Since assuming his post on June 21, 2017, Crown Prince Mohammed bin Salman has pursued an expansionary fiscal policy that has helped propel the Saudi Arabian economy into one of the fastest growing economies in the G20.
As chairman of the Economic Development Council, the Crown Prince has spearheaded landmark moves such as the listing of Aramco, the world’s largest oil producer, and the opening of the futuristic port city of Neom.
The Saudi Council of Ministers tasked Ceda with identifying and monitoring mechanisms and measures essential to the implementation of the country’s Vision 2030.
Key pillars of this vision include expanding the country’s industrial base, creating jobs, increasing female labor force participation, increasing foreign direct investment, and expanding the Saudi financial market.
Ceda’s National Performance Measurement Centre, Implementation Unit and Project Management Office are the agencies overseeing the implementation of the Vision programme, and official estimates suggest it could cost Riyadh at least $1 trillion to complete.
The Kingdom has delivered on many aspects of the agenda, and opening up new areas for foreign direct investment is one of its biggest achievements.
Saudi Arabia is now investing $800 billion in tourism and has set a new goal of attracting 150 million tourists by the end of the decade.
Economists say Saudi Arabia, which has the world’s second-largest oil reserves, began diversifying away from hydrocarbons a few years ago.
“Saudi Arabia will still be dependent on oil and its public sector in 2030, but the changes that have already happened and are yet to come are undeniable and would not have been possible without the crown prince,” said Hasnain Malik, head of emerging markets strategy at Dubai-based investment research firm Tellimer.
The kingdom has a sales tax of 15 percent and a corporate tax of 20 percent, but offers tax incentives to companies headquartered in the kingdom.
Tax revenues were estimated at 352 billion riyals ($93.8 billion) last year, up 8.9 percent from a year earlier. Taxes on income, profits and capital gains rose nearly 46 percent from a year earlier to 36 billion riyals at the end of December, while taxes on goods and services rose 5 percent to 264 billion riyals.
Fuel subsidies are a big strain on the budget, according to the International Monetary Fund, which earlier this month called on the Kingdom to step up efforts to eliminate them.
The Kingdom is still not where it would like to be in terms of subsidy reform, but it is clearly making progress.
Non-oil exports rose 1.5 percentage points to 14.5 percent of non-oil GDP (compared to a target of 50 percent), with much of that coming from services, said James Swanston, Middle East and North Africa economist at Capital. Economy.
It is expected that politics will continue in the future.
“We do not see any significant change in direction [of the economic policy] in the future as what we are seeing currently, and over the last few years, is a very gradual and smooth transformation benefitting the overall Saudi population,” says Junaid Ansari, director of Investment strategy and research at Kuwait-based Kamco.
Mega projects galore
One of the main pillars of Vision 2030 is the development of new sectors of the Saudi economy, including healthcare, sports, renewable energy, technology and automotive, real estate, aerospace, defense, entertainment, leisure, retail, and mining.
The push to expand the non-oil sector, driven primarily by the Public Investment Fund and its affiliates, has led to a flurry of megaprojects in the Kingdom. From giant cubes to luxury beach resorts, the list of projects has grown rapidly over the past eight years.
Some of the projects are so large and ambitious that they are defined as gigaprojects and considered once-in-a-generation undertakings.
“This is evident in the projects market, where contract awards have been steadily increasing since 2018 (except for 2020 due to the COVID-19 pandemic),” says Ansari of Kuwait’s Camco.
“The Kingdom’s contract value in 2023 will reach $102.1 billion, up 64.5% from 2022… [and] these contracts span a range of sectors, demonstrating the Kingdom’s comprehensive development process.”
Neom, the city of the future. According to Meade data, the mega-tourism project Red Sea Project alone has won contracts worth $237 billion, and $21 billion worth of contracts since its announcement in 2017.
PIF: An engine of change
One of the world’s largest sovereign wealth funds, Saudi Arabia’s Public Investment Fund remains crucial to the success of the Crown Prince’s vision.
With assets of USD 925 billion, the fund has been instrumental in setting the country on a new growth trajectory.
In 2021, PIF launched a five-year strategy with the goal of doubling its assets to $1.7 trillion and creating 1.8 million jobs by 2025, investing and contributing at least $40 billion annually to the domestic economy.
PIF Governor Yasir Al-Rumayyan at the time said the fund would contribute $320 billion to the Saudi non-oil economy through 10 new investment sectors and the establishment of companies in Saudi Arabia, boosting economic activity and strengthening and enhancing national investment.
In March, Saudi Arabia transferred 8% of its Aramco shares to the PIF to bolster its assets. Based on Aramco’s share price at the time, the stake was worth about $163.6 billion.
The market expects Riyadh to sell more shares in the world’s largest oil producer to further fund its ambitions.
Recalibrating vision
While there is a strong commitment to deliver key projects, the changing economic realities and the huge financial commitments required are forcing Riyadh to rethink its strategy.
In April, Saudi Arabia’s Finance Minister Mohammed Al-Jadaan said the Kingdom would adapt to current economic and geopolitical challenges and “pause” or “accelerate” some projects.
Saudi Arabia needs to adjust expectations regarding the 14-year plan’s goals to match market values, the minister said.
It is not clear which elements of the vision will be scaled back, or whether the government intends to delay the implementation of projects such as the 170km of The Line.
Riyadh had hoped to house 1.5 million residents in “The Line,” a linear smart city being built in Neom, in the kingdom’s Tabuk province. Officials now expect only 2.4km of the project to be completed by 2030.
“Many of the goals have been achieved and obviously there are challenges. That’s why I said we have no egos.” “We plan to modify, adapt or expand some projects; scale back some projects and accelerate others,” Al-Jadaan said.
The change in the country’s social fabric is already noticeable.
A thriving entertainment industry with the rapid growth of film networks and music festivals across the kingdom, women driving, the easing of travel restrictions for women, a sharp increase in labor force participation rates — all these are signs of the changes the royal family has brought about. led by the prince.
“A much more dramatic change would probably have been the social and cultural changes,” says Swanston.
Analysts say the Kingdom’s transformation is necessary and likely long overdue. The start of the new decade is still several years away and there is still room for further improvements, but the progress made so far has cut across all sectors of society, particularly in the social sphere.