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Saudi ‘Vision 2030’. How the Kingdom is using oil to end its economic overdependence on oil.

With the advent of clean energy technologies the Saudis realize they need to end their economic dependency on oil. ‘Vision 2030’ is a vast and complex plan that seeks to preserve Saudi Arabia’s regional power, economic prosperity, and - not the least - authoritarian rule in the post-oil future.

Instytut Boyma 19.03.2024

With the advent of clean energy technologies the Saudis realize they need to end their economic dependency on oil. ‘Vision 2030’ is a vast and complex plan that seeks to preserve Saudi Arabia’s regional power, economic prosperity, and – not the least – authoritarian rule in the post-oil future. Ever since crown prince Mohammed bin Salman announced ‘Vision 2030’ in 2016, a mixture of hopes, excitement and doubts followed. Midway through, several indicators are a clear testament that significant progress has been made. However a lot remains to be done, and challenges are mounting.

 ‘Vision 2030’: objectives and ambitions

The initiative’s goals can be divided into two categories: quantitative and qualitative. The former consists of clear benchmarks for economic activity, including, among others, the number of Hajj (the yearly pilgrimage that is mandatory for all Muslims at least once in their lifetime) and Umrah (an optional pilgrimage that can take place at any time of the year) visitors, life expectancy, and unemployment. These goals are subject to limited interpretation, allowing for a clear evaluation of the realism of their achievement and the progress that has been made. The qualitative goals are broad and descriptive. Examples include ‘building a life-long learning  journey’ or ‘development of the E-government’. 

Let us focus on the quantitative objectives. The Vision’s ‘Overview’ and ‘Vision 2030: The Themes, Programs, Strategic Objectives and Goals’ documents have six ‘Overarching Objectives’, twenty-seven ‘Branch Objectives’, and ninety-six ‘Strategic Objectives’. Within each there is a number of exact benchmarks that are to be achieved by 2030 in order to fulfill these objectives, and these will be employed through the text as the source for the official goals of the initiative. To list them all would as unnecessary as tedious, yet those most relevant for this text will be highlighted before assessing their progress:

  1.  Life expectancy is to reach 80 by 2030.
  2.  Unemployment is to be reduced from 11% to 7%.
  3.  Women’s participation in the labor market is to reach 30%.
  4.  Private sector is to contribute 65% to Saudi Arabia’s GDP, from 40% in 2016.
  5.  To make the Saudi economy one of the fifteen biggest in the world.
  6.  To increase foreign investments from 3.8% of GDP to 5.6%.
  7.  To increase the number of yearly Umrah visitors to 30 million.
  8.  To increase Small and Medium Enterprises’ (SME) contribution to GDP from 20% to 35%.
  9.  To raise the share of non-oil exports in non-oil GDP from 16% to 50%.
  10. To generate half of the country’s energy needs from renewable sources.

Ulema, predictability and legal reform

Importantly, to allow the project to succeed significant legal reform has also been intended. Primarily there was a need for codification, especially in pertinence to business laws, and adequate training of the judges in order to enable them to properly operate in such a new environment. Because there was no codified law in Saudi Arabia, trials were judged on a case-by-case basis. A qadi, a Sharia court judge, would apply his knowledge of Sharia, and his interpretation, Itjihad, to issue a verdict. Such an environment was extremely unattractive for foreign investors as it had a trait that is unwelcome in all business activities – high degree of unpredictability. 

Another element not explicitly written on the project’s official website was the ambition to limit ulema’s power. Attracting foreign investments, expanding the private sector, codifying the law, increasing female participation in the labor market and many other goals of Vision 2030 were contrary to ulema’s traditional views (Farouk, Brown, 2021). 

Until now success has also been achieved on the judicial front. The quest for codification is developing well according to the Arab Gulf States Institute in Washington. Additionally it is being reinforced by the simultaneous progress in enhancing the e-government. The Bankruptcy Law, the Personal Status Law, the Civil Transactions Law, the Penal Code for Discretionary Sanctions, and the Law of Evidence all came into effect in recent years making the country’s judiciary more suitable and friendly for foreign investors. 

Moreover, the Najiz app provides a single platform where citizens and business owners have access to all judicial procedures. It is also a testament of the positive development of Strategic Objective 5.2.4. which aims to ‘Develop the e-Government’ in support of Branch Objective 5.2. to ‘Improve performance of government apparatus’. It is an example of creative thinking that contributes to the Vision’s hitherto successes. The introduction of the app, a single solution, aids in advancing two different goals: simplification of the judicial system and development of the E-government.

Undeniable progress

Significant progress has been made in several concrete of the Vision’s goals. One of the biggest achievements so far has been women participation in the labor market, understood as “the measure of the proportion of a country’s working-age female population that engages actively in the labor market, either by working or looking for work” (Gamez, Angeles, 2019: 1). The goal for 2030 has been reached in 2020, while at the end of 2023, 35.9% of Saudi women were looking for, or were engaged in employment. Interestingly, this has not led to a proportional increase in female unemployment, as would be expected. Unemployment here is understood as those seeking, yet unable to find a job. Since 2018 unemployment rate dropped by almost 19 percentage points to 13.7% despite an almost identical rise in female participation in the labor market. 

