Vision 2030 Goals
An Ambition Nation
Responsibly Enabled
• Rally one million volunteers per year (compared to 11,000 now)
• Raise the non-profit sector’s contribution to GDP from less than 1% to 5%
• Increase household savings from 6% to 10% of total household income
Effectively Governed
• Raise the kingdom’s ranking on the E-Government Survey Index from its current position of 36 to be among the top five nations.
• Raise the kingdom’s ranking in the Government Effectiveness Index, from 80 to 20
• Increase non-oil government revenue from SAR 163 billion to SAR 1 trillion
Thriving Economy
Leveraging its unique position
• Raise the share of non-oil exports in non-oil GDP from 16% to 50%
• Raise the kingdom’s global ranking in the Logistics Performance Index from 49 to 25 and ensure it is a regional leader
Open for Business
• Increase the private sector’s contribution from 40% to 65% of GDP.
• Increase foreign direct investment from 3.8% to the international level of 5.7% of GDP
• Raise the kingdom’s position on the Global Competitiveness Index from 25 to among the top 10 countries
Investing for the long-term
• Increase the Public Investment Fund’s assets, from SAR 600 billion to over SAR 7 trillion
• Increase the localization of oil and gas sectors from 40% to 75%
• Move from the kingdom’s current position as the 19th largest economy in the world into the top 15
Rewarding Opportunities
• Increase women’s participation in the workforce from 22% to 30%
• Increase SME contribution to GDP from 20% to 35%
• Lower the rate of unemployment from 11.6% to 7%
Vibrant Society
With Strong Foundations
• Increase the average life expectancy from 74 years to 80 years
• Raise the kingdom’s position from 26 to 10 in the Social Capital Index
With Fulfilling Lives
• Have three Saudi cities be recognized in the top-ranked 100 cities in the world
• Increase the ratio of individuals exercising at least once a week from 13% of population to 40%
• Increase household spending on cultural and entertainment activities inside the kingdom from the current level of 2.9% to 6%
With Strong Roots
• More than double the number of Saudi heritage sites registered with UNESCO
• Increase the kingdom’s capacity to welcome Umrah visitors from 8 million to 30 million every year
When it comes to Vision 2030, most observers, commentators and analysts of Saudi Arabia tend to fall into one of two camps of analysis: the pessimists and the optimists.
The former are quick to point out that the rudiments of the vision have been ever present in previous iterations of the kingdom’s efforts to diversify the economy and break dependence upon oil. Indeed, the late King Abdullah, considered a ‘reformer’ by many, introduced plans to create six new economic cities – islands of excellence – back in the mid-2000s. Pessimists, who tend to include long-term Saudi watchers, argue that projects such as Vision 2030, are good on ideas but poorly executed, and the cushion of higher oil prices will always act as a natural constraint to reforming the economy.
The optimists, on the other hand, argue strongly that the economy can be transformed by a young decisive leader – like Mohammed bin Salman (MbS) – driving critical change, accompanied by an energised, willing and youthful population.
Of course, neither set of analyses is particularly helpful when trying to evaluate progress towards some of the vision’s goals, as the pace of change and/or progress is never smooth and binary analysis more often than not underestimates the complexity of causal relationships when assessing so many economic, social, political and cultural variables.
Social reform, not political change
While Vision 2030 appears both aspirational and far-reaching, it should not be construed as a blueprint for bringing about political change. The events over the past few years, including the detention of senior political and business figures at the Ritz Carlton hotel in Riyadh; the imprisonment of activists campaigning for women’s right to drive, among other things; and the murder of journalist Jamal Kashoggi, give a very strong signal that while social change may be part of the wider agenda, it does not include – in any shape or form – political change.
In fact, one can argue that while the broader goal of the vision is to transform the economy and, in doing so, some social change is essential, the project is ultimately intended to sustain the rule of the leading family – the Al Saud – and particularly, the rule of the Al Salman branch of the family.
There can be no doubt that MbS intends to govern the kingdom in a manner similar to his predecessors; in fact, all evidence suggests that were he king, then he would be a much more assertive ruler than his immediate successors and the practice of governing by consensus – favoured by previous monarchs – would be side-lined very quickly.
Although the challenges that Saudi Arabia faces in reducing its dependency upon oil have been long understood by its leaders, no leader has shared the same sense of urgency as MbS. He appears to have understood that the world is moving at pace towards a post-oil future and, unless the kingdom undergoes a profound economic transition, it will flounder. As such, there is no choice other than to push hard for economic transformation, even though some of the hurdles look insurmountable.
Enabling society to support the economic transition
MbS clearly has the political will to force through change – for good or for bad – where others have failed. The challenge he faces can be broken down into two component parts: enabling society and re-engineering the economy. The two are interdependent. It is important to move away from old tropes about Saudi Arabia, where nationals are depicted by expatriates and others as being unwilling to work or ‘put in a hard shift.’ Attitudes towards work, business and opportunities among Saudi youth is no different from youth in other countries. However, environmental factors in the past may have acted as a constraint on realising the potential of the Saudi workforce.
To a growing extent, the crown prince has used up considerable political capital to force through social reforms, which had previously been considered too risky. Such reforms include permitting women to drive; allowing women to travel without the permission of a male guardian; curtailing the authority of the ‘moral police’; and allowing businesses to operate around the clock (prayer shutdowns optional), among others. These measures have already borne fruit, as women have begun to enter the workforce in number. Moreover, it is becoming more commonplace for men and women to work together in the same spaces, though this remains confined to major businesses and state agencies. In fact, women postgraduates now attend the previously all male university King Fahd University for Petroleum and Minerals. The ‘taboo’ appears to have been broken and the changes to the work environment thus appear irreversible.
