Home Views & Opinions Saudi Arabia’s transformation under the Crown Prince MBS

Saudi Arabia’s transformation under the Crown Prince MBS


In the recent past, global warminghas becomea hotly debated topic all around the world. Asthma cases and other upper respiratory chronic diseases are on the rise globally and the public healthcare specialistsrelate them directly with the fossil fuels. As a result of these and other health related issues, the fossil fuel producing countries are taking notice of these concerns. On the top of it,in the recent past decline in the oil prices is forcing these countries to accelerate their economies diversifications. Last year, oil trading reached to below $0.00 per barrel for a noticeably short period, but was an eye opening for the entire OPEC and non-OPEC oil producing countries. The Kingdom of Saudi Arabia (KSA) being one of the major producers of the fossil fuels and having its economy heavily dependent on oil, experienced sharp decline in its revenues.Even though the price collapse was associated to many factors, but higher supply from the Shale oil, in addition to the non-fossil fuels (renewables) substitutions, conservation, fuel efficiency, etc., all contributed to the weaker oil demand! This phenomenon gave a major joltto the members of the OPEC cartel. Later, Russia and Iran, the other two major oil producers were forced to stop their supplies to the marketdue to the trade embargos and economic sanctions by the west. Temporarily, this helped to stabilize the prices but with the COVID-19 pandemic spread, the use of oil and gas was reduced significantly because of the lockdowns and stoppage of the industrial activities worldwide! This led to the economic collapse in the entire spectrum of the societies, from advanced economies to the low-income countries. Because of this reason,like other nations, the KSAwas alarmed as its revenues saw an unprecedented drop due to the collapse of the oil prices as the global economy came to a screeching halt.
These events made the KSAto reassess its earlier developed longer-term plan, called the Vision 2030, and to accelerate the ongoing diversification projects and to jumpstart the new ones. The Vision 2030 was developed in 2016under the leadership ofthe Crown Prince, Mohammed bin Salman, also known as MBS. The Vision was initially comprised of three main goals:building a vibrant society, developing a thriving economy, and aspiring the Kingdom into an ambitious nation.It isconsidered as one of themost massive transformation undertakings that is not only targeted to diversifying Kingdom’s economy but also to make the KSA a more vibrant, diversified, inclusive, robust, and an attractive destination for the foreign direct investments byreforminghistoricallya conservative society into a more robust and progressive Arab nation.
Last week in a rare interview, the Crown Prince outlined and elaborated further his Vision2030under the current realities. In the interview, hereflectedback on the Kingdom’s history by highlighting major milestones since its creation in 1932by his grandfather, King Ibn Saud, followed by the discovery of oil,and to-date. He said that when the oil was discovered in the Kingdomin 1938 the population was less than 3 million and the oil was believed to continue to support the livelihoods of the population andwas correct at that time. In the thirties and forties, the economic growth was marvelously outstanding, and the revenues were hundreds of times higher than the aspirations of the Kingdom! But this conclusion was derived from an extremely basic (nomadic) lifestyle that was prevalent prior to the oil discovery.
However, in the subsequent years the population grew substantially while the oil production remained marginal. Hence, the oil production did not keep up with the population growth and it brought a lot of constraints on many fronts, most importantly in the economic developments, personal growth, and quality of life.The Crown Prince underlined that if the KSA will remain mostly an oil-based economy,Kingdom’s citizens may not be able to maintain even their current standard of living in the future. The revenues collected will continue to decline because of the decrease in the oil demand due to negative perceptions associated with the fossil fuels and a momentous drive for its substitution (by renewables), and downwardprice pressure because of abundance of the supply from the shale.
About the diversification, besides the oil-based value addition projects, mining, tourism, logistics (maritime) and investment have been identified as the main sectors. He said that we have to look deeply into each and every asset that are currently under the Kingdom’s control. If we find that any of the under-controlassets is not performing to its maximum potential or is not fully valued than what it deserves, then we should look either reducing the Kingdom’s share in it, finding a JV partner, making it a joint stock company to get its maximum value, or divesting it completely.
