Time for a new economic order

The key drivers for the Kingdom’s economy are the budgeting outlays, operating needs and/or capital investments. This has been the case since the price of oil posted its significant increase in 1971.
This narrative is punctuated by the steadily growing fixed portion. The investment portion is more exposed to fluctuating oil prices.
The interplay between the fixed and the investment portions comes on the back of active demographics (natural population growth, and legal and illegal economic emigration) on the back of modest, real economic growth, and low productivity gradually comes to dominate the economic considerations.
The bout of oil price appreciation over the last decade has exacerbated the split between economic and financial considerations.
The more recent rise in oil revenues allowed the government positively to compensate the deficit in infrastructure and pay off national debt.
Yet structural impediments still hinder the efforts to place the Saudi economy on a steady path.
So much for the past, the future calls for a different narrative.
The set of challenges facing the Saudi economy requires a break with the present for the purpose of fostering real economic growth, enhancing productivity, and a more inclusive economic structure that encourage entrepreneurship, risk-taking and innovation.
In short, a new basic economic and business culture that is market driven rather than a static economic order.
Policymakers are keenly aware of the need to transform the economic order, yet concrete actions are slow to emerge. This is partially due to the tendency to bask in oil revenues, the natural inertia to resist changes and defects in the technocratic class.
Given the comfortable fiscal picture and the coveted interests, resistance to take key steps is probably understandable.
But such understanding is not sufficient to deal with the futuristic demands to reform a developing economy that has to deal with a single exogenous income factor, growing population, turbulent region, and consumption binge including oil resources.
One can think of a holistic approach, which may not be forthcoming, or more realistically few key well defined steps to remedy the situation.
Tackling key issues is indispensable. Essentially, there are two types of issues — one is technical in nature and the other is the more institutional type.
Among key issues to be tackled are the energy sector.
The current situation is not on a sustainable path as the Kingdom’s oil consumption is huge because of the generous subsidy system that helps the well-off more than the common man and distort many economic activities.
The second issue is the land prices that is somewhat analogous to a feudal ownership structure.
Public departments such as health, education, and housing complain about the high price of land that has become a costly and contributing factor to income and wealth disparities, yet it is easy to fix via Zakat or some annual municipal fee of percent to pay in cash every six month.
The other issue of concern is employment where it is not possible to fix without some control on the supply side from abroad as done in all developed and developing countries.
The other set of reforms are to be found in the institutional arena — the King’s (Custodian of the Two Holy Mosques King Abdullah’s) laudable initiatives to modernize the judicial and education systems. These have been languishing mainly due to shortcomings of the technocratic class.
— Fawaz Al-Fawaz is an
economic consultant.