This means that the government has been able to match the pace of increasing female participation in the labor market with creating new positions for them. However, this was not necessarily by design. A huge factor has been the pandemic. As many expat workers started to return to their home countries, and as they were unable to come back, women often stepped into their roles. Lifting the ban on women driving in 2017 also had a positive effect. In a country with a car-centric infrastructure, it gave women greater freedom of movement and more specifically, movement to and from the workplace. The downside of the former is the fact that these positions often offer low salaries and limited upward mobility. This contributes to the fact that Saudi women earn on average only 63.7% of what men do

The goal unemployment rate for Vision 2030 has also been already achieved. The objective was to decrease the unemployment rate below 7%. The most recent data from the Saudi General Authority of Statistics show that this currently stands at mere 5.1%. This is also a good development for the crown prince’s ambitious plan. 

The problem rests however in unemployment rates among young Saudis. In the third quarter of 2023 the unemployment rate for those under 25 years old stood at 17,4%. A worrying trend considering the fact it rose 0.4 percentage points since the third quarter of 2022. This is especially concerning for the ruling family as restless and unemployed youths were the driving force of the Arab Spring – that is al-Sauds’ greatest fear. 

There has also been progress on another of the Vision’s goals, that is becoming one of the top 15 biggest economies in the world, based on total GDP. According to the World Bank the Kingdom also has a good chance of meeting that objective. It is currently occupying the 17th spot, an upgrade from 19th when Vision 2030 was launched.

The Vision’s tourism dimensions can also be qualified as a success. The number of Umrah visitors in 2022 reached 24.7 million, while the goal for 2030 was 30 million. The increase from when the benchmark was announced is threefold. Meaning that the objective for the next decade is likely to be achieved before planned. The number of tourists between 2019 and 2022 rose by a staggering 45% or by 29 million individuals. Tourist expenditure, made both by domestic and inbound visitors, has also risen, by 25% bringing in around 55 billion USD in 2022. These are promising numbers especially as finance and technology tourism is to be one of the main sectors which is supposed to increase non-oil revenue, decreasing dependency on the resource.

Concerning the entertainment sector, the number of successes has been truly enormous. Saudi Arabia has become a significant force in global football. Acquisition of Newcastle United by the country’s Public Investment Fund, and subsequent investments led to the club’s best performances in decades. It also represents an interesting example of expanding Saudi soft power. The acquisition completely changed the fortunes of the club and now masks of Salman, Saudi flags, and Newcastle fans in thawb’s or kaffiyeh’s, that is traditional Arab clothing, are a common occurrence.  

Moreover, there are the transfers of football’s biggest stars like Neymar, Ronaldo, or Benzema to the Saudi football league. Simultaneously, the country regularly hosts a plethora of the most popular sport events such as an F1 Grand Prix, WWE events or the Spanish and Italian football Super Cups. Importantly it is also probable to contribute to MBS’ popularity among young Saudis as they are truly fanatical about football. This serves a clear political purpose, not merely an economic one.  

The goal for SME’s contribution into the GDP is also likely to be met as it currently stands at around 33%, just two percentage points below 2030 goal, marking a ten-percentage point increase since 2016. 

Construction mega-projects are well under way. NEOM, a megacity built from scratch on the desert, or the Red Sea Global project, a plan to create a giant housing-tourism resort, also contribute to the Vision’s hitherto successes. While not explicitly part of Vision 2030 and with deadlines of completion significantly later than 2030, they contribute to non-oil revenue as they expand the construction, business, and tourism sectors.

Progress in construction, entertainment and tourism industries helped to achieve Vision’s main goal, namely generation of non-oil revenue. In the third quarter of 2023 they amounted to 43% of total revenue, signaling they can easily surpass 50% by 2030. 

Challenges remain

The above positive, economic indicators and already fulfilling some of the goals for 2030 are a clearly welcome sign for the Saudi government. However, the road to completion of all the above goals remains filled with problems. One aspect is that paradoxically, oil remains the central tool for lessening the dependence on oil.

There is a recent example that is quite representative of the situation. In 2022 Saudi Aramco acquired 30% in Gdańsk refinery and it simultaneously agreed to provide 45% of oil needs for the Polish oil refiner and petrol retainer Orlen. For Poland it was important as it contributed to a transition away from Russian energy supplies in the wake of Moscow’s aggression in Ukraine. For Aramco and Saudi Arabia, it was illustrative of the still present centrality of oil. By entering a new market and expanding into a new region, it clearly signaled that oil revenues are not to be reduced in order to generate capital that would fuel Vision 2030’s investments. Aramco’s reports and communications to stakeholders clearly state that these acquisitions are  to ‘expand Aramco’s presence in the European downstream sector and increase its crude exports to Poland’. 