About the oil, the Crown Prince explained in detail his conviction about it and how the Kingdomis going to be positioned in the future. In view of the current reduced oil demand, continued downward price pressure and its long-term future as the viable energy source, it is the right time to assess its future from the current paradigm shift.Based on the global oil industry data, it is obvious that many of the countries will be depleting their oil reserves and as a result there will be less oil available in the market. For example, currently US is producing about 11 million barrels a day and based on its projected reserves, most of itsoil will be depleted within the next 10 years. Similarly, China is currently producing about four million barrels a day and it is highly likely that by 2030 it’s production will decline significantly. Similarly, Russia is producing about 11 million barrels per day as well like the US but after the next two decades it’s production will be no more than in single digit, more likely less than one million barrels. Under these scenarios, while the supply will decline significantly and the demand will increase, it is very obvious that someone has to increase its supply to meet the global demand. The obvious choice will be the KSA that is going to come forward to meet the increase in demand by producing more oil than what traditionally it has been doing. Another area that the Kingdom under the Vision 2030 is pursuing is to divert more oil to the value-addeddownstream industries that have not been in the landscape of the past years economies. We are projecting that by 2030 at least 3 million barrels of oil will be used in the downstream value-added sectors that will bring tremendous amount of growth, job opportunities and self-sufficiency in many of the raw materials that are used to support the modern lifestyles. He also questioned oil industry analysts’ prediction that the Kingdom wants to get rid of oil. He said that it is entirely incorrect. The Crown Prince said that under the Vision 2030 the Kingdom wants to benefit from each and every aspect and sources of the economy by supporting it and making it more cost effective and competitive by using the latest available technologies.
The Crown Prince said that for a constant stream of capital flow, we are going to use an incredibly unique and innovative approach for growth and investment that has never been used before. He said that under the “SHAREEK” plan, many large companies of the Kingdom have already agreed to adopt it and as a result will reinvest their profits back into the economy. This capital flow will generate more robust activities in the current industry sectors and opportunities for developing new industries from ground up, resulting into creation of higher paying jobs, making stronger balance sheets and higher liquidity into these companies. Under this scheme, instead of 3-5% return on the investments, the investors will be reaping 30% to 40% returns on their capital. This initiative will create at least SR5 trillion, and it will be in addition to the SR3 trillion from the PIF, thus a total of SR8 trillion will be available for the economic growth in the Kingdom. He said that by using this strategy along with the other initiatives and sector funds, by 2030, we will be injecting about SR1 trillion per year into the economy. This unprecedented capital flow will create a solid economic foundation for a very robust and thriving transformation of the Kingdom with a quite different landscape than what we have today.
According to the Crown Prince, today the Kingdom has only 50% of good jobs. By good job means that one can afford all the basic necessities of life, like a house, car, food,clothing, entertainment, money to save & make it to grow, and to live a happy life. On the contrary, a bad job is the one where you have just enough money to afford only the bare necessities of life and no many for entertainment and savings. The Vision 2030 will increase the good jobs from current 50% to 80% in the Kingdom. This will happen by continue to bring economic prosperity, modernization, higher salaries, national pride, motivation,and self-fulfillment equally to every citizen of the Kingdom.This will be not just a dream but a reality that we can achieve easily by good planning, support, dedication, and above all the passion that will make the Kingdom thriving, vibrant, robust, progressive and a very self-sustaining society.
About the healthcare, the Crown Prince said that according to the explicit governance laws, health and education are free for the citizens. Funding to these sectors will continue to be increased by the government to keep up with the technological advancements and therapies. The government will be spending a total of about SR22 billion during the period. The increased funding will be used in ramping up of the offered services and the efficiency increase. Also, some of the funding will be used in specialization and expanding research activities in the healthcare sector.
The tourism sector will be creating a total of 5million new jobs by 2030. One million jobs will be for the Saudis and 2 million jobs will be for the non-Saudi residents. All these initiatives will reduce the unemployment rate from the current 14% to 4%. After reaching to 7% unemployment rate, we will work to increasing the “good” jobs by increasing the incomes, thus transforming the previously defined “bad” into the “good” jobs for all the citizens!
