The move came by royal decree from King Salman, but this had the fingerprints of his son Crown Prince Mohammed bin Salman and his Vision 2030 reforms. That overall plan is designed to reduce Saudi Arabia’s dependence on crude.
Last spring, one year into this masterplan, a key player in this government-wide effort gave me a candid assessment that it is not a simple task.
“I think we realize that the transition will set you back a little bit and the old adage ‘no pain no gain’ is very much at play here. Anybody who thought that this is a switch you can throw open has been misled,” said Khalid Al-Falih, the Kingdom’s minister of energy, industry and mines during the Saudi Arabia-US Business Round Table.
Al-Falih is overseeing the biggest effort of them all, a 5 percent float of the state oil giant Saudi Aramco, which bank advisers say is still on track for the second half of 2018, despite market rumblings to the contrary.
Now a year-and-a-half into the process, and ahead of a high-profile “Future Investment Initiative” in Riyadh, which is the Kingdom’s answer to the World Economic Forum in Davos, it seems like the right time to post a scorecard to see how the economy is responding to change and austerity.
Al-Falih was quick to reiterate that Vision 2030 has the full backing of Saudi society, but it is the near-term targets — through 2020 — that may need adjusting.
Those goals seemed unobtainable when launched: Creating 1.2 million new private-sector jobs when the average for the last five years has been below 20,000 per annum. The jobless rate remains above 11 percent and the target is below 9 percent. Perhaps most alarming, growth is stalling. After expanding 1.7 percent last year, even during the oil shock when prices tumbled to $27 dollars a barrel, the International Monetary Fund is projecting the economy will stall with output of just 0.1 percent.
The IMF recently warned in an updated analysis on the Kingdom that “if fiscal consolidation proceeds too rapidly, it would adversely affect growth.”
Monica Malik, the chief economist at Abu Dhabi Commercial Bank, would agree with that assessment.
“Last year, the pace of fiscal adjustment was very deep and that resulted in non-oil activity grinding to a halt (this year). It is difficult to continue with that pace.”
Some suggest we should not lose sight of big-picture ambitions while the Kingdom goes through what is a painful transition.
Malik, who wrote her post-doctorate thesis on state reforms in the Kingdom back in the 1990s, added that the drive to privatize Aramco — along with social development programs to help bring down youth unemployment, and open up society — if delivered upon, can be described as game-changers.
The roadmap is a bold one and includes a General Entertainment Authority to develop theme parks, concerts and even cinemas, a homegrown defense manufacturing sector and a participation in a $100 billion technology investment fund with the fabled CEO of SoftBank Masayoshi Son.
Some suggest that we should not lose sight of those big-picture ambitions while the Kingdom goes through what is a painful transition.
“I don’t care particularly if some of the targets and the timelines slip. They were always ambitious. You need to drive people faster than they can go, fair enough. I am encouraged on the one hand,” said Robin Niblett, Director of the Royal Institute of International Affairs, better known as Chatham House.
On the other, some like Niblett worry that the changes could cause side effects internally.
This reminds me of an interview I conducted with Peter Brabeck-Letmathe, the former CEO of Nestle, over a decade ago. He was so eager to take over the food and drinks giant that he sprinted out of the gate to be an agent of change. A half-year into that effort, he realized that his team was struggling. That could be the challenge in Saudi Arabia today.
There’s been overwhelming support from global business and government leaders — especially US President Donald Trump last spring, and more recently Russia’s President Vladimir Putin. King Salman made a high-profile pivot to Russia and signed a series of joint agreements that will in part help Saudi Arabia with this economic overhaul.
Many want to see the new crown prince succeed — which in turn helps boost demand for US and Russian companies — but getting from here to the finish line will indeed offer its challenges.
• John Defterios is CNNMoney Emerging Markets Editor and presenter of CNN Marketplace Middle East.