Reducing the reliance on oil revenue and diversifying its economy, Saudi Arabia is prompting investors about the challenges associated with dependence only on oil revenue. The ability of the oil dependent country to turn into an oil non-dependent economy is taking shape in the form of Saudi Vision 2030.
Highlights of Vision 2030
The ‘Vision 2030′ aims at making Saudi Arabia:
- A pioneer and successful global model of excellence on every front including oil and gas
- A vibrant society with strong roots, fulfilling lives and strong foundations
- An ambitious nation that is effectively governed and responsibly enabled
This roadmap for economic and developmental action aims to grant the Kingdom of Saudi Arabia a leading position in every field including oil.
Vision 2030 and Job Scenarios
The Vision 2030 strives to reduce the overall unemployment rate and focuses on increasing women workforce in the country. The National Transformation Plan (NTP) aims at creating 450,000 new jobs in diversified sectors of economy.
The government plans to expand private sectors in the country meaning more number of jobs in different sectors in addition to oil and gas. The new focused sectors include information technology, military manufacturing and industrial equipment and more.
Glancing through the NTP and Beyond
The Vision 2030 is empowered by National Transformation Plan (NTP) and the implementation of this plan would be a race against time that would help the weaker global economy meet the global standards.
Saudi Arabia would have to take some additional steps like liberating foreign direct investments, allowing complete foreign ownership in selected cases and implement some open skies policies. The Kingdom of Saudi Arabia should embrace the unruly power of financial technology and establish a stock exchange that would advance financial inclusion and simplify access to finance for medium size and small sized firms.
Additionally, the NTP would require a global move for managing economy and business.
Why there is a Need for Diversification?
This diversification along with development of new roadmap can be attributed to a number of reasons. Some of them include:
- Prediction from International Energy Agency (IEA) of slow oil-demand in the coming three decades
- Sustained drop in oil prices
- Fast-changing climate-change regulations
- Technological advancements that could render oil less valuable in the future
Saudi Arabia is highly dependent on oil revenue. And due to its falling prices, the economy is facing a cash crunch.
A Look through Saudi’s Economy
So far, the effect on Saudi’s economy due to decline in oil prices has been limited. The country has witnessed a major effect on fiscal revenues and lower exports. The GDP in the fiscal year 2015 remained 3.5% unchanged from the previous year. However, the country is expected to witness a lower rate as the government picks up to adjust to the lower oil price environment in 2016.
The Impact of Low Crude Prices on Saudi’s Economy
Through oil exports, Saudi government makes 90% of its budget. Therefore, with every dollar that it loses in exports, the government budget goes down by a dollar. Further, a decrease in oil export revenues would lead to extensive GDP contraction and a decrease in headcount in the local government bodies along with the compensation values.
This would lead to weakening of trade and services creating direct effect on finances and imports.
With such huge impacts, the economy needs to diversify and reduce its dependency on oil revenues. It needs to design a radically new economic model that addresses structural impediments to productivity and growth.
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