Saudi Vision 2030 will it work?
Economic diversification is now important for countries that depend on one source of income that is affected by prices like oil. No country is important in affairs of oil like Saudi Arabia and the drop in oil prices in 2016 has caused promptly deteriorating budgets of oil-producing countries (Wall Street Journal 2016). Volatility of oil prices is a real concern for countries that are rich with oil and natural gas. This essay will talk about the economy of Kingdom of Saudi Arabia and the importance of diversifying it and it will mention Norway as a case study and then it will talk about the reasons for Saudi Arabia to launch vision 2030 and what Saudi Arabia will do to diversify its economy.
Economy of Saudi Arabia and the importance of diversifying it
The backbone of Saudi Arabian economy is oil and it’s the main source of its improvement (ISPI 2016). Alhowaish stated that Saudi Arabia economy is dependent on oil with a wealthy natural possession (2014). Aboudah mentioned that Saudi Arabia is the largest exporter of oil derivatives and it is also have the highest capability to produce oil on an international market, and it represents 18 percent of the international petrol reserves supply (2015). Considering the improvement of technology in renewable energy, and the drop of oil prices and decreasing demand for it, Gulf countries economy is affected by the Instability of international oil prices, and there is growing worry over environmental change, so diversification has become important for gulf countries as it is economy is unsustainable (Mishrif 2018). Bokhari mentioned thateconomic diversification can be defined as: to not depend on one source that is affected to any change that happen to it by reformation the economy and raising contribution of different economic areas in a country by building diverse exported commodities (2017). Hvidt stated that oil is a finite resource and the demand for it have varied significantly for this reason diversification is now a priority for the gulf countries because oil is their only main source of income (2013). Benefits of economic diversification is numerous, In the first place, even within the sight of defined fiscal rules one thing to be taken in consideration is that volatility of oil prices is especially challenging for oil rich countries through its unexpected effect on the sovereign balance sheet, diversification could be as a support against fluctuation of commodity prices. Secondly, it also can result to long haul benefits by bringing new abilities and technology to the economy. It can make in the non-resource area of the economy a new employment opportunities. Finally, with more extensive resource curse it can be as shield against it (Alsharif et al. 2016). Al-Kawaz said when Gross domestic product, hiring, distribution, and other economic factors are created from different segments, a significant instability in economic activity is dropped, and that diminishing hazard is the main issue behind accomplishing the diversification target. It should also aim to use the similar favorable circumstances to empower an economy to make utilization of its gifts of oil (2008). Mishrif stated that diversification can also happen by moving investments from one sector in economy to other from the main source of income to the second and so on to increase the value of local products, and raising another sectors of economy for growth. For example, leisure industry, investments and broadcasting (2018).
Economic diversification: the case of Norway
When it comes to diversification only few countries that are rich-resource have been able to do well, although they have unlike encounters (Ismayil 2015). Alameen pointed out that by creating and keeping solid infrastructure with oil revenues and development of economy and good management, Norway considered as an Ideal example for this (2016). Aboudah mentioned that the Norwegian economy had a huge growth in the end of 1990 and in that year Norway was behind Saudi Arabia in oil distribution, but later the oil prices had started to decline which is normal for natural resources to fluctuate in price, so this forced Norway to take actions to bring up a replacement for oil, which was sustainable energy, Saudi Arabia should have learnt from Norway that sustainable energy could be the solution (2015). Elwerfelli and Benhin said that “Norway is a small open economy, which is indeed rich in resources including oil, gas, hydropower, and minerals. But its other significant industries are shipbuilding, paper products, electronics, timber, textiles, and fishing, an indication of a highly diverse economy” (2018). Norway retained a huge savings from oil income through the years which the country invested in global market; the country was capable to improve renewable energy costs, Norwegian government introduce duty of 90 dollars each ton on emission for pollute on all manufacturers, the money from duty was invested in creating a renewable energy production, Norway put an importance to hydrogen fuel cells technology, this was to shift international energy towards green efficiency and no emissions, Norway did this for sustainable economy away from oil, this was a good chance to stimulate the country industrial economy, it used moral investments work which was that the companies that are related to diversification plan are not allowed to have above than 10% of investments (Aboudah 2015). Ismayil stated “Unlike many resource-rich countries, Norway limits the spending of the oil revenues and accumulates its reserves in the Government Pension Fund” (2015).
