Saudi Arabia’s deputy crown prince Mohammed bin Salman, Minister of Defense and chair of the powerful Council of Economic and Development Affairs, is planning a major economic shake-up that involves “plans to reshape the economy to withstand low oil prices,” sources told Reuters privately. The strategy includes state spending reforms and privatizations.
Bloomberg reports that Saudi officials are also considering plans to sell shares in state-owned entities and companies, citing two people with knowledge of the discussions, in an attempt to find alternative sources of revenue. These reportedly may range from ports, railways, utilities, airports, and hospitals.
Although the government of Saudi Arabia can withstand lower oil prices for longer than many other producers, the wealthy Kingdom is nevertheless starting to feel the pinch. OPEC’s Saudi-driven policy to maintain elevated production levels in order to protect market share and drive out higher-cost producers has resulted in a glut of oil on the market that has moved prices to below half what they were in July 2014. Saudi Arabia continues to pump at record rates and is eyeing consumption in Asia as an increasingly important customer, but revenues are down and Saudi Arabia is drawing on foreign reserves to meet previously established budgetary and spending targets.
That the government is taking these steps now, regardless of what happens to the price of oil over the next few years, is encouraging news for Saudis. A strategic overhaul of the Saudi economy is long overdue, so innovative approaches are seen by many in the Kingdom to be in Saudi Arabia’s long-term interests. A recent study by McKinsey & Company, commissioned by the deputy crown prince, found that Saudi Arabia can double its GDP in 15 years and create 6 million jobs if it makes tough but needed changes.
With half of the Kingdom’s population under 30 and many in need of jobs and housing, the Kingdom’s economic challenges require fixes that will impact virtually every industry and sector. They will also produce opportunities for interested foreign investors . The forthcoming U.S.-Saudi CEO Dialogue, organized by the U.S. Chamber of Commerce and the Saudi Chambers of Commerce, is the first private sector event between U.S. and Saudi high-level business officials under the new 21st century partnership outlined by the deputy crown prince on his visit with the King to Washington in September. These events are meant to provide a platform for U.S. and Saudi business leaders to have candid discussions about opportunities and impediments to greater investment between the United States and Saudi Arabia.
