VISION 2030, PART II

The inspired plan of Mohammed bin Salman, the Crown Prince of KSA, for a non-oil future of the Kingdom.

Vision 2030’s includes three pillars subdivided in seven main themes and if it will be completed successfully it will transform Saudi Arabia as the leading geo-political power of the Middle East with an economy based on non-oil revenue.

THREE PILLARS AND SEVEN THEMES

In April 2016, Mohammed bin Salman bin Abdulaziz, the Crown Prince of KSA, in his role as President of the Council of Economic Affairs and Development presented Vision 2030, Saudi Arabia’s road map towards economic transformation and preparation for a non-oil future. Vision 2030 has three pillars, which include seven main themes, covering the economic, political and spiritual sectors of the country.

THE THREE PILLARS:

1. The cementing Saudi Arabia’s position as the heart of the Islamic world
2. The Investment diversification
3. The exploitation of Saudi Arabia’s geographic location to become an international trade/transport hub

THE SEVEN THEMES:

1. KSA is the Heart of Islam
Two of Islam’s three holiest sites are located within the kingdom, while all practicing Muslims turn their faces towards Mekka in prayer. It is also obligatory for Muslims to perform the Hajj pilgrimage at least once in their life-time while Muslims to who undertake an Umrah pilgrimage do so as a voluntary spiritual exercise. In 2016 1.8 million pilgrims performed the Hajj, while another 5.4 million pilgrims visited the kingdom for Umrah in 2015. To improve the pilgrim experience and to prepare for 15 million arrivals by 2020 and 30 million ten years later Vision 2030 incorporates plans to:

• construct the world’s largest Islamic museum,
• construct other museums,
• develop Islamic libraries and research facilities,
• list historic Arab and Islamic sites with UNESCO,
• provide incentives to develop the non-profit sector, and
• encourage individuals to volunteer their time and talents in charitable causes.

2. The global investment powerhouse
Vision 2030 plans to transform Saudi Arabia’s Public Investment Fund (PIF) into the world’s largest sovereign investment vehicle by transferring Saudi Arabia’s oil giant Aramco to its portfolio, together with some other non-oil assets, such as real estate. By diversifying the PIF’s investments into non-oil assets the aim is for non-oil earnings to ultimately replace oil revenue as the kingdom’s principle income streams. Specifics include:

• Launching the world’s largest initial public offering (IPO) by offering approximately 5% of Aramco to the market with the proceeds of the sale to be earmarked for non-oil investments by the PIF. This IPO is expected to generate USD$50 billion.
• With USD$2 trillion under its management, PIF transactions aim to account for 10% of global investments while the fund itself will own 3% of global assets, thus making Saudi Arabia an investment powerhouse.
• An early diversification was the purchase of 5% of Uber for USD$3.5 billion.
• SoftBank has announced that the PIF will be one of the principle investors in a technology investment fund aiming to raise $100 billion.

3. The geographic location of Saudi Arabia
Saudi Arabia sees itself as geographically positioned at the intersection of Europe, Asia and Africa with 30% of world trade passing near the kingdom. Vision 2030 seeks to exploit Saudi Arabia’s geographic location to establish itself as a major international trading and transport hub. Vision 2030 specifically outlines proposals to:

• Establish a regional logistics hub.
• Develop airports (inspired by the success of Dubai, Abu Dhabi and Doha).
• Prioritising completion of the Makka Metro urban transit network.
• Train projects. Saudi Arabia has five other rail networks currently under construction including the: Haramain High Speed Rail Project linking the two holy cities and Jeddah, Makka Metro, Jeddah Metro, Riyadh Metro, Madinah Metro
• Construct the King Salman Bridge linking Saudi Arabia to Egypt.

4. Economic diversification of the country
Crown Prince Mohammed bin Salman bin Abdulaziz stated addiction to oil has thwarted other parts of the economy. Vision 2030 recognizes this and prioritizes diversification into non-oil employment and economic activity. The plan specifically targets:

• Mining. Non-oil resources such as gold, uranium, silica and phosphate are abundantly available in Saudi Arabia and are awaiting development.
• Military. Currently 2% of Saudi Arabia’s military hardware is manufactured locally. Vision 2030 plans to see this rise to 50% through the establishment of a government owned Military industrial holding company to be formed by late 2016/early 2017. This company will partner with international companies to localize manufacturing, while Saudi Arabia even has ambitions to become an arms exporter.
• Increase domestic savings from 6% to 10% of household income.
• Stimulate growth in the SME (small and medium sized enterprises) sector so they account for 35% of GDP (up from the current 20%).
• Renewable energy promotion by setting a target for 9.5 gigawatts of renewable energy to be produced in the kingdom.
• Agriculture and Aquaculture development. Water wastage to be curtailed and developments approved based on their economics and necessity.

