Saudi Arabia’s post-oil future: Vision or mirage?

IF ANYONE needed confirmation that Muhammad bin Salman, Saudi Arabia’s deputy crown prince, is a man in a hurry, they got it on April 25th. The 30-year-old unveiled a string of commitments for ending the kingdom’s dependence on oil by 2030 that are by themselves laudably ambitious in the puritanically conservative country. 

Then he trumped himself, saying that the kingdom could overcome “any dependence on oil” within a mere four years, by 2020. It sums up what seems to be a somewhat manic optimism among the youthful new policy-setters of the royal court. Badly needed now is a cool explanation of how to turn vision into reality.

The outlines of the announcement that has generated much anticipation in Saudi Arabia—particularly among women, newspapers say—had been well trailed in advance. 

They included: the floating of a small stake in Saudi Aramco, the world’s biggest oil company; the creation of the world’s largest sovereign-wealth fund to invest in a diverse range of assets; more jobs for women; and more vibrant non-oil industries, ranging from mining to military hardware.

To the government’s credit, Prince Muhammad backtracked on none of these—though his apparently modest goal of raising the female participation rate in the workforce from 22% to 30% in just under 15 years appeared to reflect strong resistance from the Wahhabi clerical establishment. A promise that women would be allowed to drive, essential if they are to enter the workforce fully, was hoped for by some, but likewise did not materialise. 

He expected the sale of up to a 5% stake in Aramco to value the company at a minimum of $2 trillion, and promised to transform it into a “global industrial conglomerate”. Its businesses would be put into ownership of a sovereign-wealth fund known as the Public Investment Fund, which with other assets could be worth as much as $3 trillion, generating plenty of non-oil investment income. 

The Aramco initial public offering (IPO) would be of the parent company, which would have an elected board and be subject to the scrutiny of analysts and investors at home and overseas. Other industries, including defence and renewable energy, would be given strong incentives to grow. The kingdom, with the world’s third-biggest military budget, spends only 2% of it on arms purchases at home. It aims for over half to be spent on locally made armaments by 2030.

To achieve such a bold quest, the kingdom would need to throw itself open to trade, investment, foreign visitors and international codes of conduct such as more transparency and secular laws, which are anathema to the fundamentalist clerics who for decades have sought to shun the outside world. 

The tense feud with Iran, stoked by Prince Muhammad via a proxy war in neighbouring Yemen, adds potential geopolitical instability to the risks that investors would face. But a step in the right direction was unveiled, with the promise of “green cards”, permanent-residence documents for foreigners.

The indolence of a society brought up to expect that oil riches will be lavished upon them is another hurdle. For years efforts to end the kingdom’s unhealthy addiction to oil have run up against a wall of apathy. As one Saudi commentator puts it, “it’s been like a father telling his 40-year-old son that it’s time to go out and get a job.” 

Prince Muhammad’s youth in a country used to gerontocratic rulers makes it easier for him to motivate young people, and social media give him better access to the pulse of the country. But with oil revenues weak and unemployment at 11.6%, the chances of disillusionment are strong.

That is why addressing some of the key concerns hanging over the reforms will be vital when Prince Muhammad reveals the National Transformation Plan fleshing out his vision in late May or early June. For instance, a 5% IPO of a $2 trillion Aramco would be worth $100 billion; a staggering amount for international markets, including the Saudi stockmarket, to absorb. 

By what means can non-oil government revenue be more than sextupled, from 163 billion riyals ($43.5 billion) now to 1 trillion riyals by 2030? Which additional state-owned firms would be privatised to raise the private sector’s contribution to GDP from 40% to 65% by 2030? And what would happen if oil prices fell below $30 a barrel, the price assumption on which Prince Muhammad says the reforms are built?

He says his feet are firmly planted on the ground. “This is not a dream, this is a reality that will be achieved, God willing.” But when the sums involved are in the trillions of dollars, the neighbourhood is fraught with tension, and the reforms require the upending of social norms to succeed, the burden of proof is high. Saudi Arabia has promised diversification away from oil for decades: the prince now needs to prove that this time is different. 

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