At the same time, the kingdom has introduced several regulatory reforms aimed at boosting foreign direct investment. These reforms include introducing bankruptcy law (2018); allowing 100% foreign ownership of assets and businesses in the engineering, education and recruitment sectors (2017); launching commercial courts (2017); and the Special Privilege Iqama Law that provides qualified foreigners with residency benefits, such as freedom of movement, travel and ownership (2019).
These efforts – which amount to enabling society to support economic transformation – are critical to re-engineering the economy away from oil dependency. In earlier times, the government depended upon expatriates to drive the economy, but by empowering the kingdom’s youth the new leadership has handed some of the responsibility of effecting substantive change to the next generation.
Nevertheless, a quick assessment of major projects underway and an evaluation of the government’s approach to the wider task reveals that ‘old habits die hard’ and its tendency to push state-led growth still dominates economic activity.
Re-engineering the economy
The government has announced a trillion-dollar pipeline of infrastructure projects aimed at diversifying the economy beyond oil and positioning the kingdom as a global hub for investment and logistics. The development agenda has created opportunities in a range of new areas such as smart cities, tourism and clean energy. But while the country is telling the world that it is open for business, the plans are beset by challenges: low levels of foreign direct investment and shaky investor confidence coupled with corporate financing constraints which will require new approaches in politics and governance.
Despite potential financing constraints caused by the postponement of Saudi Aramco’s $100bn initial public offering to at least 2020, the Saudi government and its Public Investment Fund (PIF) are continuing to push forward projects linked to the implementation of the vision. Seen as the country’s diversification engine, with approximately $300bn in assets and an additional $100bn expected by next year, PIF is tasked with developing a handful of flagship gigaprojects – large-scale greenfield developments worth billions of dollars – in addition to a raft of other real estate and infrastructure projects. It is also responsible for investing in key domestic equity holdings and strategic international assets as well as new economic sectors.
The largest of the gigaprojects is a $500bn futuristic city called NEOM, which is planned for construction in Tabuk, a disadvantaged region in north-west Saudi Arabia. Ultimately, PIF wants NEOM to become a global centre for knowledge, innovation and technology, which draws on international investment and talent to develop some 16 sectors, including energy, transport, biotechnology and food. It also aims to develop it as a tourism destination.
As the leadership’s model for the kingdom’s future, NEOM has received more publicity than any other project, but its development remains uncertain. The first phase is expected to be completed in 2025, but until the authorities release of a general strategy at the end of this year, it will be impossible to determine whether the deadline is realistic.
The three other PIF-backed gigaprojects primarily target the tourism and entertainment sectors. The Red Sea Project, whose value is unknown but has an expected annual economic contribution of $5.9bn, should develop its first phase by 2022. The Qiddiya project, located 45 km west of Riyadh, is being developed as a city for entertainment, sports and arts, and also has completion date of 2022 for the first phase. Finally, Amaala, a $3bn luxury wellness tourism project, planned for construction near NEOM and The Red Sea Project in the north-west, is scheduled to open its first phase in 2020.
For now, most of the projects are backed by government spending and funds, and bond issuances, due to a lack of foreign investment and corporate financing. In 2017, the budget increased by 11.6%; in 2018 by 4.3%; and in 2019 by 13%, with 22% of the 2019 budget allocated for infrastructure. To support budgetary growth, the kingdom issued $52bn of debt between 2016 and 2018, and could raise an additional $31.5bn this year alone. PIF itself raised an $11bn five-year loan from 15 banks in August 2018 and put together a new $10bn loan last month, according to local press reports, thus raising the question of whether the fund and the Saudi Arabian Monetary Authority could realistically bump assets while picking up the bills for various diversification projects. While austerity has understandably been shelved to boost confidence and back Vision 2030, the irony is that government efforts have crowded out foreign investment and overlooked corporate financing constraints.
Growth in the construction sector is expected to rally as a result of the infrastructure plans, but an upturn dependent on state tenders and higher oil prices will only serve to mask, rather than solve, the sector’s more fundamental challenge of poor financial health and low private demand. Furthermore, as rising sovereign debt issues continue to eclipse corporate bonds, the latter will continue to be less attractive on debt markets, exacerbating corporate financing constraints.
Foreign direct investment (FDI) inflows as a percentage of GDP is currently far below Saudi Arabia’s 2030 target of 5.7%. Last year FDI represented only 0.4% of GDP – $3.2bn – reflecting not only the globally low levels of investment since 2008 but also the disruptive character and implementation of Vision 2030. While FDI is not the direct objective of Vision 2030, it is indirectly crucial for achieving the overarching goals of knowledge creation, diversification and employment.
Ultimately, private sector and investor confidence will define the success of Vision 2030. Boosting these will require stronger regulatory frameworks; improved transparency and governance; and the curtailment of political risk to reassure investors that the normative changes linked to Vision 2030 will not lead to unforeseen challenges. Success will also require a more organic approach to economic diversification than the ’build and they will come’ strategy behind infrastructure plans. Important steps have been taken to not only help develop the kingdom’s rich resource of human capital, but also to create a more business friendly environment, notably, with the introduction of essential regulatory reforms.
Nevertheless, if the kingdom’s leadership really wants to bring about economic transformation – and, as noted, it has taken major steps towards that goal – then it will need to place even greater faith in its population to contribute; lower its very high political risk rating to attract foreign investment; and ultimately ‘take a back seat’ and allow the private sector to drive growth, but, for the time being, that prospect looks dim and situated far away on the horizon.
