Saudi Arabia’s new plan to end its ‘addiction’ to oil didn’t really tell us anything new

Saudi Arabia says it wants to minimise its dependence on oil.

In an interview with al-Arabiya news, Deputy Crown Prince Mohammed bin Salman unveiled the so-called “Vision 2030” plan, which aims to curtail the Kingdom’s “addiction” to oil.

During the interview, the prince discussed expanding the country’s Public Investment Fund to $2 trillion up from $160 billion, adding that it would “become a hub for Saudi investment abroad, partly by raising money through selling shares in Aramco,” according to Reuters.

He also confirmed that the Aramco IPO would value the company around $2 trillion, and said the Kingdom would sell up to 5% of shares, according to Reuters. Although 5% might not sound huge, Reuters notes that selling even 1% of the company’s value would create the biggest IPO ever.

However, Reuters also noted that “ambitious targets, such as raising the private sector share in the economy to 60% from 40%, reducing unemployment to 7.6% from 11% and growing non-oil income to 1 trillion riyals ($267 billion) from 163 billion riyals ($44 billion) were not explained further.”

As such, some analysts thought the plans didn’t quite go far enough.

“There was very little that was new in the Saudi government’s ‘Vision 2030′ and there are still several key areas that policymakers have yet to address,” argued Capital Economics’ Middle East economist Jason Tuvey in a note to clients.

“We don’t buy into Mohammed bin Salman’s assertion that Saudi Arabia will no longer be dependent on oil by 2020,” he continued. “In short, we were were hoping for more.”

Regarding the plans for the Public Investment Fund, Tuvey wrote that, “we’ve argued before that there is less to this than meets the eye. In particular, it reflects a shift of balance sheets rather than any new assets and doesn’t in itself reduce the government’s dependence on oil revenues.”

Moreover, Tuvey also addressed two other broader concerns:

  1. The Saudis are facing political challenges as they try to push forward with reforms.
  2. The policymakers failed to address some “crucial” long-term things, including the poor education system that doesn’t provide young Saudis with the skills needed to work in the private sector and the lack of incentives to get people working in the private sector.

Still, one positive takeaway from all this was that Mohammed bin Salman noted that the Kingdom would pursue these plans regardless whether oil is at $30 per barrel or $70 per barrel, according to Capital Economics.

“But, given that the authorities will be coming up against significant vested interests within the royal family, the business elite and the religious establishment, we think that political concerns rather than oil prices are more likely to determine whether the government’s plans come to fruition,” suggested Tuvey.

“We will await with baited breath the ‘National Transformation Plan’ (that will be announced in May or early June) before passing full judgment on the government’s reform agenda,” he concluded.

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