Search form

Last updated: 17 min 4 sec ago

You are here

Business & Economy

Vision 2030 heralds new transformation phase

JEDDAH: Saudi Arabia is set to enter a new transformation phase after the announcement of Vision 2030 by Deputy Crown Prince Mohammed bin Salman today.

Saudi Vision 2030 aims to diversify the sources of revenue of the Kingdom’s national economy and initiate post-oil era preparations.
The National Transformation Plan (NTP) includes establishing the largest sovereign wealth fund in the world worth $2 trillion after the initial public offering of 5 percent of the stocks of Saudi Aramco, the world's largest oil company.
The UK’s Economist said the new transformation is highly anticipated by the Saudis who want their country to be immune to the fallout of drop in oil prices.
The magazine described the vision of Prince Mohammed bin Salman for reforming the economy as very pragmatic that is expected to involve carefully thought-out programs of privatization of the health, education sectors and other government facilities. This, the magazine believed, will require the private sector to assume greater responsibilities and provide better services to citizens and investors. 
James Reeve, deputy chief economist and assistant general manager, Samba Financial Group, told Arab News: “Expectations are high, and I think analysts will be looking for specific details about how the government is going to increase the share of the private sector in the economy. Not just through sale of state assets — though of course that will be important — but how the private sector can get more involved in the provision of services such as health, education and power distribution.”
He said doing away with red tape will also be important. There needs to be greater centralization of authority on matters of foreign investment — an agency that can truly attract foreign investors and make sure they are able to act on a level-playing field.
Al-Eqtisadiah quoted Alfred Valder, former professor of international economics at the University of Oxford and consultant at the World Bank, as saying Prince Mohammed bin Salman’s plan is aimed at accelerating the transformation of the Kingdom to the free market, increasing the contribution of the industrial sector and services in the gross domestic production (GDP), cutting government spending and integrating Saudi women in the labor market.
"It represents a map for the future development of the Kingdom with priority given to Saudi citizens by raising the standards of living for each and every individual. However, it goes much beyond that; it completely understands the nature and aspirations of the growing Saudi youths with more than 70 percent of the population less than 30 years of age," he added.
Louise Marsh, deputy chairman of board of directors for the International Group for Investments, said: "According to estimates of the economic advisers at McKinsey Global Institute who supports the Saudi plan, the Kingdom will be able to double its GDP by 2030 and increase family income by 60 percent. It will also provide 6 million jobs which is very crucial to a community where the younger age groups are growing fast."
The oil price boom from 2003 to 2013 fueled rising prosperity in Saudi Arabia, which became the world’s 19th largest economy. GDP doubled, household income rose by 75 percent and 1.7 million jobs were created, including jobs for a growing number of Saudi women. The government invested heavily in education, health and infrastructure and built up reserves amounting to almost 100 percent of GDP in 2014.
Marsh said the Saudi leadership seeks to reduce its dependence on oil and is now engaged in a race against time to get ready for the new phase.
However, McKinsey Global Institute said a productivity-led economic transformation could enable Saudi Arabia to double its GDP again and create as many as six million new jobs by 2030 (exhibit).
“We estimate this would require about $4 trillion in investment. Eight sectors — mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, health care, finance, and construction — have the potential to generate more than 60 percent of this growth opportunity.”
To enable this transformation, McKinsey Global Institute said Saudi Arabia will need to accelerate the shift from its current government-led economic model to a more market-based approach. In the labor market, greater work force participation by Saudi men and women is essential to achieve higher household income. Faster productivity growth requires better business regulation and more openness to competition, trade and investment.
Professor Colin Ling of Cambridge University said the international applause for the Saudi vision indicates the desire of investors to invest in the Saudi market, both to take advantage of the opportunities offered currently and those offered by the transformation process in the mining, petrochemicals, finance, manufacturing, construction and health and retail sectors.
Tina Ward, a consultant at the Organization for Economic Cooperation and Development (OECD), believes it is too early to put in place a detailed plan for the investment projects which the investment fund must concentrate on, but, she added: "There are a number of broad outlines, mainly the need to diversify into different trends and investment areas both locally and internationally by not restricting the investments in a very limited number of countries. Maybe Saudi Arabia will benefit from the comparative advantages in the field of energy, whether as a result of its accumulated expertise in this domain or its industrial potentials.
“The Saudi investment fund is expected to invest in the petrochemical sector both for its strategic importance and because Saudi Arabia generates economic activity worth $30 billion a year. It is certain that the retail sector will receive the attention of the officials at the sovereign fund. This sector is growing currently in the Kingdom by 12 percent annually and employs more than 12,000 people, particularly women."
Morgan Stanley said in its report: “We expect the NTP to address two critical objectives: Diversifying the economy and government revenues away from oil, and eliminating the fiscal deficit by 2020.”
It said the NTP may indicate how the government intends to leverage the private sector to diversify the economy and create jobs, and what support key sectors may receive from the government.

MORE FROM Business & Economy

STAY CONNECTED TheArabNews @Arab_News