Saturday, 30 April 2016

Will Saudi Arabia end its addiction to oil?

Optimism over the Saudi national vision is premature.

On 25 April, Saudi Arabia unveiled its national vision, a set of goals it wants to achieve by 2030. A central theme in the Vision 2030, a brainchild of the Deputy Crown Prince Mohammad bin Salman, is putting an end the country’s chronic reliance on oil. Some have lauded the announcement as the long-awaited push Saudi Arabia has always needed. Others called it a mere public relations exercise. On balance, caution must be the order of the day. Any claims that Saudi Arabia is already on track to end its “addiction to oil” in the next few years are premature for four reasons.

1. Announcing a national vision is not new in this region. In fact, Saudi Arabia is a late joiner. BahrainKuwaitOmanQatar and the United Arab Emirates (ie all other Gulf countries) have all published their own national visions years ago. The publication did not ensure timely implementation or immunity from the decline in oil prices.

2. Vision 2030 is a set of long-term goals or targets, not a concrete plan of how to achieve them. A plan should be released in May/June under the title of National Transformation Plan after a few months’ delay. But to put it briefly: a vision is not a plan; and having a plan does not guarantee execution.

3. Execution of any plan is likely to prove difficult. There are signs of difficulty even this early in the process. Only days before the announcement of the vision, the Saudi water and electricity minister was fired following public outcry over higher utility tariffs. Public dissatisfaction could intensify as more difficult measures are rolled out.

4. One of the most headline-grabbing measures—the plan to replace oil revenues with the proceeds from a $2 trillion sovereign wealth fund—is unrealistic. Even if the fund reaches the required size and somehow manages to increase the share of its foreign investments to half from 5% currently (domestic holdings are mostly oil related), an optimistic return of 7% on overseas assets would generate only $70bn per year. This would not be enough to replace oil revenues and finance the expected budget deficits, which together totalled $216bn in 2015 for example. 

Overall, the attempt to transform Saudi Arabia’s economy away from its oil dependence is needed, and steps taken towards this are positive. But a viable plan is required to show how this ambitious target can be achieved. Even then, the actual implementation of the plan will be key.


  1. I've heard that the arabic version of the Vision has a bit more detail than the English version (e.g. on taxes) - have you spotted anything?

    1. They are the same. I have not seen any differences.