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Page added on May 16, 2016
Saudi Arabia’s attempt to reduce reliance on oil has the world rapt
Saudi Arabia has captured the world’s attention with the announcement of an ambitious agenda, called Vision 2030, aimed at overhauling the structure of its economy. The plan would reduce historical high dependence on oil by transforming how the kingdom generates income, as well as how it spends and manages its vast resources. It is supported by detailed action plans, the initial implementation of which has already involved headline-grabbing institutional changes in a country long known for caution and gradualism.
While the immediate catalyst for economic restructuring is the impact of the sharp fall in international oil prices, the rationale for these reforms has been evident for much longer. With oil sales generating the bulk of government revenues, and with the public sector being the predominant employer, Saudi officials have long worried that the kingdom’s lack of economic diversity could place at risk its long-term financial security.
The more than halving of oil prices in the last 18 months has been accompanied by a major change in how the oil market functions. With growth in non-traditional sources of energy – particularly the “shale revolution”, which drove a near-doubling in US production, to almost 10m barrels per day, in just four years – the Saudi-led OPEC oil cartel has less influence on market prices. In addition, certain members of OPEC, again led by Saudi Arabia, are now less willing to try to moderate fluctuations in the price of oil, as they correctly recognize that “swing producers” risk durable losses in market share.
That’s why Vision 2030 is so important. Seeking to regain better control over its economic and financial destiny, the kingdom has designed an ambitious economic restructuring plan, spearheaded by its energetic new deputy crown prince, Mohammed bin Salman Al Saud. In simplified terms, Vision 2030 focuses on three major areas, together with efforts to protect the most vulnerable segments of the population.
First, the plan seeks to enhance the generation of non-oil revenues, by raising fees and tariffs on public services, gradually expanding the tax base (including through the introduction of a value added tax), and raising more income from a growing number of visitors to the kingdom.
Second, the authorities want to reduce spending by lowering subsidies, rationalizing the country’s massive public investment program, and diverting spending on arms away from foreign purchases.
Third, the kingdom seeks to diversify its national wealth and, in the process, increase current investment income. For example, the plan would raise funds via the IPO of a small part (up to 5%) of Saudi-Aramco, the giant oil conglomerate, and invest the proceeds in a broader range of assets around the world.
This bold economic vision is not without risks. Economic transitions are inherently tricky, especially one of this scale and scope. Early successes are often needed to solidify the overwhelming buy-in of key constituencies, particularly those that naturally may be resistant to change at first (especially change that eliminates some of the traditional financial entitlements in moving from a familiar, albeit less secure, present toward what is now an unfamiliar future).
The action plans underpinning the implementation of Vision 2030 inevitably involve progressing on multiple fronts simultaneously and in a carefully coordinated and monitored fashion. Requiring invigorated administrative and operational resources, it comes at a time when the Kingdom is not only dealing with lower oil earnings and drawing down its large reserves, but also is increasingly asserting its regional role, including in Syria and Yemen.
Against this background, it is encouraging that the announcement of Vision 2030 has been followed rapidly by the implementation of some initial and notable steps. Sustaining this momentum in a manner that maintains consistent communication with key domestic stakeholders will likely prove critical in determining the plan’s success. How the Saudis proceed on this important economic restructuring is being closely watched by the other five members of the Gulf Cooperation Council – and by many other countries as well.
The attention attracted by Vision 2030 is not surprising. The plan, after all, is about a lot more than fundamental economic reforms. If Saudi Arabia succeeds in transforming its economy, including reforming institutions and restructuring economic incentives, other countries that face similar challenges, in the region and beyond, will be inspired to follow suit.
22 Comments on "Saudi Arabia’s attempt to reduce reliance on oil has the world rapt"
Davy on Mon, 16th May 2016 8:12 am
This is no different than the predicament of the rest of the world. We needed to do these things 30 years ago when science told us we should. It is too late and many of these efforts will likely just be a waste of time and effort. Many of the best things we can do are small local efforts of adaptation and mitigation. We no longer have the resources to redesigned modern life but we can change attitudes and lifestyles. That is the best we can do. We walk through a door and the door is now closed accepting this is what we should be doing first. KSA is about the worst placed of any nation with 30MIL people living in a desert dependent on a depleting resource for everything. The place has no future. I don’t care what they do.
Kenz300 on Mon, 16th May 2016 9:08 am
Oil producing countries,the oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them. Climate Change is real….. it will impact all of us…
It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies. The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them..
