Saudi Arabia’s competitive economic edge for the last several decades has undoubtedly been due to its vast oil reserves. However, as major economies continue to shift their focus towards more sustainable commodities, Saudi Arabia has recognised the need to modernise their own economy rightly so. Crown Prince Mohammad Bin Salman’s reforms to progress the Saudi Arabian economy by 2020, to a point where oil is used to achieve sustainable economic growth instead of being the primary factor boosting growth is indicative of this change in sentiment. With increasing discussion that Saudi Arabia’s most recent recessionary phase is drawing to an end and thus the country’s fiscal austerity too, it appears to be an ideal time for the Crown Prince to reinforce his economic agenda by: incentivising investors through privatisation; attracting tourism; and developing its labour force.
With investor preferences tending more towards developed economies as well as China and India from the emerging markets, attracting investors through privatisation is imperative. The IPO of Saudi oil giant, Aramco, which has been pending for several years is a significant example of Saudi Arabia’s aim to raise approximately $200 billion across the economy via privatisation of state controlled entities. Sectors embarking upon these changes include not only oil but also healthcare, education, airports and grain milling. Furthermore, alleged reports of SoftBank hiring Deutsche Bank to advise on a potential stake in Saudi Electricity and Co, Saudi Arabia’s state controlled power supplier, reinforces the benefits privatisation can provide for the economy in addition to the restructuring of institutions into separate bundles.
Additionally, perhaps an underestimated asset in the largest Middle Eastern economy is the land and resources available for holiday destinations. A particular opportunity in the region, between the two cities of Umlaj and Al-Wajh, set to attract significant tourism is the Red Sea Project. The project that consists of a resort planned to be set across the lagoon of 50 different islands is proposed to be a pivotal step in developing the Saudi tourism industry.
Finally, the impact of Saudi Arabia’s recent social reforms should not be underestimated either. Allowing women to drive and attend football games, given Saudi Arabia’s historic stance on such matters, indicates increased progressiveness in Saudi society aiming to encourage and empower women’s role in the economy. Ultimately, the changes in social attitudes are appealing to the younger generation of Saudi Arabia that makes up more than 65% of the total population. Thus, recent changes in social policy have increased the possibility of a larger and highly skilled workforce.
Indeed, the economic and social reforms that Saudi Arabia is currently embarking upon will not reform the Saudi economy to reach the same level as more developed economies or its emerging market competitors. Whilst the Crown Prince has made ostensible efforts to address corruption, Saudi Arabia continues to be under strict control of the House of Saud, the country’s ruling royal family. Therefore, it is worth considering that the effectiveness of policies such as privatising and restructuring state-owned entities, developing tourist sites, and social reforms may be limited based on the state’s willingness to ease its historic control over the economy and its people. Nonetheless, Saudi Arabia’s efforts to reduce its reliance upon oil, especially when considering oil faced a 21 percent plunge this month – noted to be the worst month since the financial crisis, is a fundamental factor that is likely to improve investor confidence, ensuring economic development based on a balance of growth factors in the long term.