It is a tall order that the deputy crown prince Mohammed bin Salman has placed so emphatically on the table: to wean his country’s economy off oil dependency. But on the 25 April, ending months of speculation, that is precisely what he did. Vision 2030, a prelude to the soon to be released National Transformation Programme (NTP) is, arguably, the most radical and far-reaching set of economic reforms ever undertaken by the kingdom.
Many five year plans have come and gone, many grand schemes have been promised that never reached fruition. Always the lure of oil and the wealth it provides has enabled the kingdom’s rulers to put aside the need for change. “We are still a young country, we move cautiously, thoughtfully, slowly, patiently” was always the stock answer provided to western journalists like myself when the question of reform, be it economic or social, was raised.
Now the impatient one, in the restless person of Mohammed bin Salman, sits at the table, demanding change, telling his countrymen and his family that the kingdom must end its dependence on oil.
“I have all (the) points of strength, and I have the opportunities to increase our non-oil revenues in many sectors, and I have a global economic network,” was his proud boast to the Economist on 6 January this year.
That was just a few days after McKinsey & Company had released a report titled “Moving Saudi Arabia’s economy beyond oil.” The consultancy, one of the most powerful and influential in the world sketched out two 2030 scenarios. In one, called “reactive policy change”, unemployment soars, real income is halved, the deficit balloons to $170 billion per year and net government liquid financial assets disappear into a massive black hole of debt.
In the other scenario, dubbed “full potential”, real income increases by 60%, unemployment, with the creation of six million new jobs, falls to a very manageable 7%, GDP ticks along at a healthy 4.5% and the fiscal balance blossoms to a beautiful surplus of $40 billion.
No prize for guessing which one the deputy crown prince went for. The challenge now is to mind the gap between consultancy dreaming and on the street reality. Mohammed bin Salman has been listening to the consultants very acutely and they have said in effect “you have no choice but to tear up the old social contract with the people.”
So a new age of austerity is coming into force in a country where just about everything was provided for. Subsidized energy, food, water, free health and education: now that is all about to change as the NTP inaugurates tax increases, spending cuts, changes to the way the state manages its financial reserves, an efficiency drive, and a much bigger role for the private sector, including a privatized health care sector.
And all of this will be backed by a $2 trillion Public Investment Fund secured with the sale of 5% of Saudi Aramco. A bold and clever vision, then, one that liberates the kingdom from its dependence on oil by using the very wealth of oil to secure the road to freedom. But what about the people of Saudi Arabia who are supposed to be the beneficiaries of this breath-taking economic revolution?
Mohammed bin Salman told the Economist that “this is not a decision against the people, this is the decision of Saudi Arabia,” adding that before the decision was taken “we worked on many workshops that represent many people.” He affirmed that cuts to subsidies would be cushioned by financial support to those hardest hit and it would be the wealthy who could and would bear the full brunt.
But the nagging doubt remains that in creating a new social contract the likes of which the kingdom has not seen since the days of Ibn Saud, the founding king and grandfather of Mohammed bin Salman, the people have been left trailing in the wake of a grand vision conjured by an expensive array of western consultants.
The Saudis are not the sort of citizens to publically question their rulers but when water prices soared as subsidy cuts took hold, social media was filled with howls of protest. The response of King Salman, acting without doubt at the behest of his son the deputy crown prince, was to sack the minister of water and electricity.
Mohammed bin Salman had already described the performance of the minister as “unsatisfactory,” so the writing for the hapless chap was on the wall. But there are only so many ministers that the government can sack in a bid to appease its people as the belt of austerity tightens. At some point the daring vision of 2030 will hit the hard wall of reality. Saudi citizens, particularly the young, will want a say in how their lives are shaped by the ruling family.
It is then that the agility of Mohammed bin Salman will be tested. How he answers the challenge, either with open arms or with blunt force, will determine both the future of the Al Sauds and the people over whom they rule.
Follow Bill Law on Twitter @BillLaw49