The world is moving to embrace alternative energy sources…….. the fossil fuel companies can transform themselves into “energy” companies or they can die a slow death.
As Climate Change impacts more people there will be a bigger backlash against fossil fuels.
dave thompson on Mon, 16th May 2016 12:03 pm
Kenz,you keep saying ” embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste.” All of the above named “alternatives” are nothing without FF inputs. Once the FF inputs go away so goes alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste.
Boat on Mon, 16th May 2016 12:20 pm
dave,
The goal of renewables is to create more btu’s from FF. Some windmills have an eroi of 18. Thats 18x the amount of energy gain that it took to build it. Ya get it? All this tech improves every year.
All this tech will just mean less FF needed.
onlooker on Mon, 16th May 2016 12:27 pm
What you conveniently leave out is the whole deployment ,infrastructure and transportation needed to assemble and deploy this windmill. You also leave out how much actual consistent energy it produces.
GregT on Mon, 16th May 2016 12:34 pm
“All this tech will just mean less FF needed.”
All this tech will just mean adding more CO2 into the environment. Considering that CO2 is accumulative, and that we in all likelihood have added far too much already, it shouldn’t take a brain surgeon to figure things out. Tech is the problem, not the solution.
dave thompson on Mon, 16th May 2016 12:36 pm
http://2oqz471sa19h3vbwa53m33yj.wpengine.netdna-cdn.com/wp-content/uploads/2016/05/most-valuable-exports-middle-east.jpg
Apneaman on Mon, 16th May 2016 12:58 pm
Boat, “All this tech improves every year.”? No “all” of it doesn’t. And even when some does, like your wind turbine(no link), it doesn’t mean they are tearing the old ones down every year and replacing them with a new model that has a minor bump. Same for solar. Same for cars. Same for everything. So if you replace all electrical generation with alternatives to ff electrical generation – so what? What do you think that accomplishes? Do you even know what percentage of world energy is electrical?
The cancer went terminal awhile back.
Band aids on shotgun wounds.
Boat on Mon, 16th May 2016 1:37 pm
ape,
And if transportation ran 75 percent electric we wouldn’t have this web site. I think that day willl come.
Boat on Mon, 16th May 2016 1:48 pm
It’s funny to see y’all jump at the chance to argue against the obvious future. The future is staring you in the eyes, slapping your face, ringing your bell.
GregT on Mon, 16th May 2016 1:59 pm
Feeling good about the future? Hold that thought: Looking on the bright side ‘sets you up for disappointment’ and makes you more prone to depression
“People who fantasised about an ideal version of their future were able to curtail their symptoms of depression in the short term. However, this form of positive thinking was associated with more symptoms of depression in the long term and was predictive of more mental health problems.”
http://www.dailymail.co.uk/sciencetech/article-3428309/Feeling-good-future-Hold-thought-Looking-bright-sets-disappointment-makes-prone-depression.html
Apneaman on Mon, 16th May 2016 2:16 pm
Boat, you don’t seem to have grasped that the humans have no future except wailing and gnashing of teeth. 2C is already baked in. That does not include the some two dozen, already underway, positive self reinforcing feedback loops. They can’t be stopped. It’s called inertia. It means 2C will get ya 4C and 4C will get ya 6C. The crops the humans rely on for sustenance need pleenty of water and the proteins in them start to denature at 4C. That’s 3C from now. Keep your eye on the Arctic. If we get the dreaded Blue Ocean event in the next few months it will help speed things along real good. In the face of what’s coming all that beloved technology of yours is like throwing a rock at a charging grizzly bear.
GregT on Mon, 16th May 2016 2:17 pm
“It’s funny to see y’all jump at the chance to argue against the obvious future.”
It’s sad to see people such as yourself rationalizing against the obvious future. Others here such as myself have already embraced alternate energy, are very well aware of it’s limitations, and have no illusions that it will allow the continuation of anything even remotely resembling BAU. The biggest hurdles to overcome in the not so distant future, will be water insecurity, food production, and climatic instability. All of which will be exacerbated by adding even more CO2 into the mix.
The future is staring you in the eyes Boat, only you have your eyes clamped tightly shut. It hasn’t slapped you in the face or wrung your bell quite yet, but it will, and when it does, you will be woefully unprepared.
