduled for early May 2017 in Riyadh plans to analyse progress achieved in its first year. The plan as a whole may never be realized fully, but the imagination that inspired it is surely to be applauded.