OPEC de facto leader and the world’s largest crude oil exporter Saudi Arabia is still trying to pivot away from over-reliance on crude oil export revenue. But, to achieve this goal may be more difficult that planners in Riyadh have considered and may also take longer than anticipated.
Naif Al-Rasheed, managing director of the Saudi Private Sector Stimulus Office, said on Wednesday that the Saudi 200 billion-riyal ($53 billion) lifeline to its non-oil economy may be in place for longer than planned as the kingdom supports industries struggling to cope with reforms that pushed up costs and dampened demand. He said that the program is earmarking some 36 billion riyals to boost private-sector growth this year alone, on top of the 40 billion riyals already spent. The financing could continue beyond the originally planned end date of 2021. “The office has a long-term mandate to continuously support the private sector through economic cycles,“ he added.
Al-Rasheed’s comments come three years after Saudi Crown Prince Mohammed bin Salman announced Vision 2030, a monumental policy shift to help the country wean itself away from reliance on oil export revenue.
Saudi Arabia, which transformed itself from being an impoverished third world country in the waning days of World War II to being one of the richest nations on earth, still derives nearly 75 percent of its total exports from oil. Moreover, at least 60 percent of Saudi Arabia’s state coffers are derived from crude oil exports, according to the International Monetary Fund (IMF). Others place that number even higher.
It’s Saudi Arabia’s reliance on oil export revenue that continues to provide both financial rewards but also bouts of economic pain when oil prices head south. When oil prices plunged from more than $100/ barrel in mid-2014 to below $30/barrel in early 2016, Saudi Arabia nearly collapsed financially. It ran record budget deficits, had to put in place politically unpopular austerity measures and had to raise operational cash through international bond sales.
However, amid the Saudi plan to implement Vision 2030, its continued disregard of human rights among its own citizens continues to put a stain not only on the Kingdom’s push for a kinder, gentler, perhaps more modern nation, causing pause for international investors that would otherwise be flocking to pour money to the country.
At the end of last month, according to media reports, the kingdom had beheaded 37 people,mostly from the minority Shia Muslim community, with possible allegiances to Saudi arch-enemy Iran. Also, in what could be called the most ill-timed public relations blunder in decades, the controversial executions happened just as an international investors conference opened in Riyadh.
Going forward, expect the Saudis to continue to do what it does best, try to control global oil markets and prices as well as maintain a strict top-down authoritarian hold of power with zero tolerance for dissent, as well as trying out maneuver Iran for geopolitical hegemony in the region. Yet, at the end of the day, it remains to be seen if these pursuits will stall its long-term economic growth, its ambitious Vision 2030 plan as well as its long term standing in the international community.