The eyes of the world turned towards Riyadh last week, as Deputy Crown Prince Mohammed bin Salman unveiled his road map for the restructuring of Saudi Arabia’s economy.
Vision 2030 for Saudi Arabia promises wide-ranging economic reform and it will affect every company and every person living and working in the kingdom. The shake-up also promises to challenge delicate issues relating to the traditional relationship between the government and civil society.
In announcing Vision 2030, Prince Mohammed has effectively set the agenda for a 15-year privatisation of Saudi Arabia’s government-driven economy.
The vision centres on the sale to private ownership of hundreds of state assets to raise billions of dollars of capital that will generate new revenue streams.
It plots a diversification programme that also seeks to tap private investment in industries such as manufacturing, petrochemicals, mining and tourism, that will create jobs for Saudis, increase exports and open up the country to foreign investors.
The plans include using private sector finance to pay for and deliver public services using concession-based procurement models such as public private partnership (PPP) contracts. This will enable off-balance sheet funding for key government infrastructure projects but will also involve private companies charging Saudis for services traditionally provided by the state.
The government is also planning to cut energy subsidies, while at the same time planning the introduction of new taxes.
And to further stimulate investment, the prince’s vision also includes proposals to relax visa restrictions on foreigners to make it easier for non-Saudis to work in the kingdom without requiring a local partner.
In the past year, Prince Mohammed has emerged as one of the most important political figures in the kingdom.
The reforms appear to be widely supported in the kingdom, particularly by young Saudis, who say that Saudi Arabia needs to modernise in order to create jobs and attract investment. But it is also likely to meet resistance from those who disagree with selling state assets and those who are concerned about the potentially destabilising effect of reforms on Saudi society. Others will resist a loss of power.
The shift in focus from government-led spending to private-sector led investment will change decision making, financing and control of hitherto state-owned assets. Local companies will need to embrace organisational transformation to improve corporate governance.
Potentially the most sensitive area for reform will be in Saudi Arabia’s education system, which must inform and empower Saudis young and old to meet the challenges of a private-sector driven economic model.
Every one of these proposed reforms will require a battle to deliver, and even those who want the changes to happen question whether they can be delivered in the promised time frame.
But there are good reasons to believe that Prince Mohammed will succeed where others have failed in the past.
While we have seen long-term strategic plans before in Abu Dhabi, Dubai, Kuwait, Oman Qatar and Egypt, this is Saudi Arabia’s first. And it provides a strategic framework and cohesiveness that some previous modernisation programmes have lacked.
Crucially, the plan is backed by the king and all of his cabinet.
Riyadh has bought in some of the world’s leading consultants to advise of its reform plans, with US management consultant McKinsey having the leading role on the national transformation plan.
According to a recent report by Source Global Research, Saudi Arabia has spent $1.25 billion (Dh4.59bn) on fees for management consultants this year, with a significant portion focused on the development of the reform plan.
But this is not the only reason to believe that things will be different this time around. We are seeing a generational change in leadership across the region, with Prince Mohammed the most prominent millennial. This is accompanied by a technological revolution that has made many old ways of behaving and thinking redundant. And crucially, we have reached the end of an era when high oil prices allowed government spending to mask economic weaknesses.
The fall in prices over the past 21 months has exposed a lack of sustainability in Saudi Arabia’s oil-centric, government-driven economic model, and Riyadh knows that it must respond. The alternative would be far worse in the long run for the kingdom.
Richard Thompson is a business analyst and editorial director at MEED magazine
