Technologies VS petroleum: plan-2030
Last autumn Saudi Arabian authorities have lifted the ban on calls via the Internet, allowing, in particular, messengers WhatsApp and Skype. However, this is only a small detail of the comprehensive modernization that has begun in the Kingdom. The budget of Saudi Arabia in 2018 will be the largest in the history. It is not just about the quantity, but also about the quality of expenses aimed at diversifying the economy and reducing its dependence on oil. Economic restructuring is an essential component of the plan “Vision-2030” (Saudi Vision 2030) initiated by Crown Prince Mohammad bin Salman al Saud.
The Kingdom is ready to increase expenses to record levels of 978 billion riyals (261 billion dollars). It was not easy to adopt the budget: in 2017, the country entered a recession, experiencing a 0.5% reduction, but the government optimistically estimates the forecast for 2018: increase up to 2.7%. A key feature of the current budget is the emphasis on structural reforms. The authorities intend to reduce subsidies for the energy sector:
it is expected that this step will free up funds for other parts of the economy, for example, for infrastructure. Plans are ambitious.
On 25th of April 2016 Crown Prince Mohammad bin Salman announced the program “Vision-2030” (Saudi Vision 2030) designed to confirm the status of the kingdom as “the heart of the Arab and Islamic world, the investment center and the hub that connects three continents.”
Based on three pillars — society, economy and nation — the program is designed to reduce the dependence of the kingdom on oil revenues, modernize the economy, and give a new impetus to the development of high technology, education, medicine, infrastructure and tourism. The energy sector of the program envisages an increase in the assets of the Saudi Arabian Public Investment Fund (PIF), an increase in use of goods, services and labor in the oil sector, an increase in revenues from non-oil exports, and the IPO by oil company “Saudi Aramco” and the optimization of energy subsidies. A separate issue is an increase in “local content”, in other words, import sub-
The appearance of the program “Vision 2030” was partly determined due to the fall in oil prices in 2014. Many state programs were under the threat of failure, the pace of construction began to decrease, and some infrastructure projects were frozen. In 2016, the budget deficit pushed the Saudis to foreign borrowings for the first time, which allowed the government not only to inject additional funds into the economy but also to avoid an increase in the tax burden. Meanwhile, at first it seemed that the state structures were not ready for such a volume of announced reforms. Some ministries were merged or transformed, new structures were created. But things got
Saudi Arabian Public Investment Fund (PIF) created in 1971 to stimulate exclusively its own economy; according to the reform plan it should become one of the largest sovereign funds in the world and should invest outside the kingdom.
In addition, Mohammad bin Salman, the successor of the Saudi throne, announced the project to build an innovative city on the shores of the Red Sea. According to the forecasts the volume of investments will make 500 billion dollars and the number of robots in the city will exceed the number of people. The super-city already has a name — NEOM. Investments are expected from the government, Public Investment Fund (PIF), sovereign investment fund of the Kingdom, as well as local and international private investors, as Bloomberg reports. Russian companies are also interested in the project.
NEOM will be built from scratch, in a new location; this is a unique opportunity to create a city that will differ from everything that has been built for hundreds of years,” prince said. The super project plan includes the construction of a bridge across the Red Sea which will connect Saudi Arabia and Egypt. The area of the city is almost 26 thousand square kilometers. At the same time, NEOM can become “the world’s first independent special zone that extends to the territory of three countries”: in part it will be located in Egypt and
As Stefan Hertog, Professor of the London School of Economics, told Bloomberg, the project will most likely be implemented according to the model of the “free zone” (earlier in the Middle East something similar was embodied in Dubai). In such zones not only economic benefits for residents but also their own legislation apply.
The project initiators assume to implement a new concept of employment of labour in the city NEOM: to attract highly qualified personnel, and to give robots whose number “will exceed the population of the city” all tasks related to monotonous or physically demanding work. Priorities for the NEOM economy are nine areas, including digital technologies, new energy, biotechnology and media. “The concentration on these sectors will stimulate economic growth and diversification,” the Saudi authorities are sure.
The reforms of Mohammad bin Salman are focused on economy of Saudi Arabia that to a greater extent should comply with the realities of the modern world. In other words, we are talking about its new edition. As they say now: edition 2.0.
Interest sale in the state-owned oil giant Saudi Aramco, the opening of the stock market to attract foreign investment and the creation of the world’s largest sovereign wealth fund are the most important components of the reform program. According to the chief executive officer of Saudi Aramco, Amin Nasser, the IPO of the state oil giant is scheduled for the second half of 2018.
According to Mohammed al-Tuwayjri, Saudi Arabia’s Minister of Economics and Planning, the management of the oil market should become a part of the strategy for the future kingdom, taking into an account that additional revenues from oil are planned to be transferred to PIF, which will basically help Riyadh to rebuild the economy. The authorities also expect that oil prices will still grow, which will increase the cost of Saudi Aramco, whose revenues also came from PIF. Finally, Saudi Arabia relies on stronger global economic growth, an increase of oil consumption and a natural decrease of rate on existing fields to stimulate demand for oil in the kingdom itself. Prince Mohammad believes that in 2018 prices will be “significantly higher” against the background of these factors.
“We should not be afraid of” Khalid Al Falikh, Saudi Minister of Energy, said at the January forum in Davos. In his opinion, shale oil production (mainly in the US) cannot fully meet the fast-growing demand — except in the short term.
Gary Ross from S&P Global Platts says that Saudi Arabia has convinced the whole world that it intends to maintain oil prices in the long term. In 2019, it is expected that the agreement on the reduction of production which was concluded by KSA with Russia should be completed, but it is expected that Saudi Arabia will insist on its extension. And for internal needs an alternative is provided. In April 2017, the Saudis launched a plan to develop solar and wind power stations, which is estimated at $30 – 50 billion. By 2023 it is planned to put into operation about 30 projects with a total capacity of
But speaking about the future, do not forget about today’s day. The reality is that: high technology has already received an official residence permit in Saudi Arabia. In the truest sense of the word. At the investment forum Future Investment Initiative, which was held in October 2017 in Riyadh, the capital of the Kingdom, the Saudi side granted citizenship to the robot Sofia, the brainchild of the American company Hanson Robotics. “Iron Lady” impressed those present with expressive facial expressions and advanced skills in speech recognition and synthesis. In response to congratulations on the new status, Sophia’s artificial intelligence voiced a small speech expressing grateful for the vote of confidence. To be continued…