GregT on Mon, 16th May 2016 2:19 pm
“In the face of what’s coming all that beloved technology of yours is like throwing a rock at a charging grizzly bear.”
More like lathering in honey, or fish guts.
Boat on Mon, 16th May 2016 3:37 pm
They can’t be stopped. It’s called inertia. It means 2C will get ya 4C and 4C will get ya 6C. The crops the humans rely on for sustenance need plenty of water and the proteins in them start to denature at 4C.
So what is the timeline for 4c. How high will the oceans be then. How much will alge, plastic, fish depletion and storms be affecting populations at that time. Is there wide spread agreement on the timing of 4c. Talk numbers instead of “soon”.
GregT on Mon, 16th May 2016 4:19 pm
“So what is the timeline for 4c. How high will the oceans be then.”
We’ve already passed the 1.5º C do not exceed temperature agreed upon in Paris. The increase from this time last year is over .3ºC. If current trends continue, without going non-linear (which it appears that we already have), then we should be at 4ºC within about 8 years, give or take. Rising oceans are a distraction, and are of the least of our concerns. Billions of people could always move inland. There’s no moving away from lack of food, water, or oxygen.
Apneaman on Mon, 16th May 2016 4:46 pm
Boat, the truth is no one knows for certain and many scientists still claim that 4C can be avoided and would say I’m wrong. The scientists who build the models will often speak with certainty that this will or won’t happen by such and such a date. The model predictions have, by and large, been accurate on the what, but way off on the when on many major phenomenon. A decade ago the models predicted an arctic blue ocean at mid century at the very earliest. Nothing new under the sun as far as increased atmospheric CO2 – the earth has gone through this before. It’s the speed of change that is unprecedented and deadly plus it’s happening to an already biologically improvised planet. AGW is but one driver of the 6th mass extinction and if the humans sucked out all the added CO2 and buried it it would not be enough to stop the mass extinction event. No we would need a 90% cull and major changes in the living arrangements. There is the possibility of negative feed backs that might slow things down a little, but I don’t want to tell you about them because that will ruin my dooming. So far, just minor negative feed backs like melt water from land based ice sheets resulting in some increased sea ice cover. That’s what the deniers cling to and call a new ice age – desperate tards. The one thing that almost every scientists says publicly is there is still a chance if we change/ slow down to a crawl (sure). I only see billions of apathetic or in denial dopamine seekers with the pedal to the metal in a late stage (decadent) insane global techno industrial civilization. There ain’t going to be any intentional slowing that would be enough to matter. That would be hard enough if we were actually trying (not) and the elite and vast majority of the populous had some integrity left – they don’t. If you study the wealth of material on all the dead civilizations before us a pattern emerges that show a majority of them died by suicide. We have the barrel of the gun in our mouth.
onlooker on Mon, 16th May 2016 5:30 pm
But cheer up Boat, nobody is doing anything so we can continue pretending a few years more and partying and dreaming. Oh and AP left out probably the worse news positive feedbacks we are seeing them now in no uncertain terms. That means nothing can be done about AGW even if we could or wished to. I guess is was waiting for someone to sound to exuberant to bring back down to Earth.
GregT on Mon, 16th May 2016 6:53 pm
Even worse than nobody doing anything to stop a runaway greenhouse event onlooker, most people, just like Boat, are cheering for low gas prices. As if that could possibly stop our economies from imploding. Not that it really matters. Our economies are completely reliant on a healthy natural ecosystem. So those cheerleading for cheap oil are in fact cheerleading for the demise of our economies, as well as the Earth’s natural ecosystems. And to think that they call themselves cornies.
Sissyfuss on Mon, 16th May 2016 8:16 pm
If my vision was 20-30, I would also be mistaking my camel for one of my 47 wives.
Anonymous on Tue, 17th May 2016 4:33 pm
Saudi Arabia’s ‘plan’ to wean itself off oil, apparently involves flooding the world with as much of it as they can, and colluding with washingdum and Tel Aviv to drive the price down as low as the market will bear without utterly imploding.
What a great plan. Absolutely leak proof. Just like a koch brothers pipeline.
Kenz300 on Wed, 18th May 2016 8:49 am
The fossil fuel industry needs to wake up and see that the light coming at them is a freight trail and they are going to be run over…………….It is time for the fossil fuel industry to embrace the transition to safer, cleaner and cheaper alternative energy sources…….
100% electric transportation and 100% solar by 2030
https://www.youtube.com/watch?v=RBkND76J91k