A similar trend occurs in the company’s strategy towards China. It insists that ‘China is strategically important to our business growth in Asia and worldwide, and we will remain a reliable source of long-term oil supply’. Year on year Saudi Arabia increased its oil exports to China by 4.7% between 2022 and 2023. 

The above examples are a clear statement that oil revenues are thus to be at least sustained, to generate the revenue that’s so crucial for vital 2030 investments. Considering that the expected budget deficit for 2024 is around 21.3 billion USD, oil revenues are thus needed for the Vision’s plethora of projects. Additionally, this also means that a lot hinges on oil prices. According to the Washington Institute the Saudis need the price of crude Brent oil to be at least 80 USD per barrel. It thus means they will lower production and employ other means in order to retain such a price.                                                                                                 

Moreover, while some progress has been made, there are several factors one need to take into consideration. One of the crucial elements of the Vision’s goals – private sector’s contribution to the GDP – is rising, yet below expectations and would not meet the 2030 goal by current growth rates. The objective was to achieve a 25-percentage point increase between 2016 and 2030. Halfway through, we have witnessed an only 5-percentage point rise from 40% to 43.8%. This means that the 65% benchmark is unlikely to be met. 

The yearly growth rate of the private sector’s contribution into the GDP can increase as hitherto investments expand and as the judicial landscape becomes more and more business friendly, yet the achievement of the Vision’s goals remains unlikely. This is of relevance as it slightly annuls the significant increase in non-oil revenues as it indicates that most of this income was funded by public money which is still mostly generated from the export of the resource.

Simultaneously, the ambition to generate half of the country’s energy from renewables by 2030 is certain to fail. That figure stood below 1% of total energy consumption at the end of 2020. This means that even if economically wise Saudi Arabia can become less dependent on oil, when it comes to its energy needs, it is certain it will not. Despite the ongoing development of the world’s largest single-site solar-power plant in al-Shuaibah, all current numbers are massively below targets. By 2020 the Kingdom aimed at producing 24 Gigawatts (GW) of energy from renewable sources. By the end of 2022 it stood at 14.53GW, that is barely above half of what was planned, for two years earlier. The objective for 2032 aims at 54 GW, a goal even an optimist would call unrealistic (Salam, Khan, 2018). Regardless, the fact that less than a percent of all energy comes from renewable sources is a clear testament that while economically the country diversifies with some success, energy wise it will not.

The life-expectancy goal for 2030 also is not progressing as hoped. Between 2016 and 2030 it was planned to rise by six years, from 74 to 80. Halfway through the initiative, it has increased only by two years, yet one must account for the impact of the COVID-19 pandemic as an unpredictable factor that worked against that goal.

Additionally, regional politics also present challenges. The collapse, or at least significant delay, of the talks to normalize relations with Israel, return of hostilities in Yemen and regional low- and high-scale warfare are not what one would call a business-friendly environment. The situation and the regional uncertainty hinder foreign investments, as well as Saudi insistence that foreign companies relocate their regional headquarters to the Kingdom.

Prospects 

All the above mean that the transition towards a less oil-centric economy has had some success. Non-oil revenue is rising, unemployment is declining, and inflation is under control. However, the hope is to remove the overdependence on oil by increasing non-oil economic activity, not by decreasing the reverse. Energy-wise, the expansion of Aramco into new regions shows that its operations will remain relevant for the country’s economy. 

The slow expansion of the private sector is definitely worrying as the country needs organic, sustainable non-public activity that is not just the government reinvestments of oil revenues. This development will be crucial in the coming years. While it may be hard to accomplish the threshold of 65% of the GDP generated by the private sector, it remains plausible that a range of 55%-60% could be achieved. 

The geopolitical uncertainty adds to the complexity as there are several dynamic and unpredictable factors determining the near future of Saudi Arabia and the broader region. Lingering questions about possible Israeli elections, unknown fate of Gaza and the situation in Yemen as well as US-Iranian escalation – it  all makes the next months and years unpredictable, both for analysts and policymakers. Simultaneously, the Kingdom will employ any means necessary to keep the price of oil at over 80 USD per barrel, as it desperately needs that revenue to reinvest it in non-oil economic activity.

Altogether the government has already acknowledged some delays (without specification) and considering the above data some aspects of the Vision will certainly fail. Meaning that full completion of Vision 2030 by the given date is almost impossible, especially when one accounts for the now admitted delays. 

However, despite all complications, some progress has been achieved.  Economic reliance on oil is decreasing, the non-oil sector is expanding, societal norms are liberalizing, and MBS’ power remains unchallenged. As these are the focal points which gave impetus for Vision 2030 in the first place, one could guess the crown prince may be satisfied with the evolution. 

Jan Kosiński

Graduated with a BA in History and War Studies from King's College London and an MA in International Relations from the London School of Economics and Political Science. Main interests are the Middle East region with special emphasis on the Persian Gulf, the Axis of Resistance and any manifestation of political Islam. Recently also interested in the global role of China and Eastern Europe. Privately, a soccer fan with a strong passion for music and amateur photography.

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