5. Aramco
Saudi Aramco is Saudi Arabia’s most important company. It is currently a state-owned enterprise and is the owner and operator of the nation’s hydrocarbon assets. While the company is predominately Saudi Arabian focused it also participates in many joint ventures outside the kingdom and owns some diversified assets. The value of Aramco is linked to the price of oil, with Crown Prince Mohammed bin Salman bin Abdulaziz currently believing the company is worth between USD$2-2.5 trillion. Vision 2030’s non-oil plans are essentially linked to the future of Aramco. Vision 2030 outlines the following:

• Transferal of Aramco from a state-owned enterprise to a public holding company to eventually be listed on the Saudi Stock Exchange with its shares vested in the PIF. Crown Prince Mohammed bin Salman bin Abdulaziz has hinted at a secondary listing, possibly in the US.
• Launching an IPO of just under 5% of Aramco to raise an anticipated USD$50 billion to fund diversified investments by the PIF.
• Privatizing subsidiaries of Aramco later.

6. Extended government reform
Vision 2030 recognizes that Saudi bureaucracy has been obstructing reform and stalling economic development, rather than promoting it. Within days of coming to the throne, King Salman abolished the Security, Economic and Development Councils and axed many bureaucratic positions. Vision 2030 outlines several specific measures to improve government and governance in the kingdom.

• A government departments’ performance monitoring agency will be established.
• Saudi Arabia will seek to catch up with the digital age through training and IT modernization.
• Visa application processes (for Hajj and Umrah pilgrims especially) will be streamlined.
• Initiatives to improve the performance of public service employees will be launched.
• E-govt will be established.
• Zero corruption will be tolerated.

7. Social well-being and health
Crown Prince Mohammed bin Salman bin Abdulaziz stated entertainment opportunities improve quality of life without necessarily costing anything. In recognition of the reality that there are limited entertainment options in the strict Islamic kingdom, several initiatives will be undertaken to improve the quality of life, within the scope of Islam. Vision 2030 specifically discusses:

• Establishing entertainment/amusement/theme parks
• Promotion of health and fitness.
• Home ownership incentives. 70% of Saudi Arabia’s population is under 30 years so there are huge demands for housing. Vision 2030 aims to see home ownership rates increase from the current 48% to 52%.
• Reform social aid. Currently social aid in the form of public subsidies on electricity, fuel, water etc. benefit the rich more than the poor so will be reformed.
• Unemployment among Saudis will be halved.
• Saudi Arabia will introduce a ‘Green Card’ scheme over the next five years to give more rights to long term non-Saudi residents of the kingdom. As foreign workers can be a drain on the economy, through remitting their pay to their home country, by increasing their sense of belonging it is believed foreigners will contribute more to the local economy.

For an extended presentation of the above referred, please visit:(1).

SAUDI ARABIA IN TRANSITION, A BELFER CENTER PAPER

Karen Elliott House (*) has created for the Belfer Center, under the title ‘Saudi Arabia in Transition’, one very important and comprehensive report, in which a lot of critical points of VISION 2030, are presented and explained.
The complete report can be found here (2):
Some points included in this survey:

• Vision 2030, the latest government transformation plan, calls for nothing short of a societal revolution. “Our vision is a strong, thriving and stable Saudi Arabia…with Islam as its constitution and moderation as its method,” is how the plan was described in April 2016 when unveiled by its architect, Mohammed bin Salman, the 31-yearold son of the Saudi King.
• In June 2017, Vision 2030 entered its second year and social change leads the way. The government needs to show some wins for citizens from its ambitious reform strategy.
• Opposite to any of its neighbors or indeed to any other Arab country in the Middle East, Saudi Arabia maintains a high degree of stability and, even in reduced circumstances of lower oil prices, prosperity.
• The regime launched Vision 2030 precisely because it fears a prolonged fall in oil revenues that began in 2014 will lead soon to precipitous declines in the livelihoods of Saudis who then, with nothing left to lose, may destabilize this nearly three century-old monarchy.
• According to a senior Saudi minister, it is a titanic struggle that Saudi Arabia confronts as it seeks to wean itself off decades of dependence on oil wealth.
• A tougher measure to reduce salaries and benefits of government employees (60% of working Saudis are employed by government) was reversed within six months after persistent citizen protests on social media.
• Prince Mohammed is presenting change for women as an economic necessity, not a feminist luxury. This approach makes it harder for the religious conservatives to object and mobilize public opposition.
• The new General Entertainment Authority, created to bring once-forbidden entertainment to the Saudi public. (Conservative Saudis have labeled the GEA the General Evil Authority.)
• The successful privatization of the economy obviously requires the engagement and support of Saudi businessmen who remain passive and skeptical— almost as skeptical as the society at large.
• Labor force / Population Total: 16,372,064: Saudis: 7,537,694 Non-Saudis: 8,834,330 Total population: 32,612,641 Saudis: 20,427,357 Non-Saudis: 12,185,284
• The existing private sector in Saudi Arabia relies on cheap foreign labor: 90% of workers are foreigners.
• 60% of working Saudis are employed by government.
  (*) Karen Elliott House is the author of: ‘On Saudi Arabia’ (3).

