Top economists optimistic about Saudi Vision 2030

Updated 26 April 2016

Top economists optimistic about Saudi Vision 2030

JEDDAH: An air of optimism prevails all around about the Saudi National Transformation Plan (Saudi Vision 2030) announced by Deputy Crown Prince Mohammed bin Salman on Monday.

Khalid A. Al-Falih, chairman of Saudi Aramco, said: “Saudi Vision 2030 is a pioneering and game-changing plan that will enable sustained economic growth, diversification and job creation to the benefit of the Kingdom and its citizens for generations to come.”
He said: “Saudi Aramco will continue its commitment and remain fully engaged as a champion of transformation, ensuring that our significant contributions to the overall social and economic development of Saudi Arabia generate even greater positive impact in the future.”
Al-Falih said: “There needs to be a fundamental shift in our economic landscape if we are to reduce our unsustainable over-reliance on oil. Therefore, accelerating reforms across key economic sectors, privatization of key industries and the creation of a globally competitive small and medium-sized enterprise (SME) sector are essential to delivering Saudi Vision 2030.”
Amin H. Nasser, president and CEO of Saudi Aramco, said: “The Kingdom’s transformation vision demands innovation, technology and R&D to spur a new era of industrial growth. Saudi Aramco’s continued leadership and investments in upstream and new investments in downstream expansion will help drive the widespread and rapid in-Kingdom development of a vibrant population of SMEs focused on producing high-value finished and semi-finished products in the petrochemicals conversion sector.”
He said: “Saudi Vision 2030 will provide tremendous opportunities to strengthen Saudi Arabia’s local supply chain capabilities across every industry sector.”
However, some economists felt that Saudi Vision 2030's execution will pose a serious challenge, but that can be overcome with sustained efforts.
Ihsan Bu-Hulaiga, head of the Joatha Consulting, told Arab News: “It is important to know that Vision 2030 is based on exploiting comparative advantages of Saudi Arabia. For the last 70 years, we developed with one comparative advantage, which is oil.”
He added: “This vision is not asking for anything in essence except to take advantage of other resources of additional comparative resources the country is blessed with.”
Vision 2030 aims to propel the Kingdom from its ranking as the world's 19th largest economy to the top 15. It also includes major structural reforms, privatizations and efforts to increase government efficiency, the prince said.
Under the plan, the share of nonoil exports will rise from 16 percent to 50 percent of nonoil gross domestic product.
The Vision 2030 envisaged raising nonoil revenue to SR600 billion by 2020 and SR1 trillion by 2030 from SR163.5 billion ($43.6 billion) last year.
On opportunities for foreign investors, Al-Falih said: “The message is clear; Saudi Arabia is opening itself for further investment by those already in the Kingdom, as well as openly inviting potential future investors. Investment and export opportunities exist for global companies who want to take advantage of Saudi Arabia’s ready access to infrastructure and abundant supply of energy.”
He added: Saudi Arabia provides unrivaled competitive advantages and investment opportunities as a manufacturing and trading base to reach global markets. The government will continue to ease regulations to make the Kingdom one of the most attractive locations in the world to do business.”
John Sfakianakis, director of economics research at the Gulf Research Center, said: “The economy is undergoing reforms that will unlock the private sector’s growth and the public sector’s efficiencies and productivity.”
The main theme of Vision 2030 is to diversify, liberalize and reform the Saudi economy, and the reliance on oil income will gradually fall, Reuters said quoting Shakeel Sarwar, head of asset management at Bahrain's Securities and Investment Co.
"I believe this vision has a lot to offer and am optimistic, but the biggest challenge will be its execution," said Mohammad Al-Shammasi, head of asset management at Riyadh-based Derayah Financial.
Commenting on Saudi Vision 2030, a regional analyst who wants to be anonymous said: “I think this is an important leap in the right direction. It shows the seriousness of purpose in this part of the world to tackle important challenges in a way that is structured and transformative.”
Al-Rajhi Capital said in its commentary on Saudi Vision 2030 that SMEs in the Kingdom are not yet major contributors to the Kingdom’s GDP. In fact, SMEs contribute only 20 percent of GDP whereas in advanced economies this contribution can reach up to 70 percent. To attract the necessary skills and funding, the government plans to remove the existing barriers.
The report said financial institutions would be encouraged to allocate up to 20 percent of overall funding to SMEs by 2030. The government aims to increase SMEs’ contribution to 35 percent of GDP. This should also help the government’s drive to reduce overall unemployment to 7 percent from 11.6 percent currently.
On renewable energy, Al-Rajhi Capital said domestic energy consumption is set to increase 3x by 2030. To satisfy the increase in energy demand, the government is looking to tap renewable energy potential in the Kingdom. The arid and sunny climate makes it naturally suitable to harness solar energy. Overall, 9.5 GW of renewable energy is targeted by 2030, supported by localization of the renewable energy value chain.
Al-Rajhi Capital said the thrust on privatization will achieve multiple objectives of the Vision 2030 document. Apart from improving transparency and governance, the proceeds from privatization will also aid the Kingdom’s fiscal consolidation efforts over the medium term.
The Saudi Vision 2030 plan is comprehensive and outlines proposals which are designed to wean the economy away from dependence on oil, Al-Rajhi Capital added. The emphasis is on privatization of state assets, which will result in improved transparency, also supporting the fiscal arithmetic at the same time. However, it said the large caps, which have ability to be the first entrants in areas potentially opening up to opportunities, will be key beneficiaries.


Saudi defense contractor to invest up to $16 million to further localize services

Updated 18 November 2019

Saudi defense contractor to invest up to $16 million to further localize services

DUBAI: Saudi-based defense contractor Middle East Propulsion Company (MEPC) plans to invest between $13 million and $16 million over the next two years to build test cells for aircraft engines and establish new production lines.
These expansion activities should complement the company’s objective to localize high-tech repairs and combine them in one roof for the Saudi defense ministry, which is a major customer, CEO Abdullah Al-Omari told Arab News.
Instead of sending aircraft engines and engines modules overseas for further servicing, thus take up more time before military assets return to actual service, localization not only cuts the turn-around period but also reduces Saudi government spending for the repairs.
“We have accomplished more than 1,600 engine and engine modules [since 2001, they] have been maintained totally in Saudi Arabia,” Al-Omari said at the sidelines of the Dubai Airshow. “The engines consume 45 percent of what you spend on aircraft.”
The company works on 150 to 160 engines and engine modules every year.
MEPC is the first specialized MRO (maintenance, repair and overhaul) company operating in the Middle East, according to its website. It has invested over $26 million during the previous two years for the localization of its MRO services.
“We used to send these parts to outside, it takes 6 months to 24 months sometimes … in case of the Apache engines, minimum turn around is 24 months,” Al-Omari said, but their localization efforts have greatly improved their capability by cutting the turn-around period to only 150 days.
The speed at which MEPC is able to repair engines and modules, boosts the readiness of Saudi military, Al-Omari added.
The company is in talks with major defense contractors, including Honeywell for the Abrams talks and GE T700 engines, for possible tie-ups to further improve their capability, he said.
“Currently there is a potential with the Kuwait army to provide them with similar services [being delivered to the Saudi defense ministry],” Al-Omari said, and expects that cooperation would start “within the next two years or so.”