Strategy & highlights Saudi Vision 2030 goals to reform economy

Strategy & highlights Saudi Vision 2030 goals to reform economy
Updated 18 July 2016

Strategy & highlights Saudi Vision 2030 goals to reform economy

Strategy & highlights Saudi Vision 2030 goals to reform economy

DUBAI: GCC countries are facing budgetary problems, which could result in long-term deficits if not addressed.

While every GCC government has announced spending cuts to conserve budgets, conventional cost-cutting is only a short-term fix and could potentially slow a country’s growth over time, according to a recent study by management consultancy Strategy&, formerly Booz & Company.
For GCC governments to cut costs and grow simultaneously, Strategy& recommends adopting a Fit for Service framework. This approach would allow GCC government entities to achieve sustainable reductions in their budgets while also reinforcing investment in the services that are essential to long-term security and robust growth.
Fadi Adra, partner with Strategy& and a member of the public sector practice in the Middle East, said: “The GCC’s budgetary problems are not a cyclical condition that will resolve themselves with time. The price of oil for example, which contributes to three-quarters of GCC government revenues, has fallen to its lowest levels in over a decade, while the cost and demand for core public services continues to rise.”
Adra added: “Oil-based budgets however are also not viable over the long-term, whether or not the price of oil rebounds. To put this into perspective, even if GCC governments can grow non-oil revenues by 10 percent annually over the rest of this decade and the average price per barrel of oil returns to $50, their budgets would still need to be reduced by approximately $100 billion on an annual basis— this is 7 percent of the GCC’s total GDP — in order to eliminate fiscal deficits. This is why adopting a Fit for Service approach is critical for GCC nations.”
According to Strategy&, adopting a Fit for Service approach is driven by four actions — articulating a strategy, transforming the existing cost structure, building critical capabilities needed to execute the strategy funded by cost savings and reorganizing the operating model for optimal performance.
“For example, every GCC government should be able to articulate clearly a coherent way to service its constituents, quickly find savings to reduce deficit spending and release funds needed, maintain a multitude of capabilities to execute its strategy and develop the appropriate operating models aligned with the strategy,” said Ashish Labroo, principal with Strategy& and a member of the firm’s energy, chemicals and utilities practice in the Middle East.
Rawia Abdel Samad, director of the Ideation Center, a major think tank for Strategy& in the Middle East, said: “By adopting a Fit for Service approach, GCC governments for example can achieve 20 to 40 percent reductions in their cost structures.”
Some GCC governments have already taken steps to adopt initiatives aligned with a Fit for Service approach. In Saudi Arabia, for example, the government’s national transformation plan — Saudi Vision 2030 — has ambitious goals to reform various aspects of government.
Sevag Papazian, principal with Strategy& and a member of the digital business and technology practice in the Middle East, said: “It is easy to see why conventional cost-cutting has become the default solution to budgetary shortfalls in the public and private sectors.”