SAUDI ARABIA’S “VISION 2030”

by Hilal Khashan, Middle East Quarterly, Winter 2017. Based on a report by the consulting firm McKinsey.
On April 25, 2016, THEN Deputy Crown Prince Muhammad bin Salman announced the “Vision 2030” plan to revolutionize the Saudi economy by ending its dependency on oil.
The plan projects raising non-oil revenues from $45 billion in 2015 to $266 billion by 2030. [Forbes Middle East (Dubai), May 1, 2016.]
The plan fails to address the fact that the Saudi state rests on the three pillars of religion, tribalism, and oil. The plan seeks to reduce the role of the public sector and bureaucracy while simultaneously empowering the private sector to become the main employer and vehicle for economic growth. The plan calls for the creation of a huge sovereign wealth fund to be funded by an unprecedented Initial Public Offering (IPO) of a 5 % stake in Aramco.
But the selling of 5 percent of Aramco cannot reverse the kingdom’s gloomy economic outlook unless revenues are generated as soon as possible from non-oil sources. As Mr. John Edwards, a member of the board of the Reserve Bank of Australia, warned that, for the plan to be successful, it must “profoundly change Saudi society and politics.”
Since the goal of Vision 2030 is to double GDP by increasing the industrial output of the private sector, investment in appropriate industries is a requirement.
Based on the McKinsey report, the plan identifies eight sectors that, if properly utilized, would generate at least 60 percent of Saudi economic growth.
The most promising economic sector remains religious tourism, which has grown in recent years to become the second most important economic activity after oil; in 2015, it netted $22.6 billion. But the main hurdle slowing the growth of religious tourism is the Saudi reluctance to issue visas.
The second through the eighth 5-year development plans (1975-2009). In fact, Vision 2030 looks pretty much like a continuation of the ninth development plan (2010-15). Riyadh no longer has the luxury of ignoring the relationship between economic and political development. Wahhabi religious doctrine has become synonymous with radicalism and is admittedly injurious to the cause of modernity. Like other Gulf Cooperation Council (GCC) member states, the Saudi government is planning to introduce a 5 percent sales tax in January 2019, a measure bound to aggravate inflation. In a poll of foreign companies operating in the GCC, 80 percent responded “they would consider moving abroad if an income tax were to be introduced.”
Vision 2030 specifically focuses on involving the country’s youth in the privatized market economy it hopes to find. This is particularly challenging since this age group (under the age of thirty) constitutes nineteen million out of a total population of twenty-nine million, forcing some two million Saudis to enter the workforce each year over the next decade.

For the full report:
Report – McKinsey Global Institute – December 2015
‘Moving Saudi Arabia’s economy beyond oil’
By Gassan Al-Kibsi, Jonathan Woetzel, Tom Isherwood, Jawad Khan, Jan Mischke, and Hassan Noura (4), (5)

DATA RECEIVED FROM:
(1) http://www.headlinehamster.com/2016/10/saudi-arabias-vision-2030.html#!/2016/10/saudi-arabias-vision-2030.html
(2) https://www.belfercenter.org/sites/default/files/files/publication/SA%20Transition%20-%20web.pdf & www.belfercenter.org
(3) http://karenelliotthouse.com/
(4) https://www.mckinsey.com/global-themes/employment-and-growth/moving-saudi-arabias-economy-beyond-oil
(5) http://www.meforum.org/6397/saudi-arabia-flawed-vision-2030

Kallirroi Pavlakou
International News and Markets