About the education, the Crown Prince said that higher education is the backbone of the economic growth and national competitive advantage. Having good education institutions that meetthe international standards areespecially important. According to him, the Kingdom currentlyhas 5 universitiesthat are ranked among the top 500 global universities. The Vision 2030 target is to have at least 3 universities among the top 200 universities of the world.We will strive formaking “King Saud University” among the TOP 10 universities of the world.
The Crown Prince also expressed his thoughts about the openness, moderation, extremism, and foreign policy. He said, the Kingdoms constitution is based on Holy Quran, the Sunnah, and the basic law of governess. It is based on three pillars, the government, the Shura Council (legislators) and the King. He said, local laws should be reflection of the international laws. If the local laws will be in contradiction with the international laws then no one will come to invest in your national economy. About the extremism, the Crown Prince said that according to the Prophet’s statements any kind of extremist behavior and belief in terms of religion, culture and ideology is a dangerous thing. He said that the extremist should be dealt with the utmost punishment.Extremism does not represent Islam and by patronizing it, one cannot attract foreign investments and tourists in the country.
About the multilateralism and foreign policy, the Crown Prince said that the Kingdom is pursuing multilateral policy, which is a direct reflection of the global economy, and is built on the Kingdom’s interests as its bedrock foundation. He reaffirmed that the USA is undoubtedly a strategic partner for the last many decadesand the partnership is based on mutual respect and understandings. The Crown Prince resolutely statedthat the Kingdom will not accept any pressure or interference by any country in its internal affairs, consistent with the charter of the United Nations. Any country if interferes in the internal affairs of another country means that it has challenged the charter that has preserved the peace,security, and maintained global stability after the Second World Warand created the global economy forits member states to thrive since then. About Iran, he said Iran is a neighboring country and we hope to have good and distinguished relationship with them. We want Iran to prosper and grow and to have interest in Iran and in return we want Iran to have interest in the Kingdom, too. About Yemen, the Crown Prince said that it has been an ongoing challenge for the Kingdom for many decades. He said that the Kingdom had offered the cease fire, economic support, and everything they wanted in exchange for a cease fire and to sit on the negotiating table with the Houthis.He pointed out that even though the Houthis have strong relations with Iran but in the end they are from Yemen and are Arab,thus they should consider their interests and the interest of Yemen FIRST before anything else.
To support the Vision 2030, besides the above-mentioned projects, the Kingdom will use its all-available tools and resources for its success, including its Crown Jewel, “ARAMCO”, the national oil company. The Crown Prince pointed out that the Kingdom is in talks to divest its 1% ownership to a major Chinese company, just recently. Based on the current market capitalization of Aramco, it will generate about 19 billion U.S. dollars. Aramco is in similar discussions with other companies, also. According to market sources, the Kingdomhas become the major oil supplier to China, delivering 1.7 million barrels per day in the first quarter. This relates to about 1/3 of the Kingdom’s total crude exports in the same period. Additionally, Aramcoalso has investments in major Chinese petrochemical companies, as well as JV in Japan, South Korea, and India. This strategy is in line for Aramco’s continued growth, as Asia will continue to drive the global economy and oil demand in the coming years.
On the five years anniversary of the Vision 2030, the Crown Prince summarized his conclusion and said that we are seeing great progress made to-datein several projects by breaking many of their timeline targets. With this trend, we can see the days ahead when the Kingdom will be completely transformed into an ambitious, modern, and progressive nation with the most diversified&thriving economy of the region that will be vibrant, robust, inclusive, resilient, sustainable, having highly educated-skilled workforce and an attractive destination for the foreign direct investments. Where the higher paying jobs will be in abundance, opportunities for personal growth will be innumerable, quality of life will be outstanding, and each and every citizen of the Kingdom will be immensely proud of their Arab heritage and cultural values.In conclusion, the Crown Prince said that the next decade will start the new period forthe global competition and the Kingdom will be ready and very well positioned to take any challengeswith its highly diversified industrial base andtremendous growth potential in the highly competitive global arena of the nations.