Countries dependent on oil tend to bear the hardest brunt from the falls in oil prices. No country worldwide has been affected by this fall as much as Saudi Arabia, the largest oil producer in the world. Since three-quarters of the national budget revenues are still originating from the oil sector, Saudi Arabian economy remains to be heavily dependent on petrodollars and crude oil market overall has been shaping all aspects of its national development, from the state of the national economy to social order. Enjoying the wealth being steadily brought about by high oil prices for more than eighty years, Saudi Arabia is at the same time facing a budget deficit to the tune of $ 90 billion USD at current prices. As a result, some of the government subsidies have been reduced because of this deficit and a loan was borrowed from international lenders after a long break.
Determined to diversify its economic revenues’ sources in parallel to reducing its dependence on oil, Saudi Arabia has unveiled a long-term national transformation plan which is promising quite a number of truly radical changes to its economy and society. The plan dubbed “Saudi Vision 2030,” was approved by the Saudi Cabinet with the aim to prepare the country for the so-called post-oil era. In line with the national transformation plan, the country is creating a $2 trillion USD royal budget fund for the purposes of accelerating economic growth and strengthening the national economy through diversification so that to offset the negative impacts from low oil prices by targeting to achieve maximum efficiency, support most promising non-oil projects, exploit huge mineral resources, attract investments in the mining sector, combat corruption by means of good governance and create more jobs for the Saudis among which the current unemployment rate of the youth reaches 30 percent.
Many steps ranging from privatization of the energy giant ARAMCO and some other entities such as Saline Water Conversion Corporation (SWCC) are on the agenda these days, mainly with the aims to increase tax revenues and cut budget expenditures at the same time as well as to increase non-oil revenues and non-oil exports overall, attract more foreign direct investments and strengthen the mining sector’s contribution to the economy. If this plan proves to be successful, Saudi Arabia will gradually drift away from oil, the most precious asset in its economy today. The country also plans to use this fund for various other investments in all parts worldwide. Saudi Vision 2030 also includes other steps such as restructuring the education sector and national healthcare system, reforming the social life in many of its widely discussed today aspects etc.
A Far-Reaching Plan
From the economists’ standpoint, a public offering of Aramco, the government’s oil company, is the most interesting element of the Vision 2030 plan. The largest oil company in the world (Aramco’s crude oil reserve, 260 billion barrels, is almost 10 times more than Exxon’s reserves), Aramco will offer five to ten percent of its shares in New York, London or Hong Kong. Aramco’s value is $ 2.5 trillion at most conservative estimates. Considering this amount, the public offering of five percent of its shares may bring $ 125 billion. With a daily oil pumping capacity of 12 million barrels, the company’s capacity is double of its closest rival’s capacity. One of the most secretive companies in the world in terms of its business operations and management, Aramco is strongly determined to become more transparent due to this upcoming public offering and regularly share its performance results with the public.
Despite the impressive volumes and drastic nature of all these upcoming economic and social changes, there is literally one man standing behind this far-reaching plan – the 32-year-old Crown Prince Mohammad bin Salman. Prince Mohammad is frequently and severely criticized by the older representatives of the regional political establishment as being too young and inexperienced for the position and role he is currently having. He is also said to be too hasty in rolling up his sleeves and taking all on the chin by himself in an attempt to stop the “oil addiction” of the country he is ruling. Let us be frank about these criticizing voices: in times of turbulence, economic and/or geopolitical ones, being skeptical about somebody else’s courage, initiative and also somebody else’s ability to think out of the box is merely a safe haven to those who simply lack the courage to invent or to support innovative ideas. We need to remind all eager faultfinders that the history of the Islamic world knows a number of truly brilliant examples when the leader was “too young”, “too quick” and/or “too radical” in offering changes. Mehmet II, maybe the most famous Ottoman Sultan, was only 21 when he conquered Constantinople and ushered in a new age!
Today, it is indeed high time to unite in supporting the leader who really belongs to that unique type of global decision-makers, capable of putting national and regional development interests above personal ones.
Dr Bora Aktan is Associate Professor of Banking and Finance at the University of Bahrain. He is also the Editor of the Journal of Islamic Financial Studies.