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Saudi Vision 2030: post-oil economic plan announced Featured

25 Apr 2016
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Saudi Arabia’s cabinet agreed to implement a broad reform plan known as Vision 2030, which is expected to involve sweeping change to diversify the economy beyond dependence on oil exports, state media reported on Monday.

The Kingdom announced sweeping economic reforms to reduce its dependence on oil and ensure long-term sustainable development, with plans for a massive $2 trillion sovereign fund to boost its global investment power.

In an exclusive interview with Al-Arabiya News Channel on Monday, Deputy Crown Prince Mohammed bin Salman, second deputy premier and defense minister, said the implementation of the Vision 2030 plan would likely see the country operate without oil income by 2020, without sacrificing current infrastructure projects. The plan would also see the development of the country’s tourism industry, building the capacity of its military industries, reduced subsidies to save money, job creation initiatives, an education system revamp and a Green Card-style residency system for Arabs and Muslims.

He said the plan includes the setting up of a restructured Public Investment Fund (PIF) worth $2 trillion by including the proceeds of a Saudi Aramco initial public offering (IPO), other assets of $600 billion, and state-owned real estate and industrial assets estimated at $1 trillion. It would have more than 10 percent of global investment capacity, he said.

Prince Mohammed said the sale of 5 percent of oil giant Saudi Aramco would be the “biggest IPO in history.” Aramco would have a holding company with an elected board, with subsidiaries also sold through IPOs. “The 5 percent is from the parent company,” he said. Aramco is the world’s leading oil company, producing about 10 million barrels a day, or about 10 percent of global production.

Prince Mohammad said the partial IPO would help transform Saudi Arabia into an investment-driven economy and turn the Kingdom into a global player. “The Saudi addiction to oil has disrupted the development of many sectors in previous years,” he was quoted as saying.
On the highly-anticipated topic of the American-style Green Card for expatriates in the Kingdom, the prince said the scheme would be ready in five years. “The Green Card will allow Muslims and Arabs to live in Saudi Arabia for a long time and will be a source of revenue for the government,” he said. Prince Mohammed also revealed plans to develop the country’s tourism industry but within the framework of “our beliefs and values,” revitalizing culture and entertainment, and building an Islamic museum. “How can the Kingdom be the holiest place for Muslims and have no Islamic museum?”

The prince said the Aramco IPO is also aimed at ensuring greater transparency to boost the confidence of investors. “In this day and age, no country can afford to not be transparent. There are many benefits to the Aramco proposal, and the most important and major one is transparency.”

He said the lack of transparency of Aramco has “upset” many people. If Aramco is listed then it would have to announce its results quarterly and be open to scrutiny by financial and other institutions locally and abroad, he said.

Prince Mohammed said the government would cut subsidies but limit its impact on low and middle income earners. However, it would be applied to everyone, “including princes and government ministers. This is a promise.”

The deputy crown prince also confirmed in the interview the government plans to reduce Saudi unemployment from 11.6 percent to 7 percent.

On defense, he said it made no sense for Saudi Arabia to be the world’s third-largest spender on arms but with no manufacturing industry. There were plans underway to set up factories for this purpose by 2017, initially wholly owned by the government but later listed on the Saudi bourse.
Prince Mohammed said that the Kingdom was adopting Vision 2030 “regardless of the oil price,” in reference to prices plunging to a 12-year low of $32 a barrel in January. “The Vision doesn’t require high spending but restructuring.” It focuses on the Kingdom’s strengths, its religion and Arab heritage, ability and location, he said.

Asked about the proposed King Salman Bridge over the Red Sea, announced last week in an agreement with Egypt, Prince Mohammed said the crossing would link Europe and Asia, provide building and investment opportunities, and help move billions’ worth of cargo across the Red Sea.
According to reports, the plan also envisages increasing the participation of women in the workplace, which has been growing rapidly over the past five years, from 22 percent to 30 percent.

Summary:

  • Saudi is to sell less than 5 per cent of oil giant Aramco in IPO: deputy crown prince, Mohammed bin Salman.
  • He expects the value of Aramco to exceed $2 trillion as the kingdom prepares to sell part of the company in what could be the world’s largest initial public offering. The valuation of Saudi Arabian Oil Co. hasn’t been completed.
  • A new investment fund will turn the world’s top oil exporter into a global investment power, deputy crown prince, Mohammed bin Salman said. The kingdom’s existing Public Investment Fund (PIF) had made returns of 30 billion riyals ($8bn) in 2015. Asked whether he thought the management of PIF would be too autocratic, he said there would be an elected board that would make investment decisions for PIF.
  • “We plan to set up a $2 trillion sovereign wealth fund … part of its assets will come from the sale of a small part of Aramco," he said.
  • The Saudi stock index recovered from early losses and was up 1.8 per cent after the reform was outlined.
  • A “green card" system will be introduced within five years to allow resident expatriates in the kingdom to have more rights in order to improve its investment climate. Sweeping reforms, of which the proposed green card is one, will be implemented even if oil prices rise back above $70 a barrel, prince Mohammed said.
  • Plans for a military industries holding company fully owned by government at first and offered in IPO by end of 2017.
  • The reform plan will not require major spending but will involve restructuring, prince Mohammed said, adding that spending on infrastructure projects would continue. He said that the government would restructure the housing ministry to help more citizens buy homes, said subsidies should not go to the rich, and said he aimed to reduce unemployment among Saudi nationals to 7 per cent from 11.6 per cent.

Sources: Arabnews.com, thenational.ae

Last modified on Tuesday, 26 April 2016 00:43
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  • Debera Hintzen
    Debera Hintzen Sunday, 04 December 2016 11:41 Comment Link

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