(Aboudah 2015)
(Norway tree map, OEC n.d)
The reason why Saudi Arabia launched vision 2030
The primary incentive for Kingdom of Saudi Arabia to launch vision 2030 to diversify away from oil was when the oil prices has fallen down in 2014, the Kingdom suffered from rapid budget shortage and increasingly losing forex reserves, vision 2030 main focus is seeking a replacement for oil, this was obvious how depending on oil is unsafe for Saudi Arabia if it kept to rely only on oil (stratfor 2018).
(Business Insider 2016)
Bokhari stated that volatility of oil prices had negative outcomes on gulf countries and that they were most affected by fluctuation of oil prices as it is their only source of income with 80% GDP and Saudi Arabia is affected heavily by these changes because Saudi Arabia has a much more population so it is more difficult to minimize government expenditure unlike other gulf countries (2017). McRae said that Saudi Arabia is one of biggest economies which hold the 19th place and not so many people know about it; with the fluctuation of oil prices this has made the crown prince Muhammed bin Salman to announce vision 2030 which was to diversify the economy away from oil (2018).
What Saudi Arabia will do for vision 2030?
Renewable energy:
For vision 2030 to be away from oil in terms of diversification, sustainable energy is one of important goals (Yamada 2016). Saudi Arabia wants to make the fuel market free and to increase effectiveness in sustainable energy, the country admits that it have the capability for producing wind and solar energy and that power utilization will increase three times in 2030, so for it to be a competitor in renewable energy it have to improve it and doing a lot studies about innovative ways to produce it, Kingdom of Saudi Arabia wants to produce it locally, and to be supportive towards private and public sector so they can contribute to renewable energy, first aim for it is to produce 9.5 gigawatts of sustainable energy (Vision 2030). In 2030 Saudi Arabia is anticipated to have solar panels with capability to produce 200 gigawatts to be spread in the Kingdom, which is more the 3 times than the United Kingdom capability, Saudi Arabia had made an agreement with Soft Bank with an amount of 200 billion dollars this agreement consist of a chain of solar gardens over Saudi Arabia to be established in 2030, and it is capacity to create energy for 150 million accommodations (Telegraph 2018).
Privatization:
Saudi Arabia approach is to decrease government expenditure with taken citizens concern and developing the value of services this is one of the main goals in vision 2030 by doing this it will make foreign direct investments want to invest in the Kingdom either partially or fully as a result the private sector will add more contribution to Saudi Arabian economy (Vision 2030).The Kingdom goal is to generate 12 thousand jobs by 2020 and to get returns from the privatization in other economic sectors excluding oil approximately between 9 to 11 billion dollars, the privatization for now will be in seaports and Saline Water Conversion Corp (SWCC) and the years after Saudi Arabia is expected to gather 200 billion dollars following that by selling 5% of Saudi Aramco (Reuters 2018).
Improving entertainment sector:
General authority for entertainment was created in 2016 and it is main goal for vision 2030 is to increase expenditure on entertainment to 6% this was to make Saudi citizens and residents to spend inside money inside Saudi Arabia to boost the economy and the Kingdom has signed contracts with big US entertainment firms like AMC for cinemas and Six Flags and others, and Saudi Arabia anticipated that the investments in this sector will be 18 billion SAR yearly (Flanders 2018).
Tourism:
As a home for the Islamic rituals Saudi Arabia wants increase it is capability from people visiting for Hajj and Umrah to 30 million annually and to construct biggest Islamic exhibition hall (Vision 2030). For 2030 vision Saudi Arabia wants to increase the number of heritage sites registered with UNESCO as it’s for now have only 4 sites this will grab attention of foreign visitors for the country and just now Saudi Arabia has noticed the areas alongside the seashores this will strengthen Saudi distinctiveness between other people (Arabia now 2016). Tourism is one of the main interests to vision 2030 it’s anticipated that it will make above million jobs for citizens, tourism industry is the second in terms of Saudi citizens who work in it and now there is nearly about less than a million Saudi citizens who work in tourism (Khan 2017).
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In conclusion, it is very challenging for a country to give away it is main source of income that this country has been dependent on for years, Saudi Arabia is in point of no return, so diversification could be the solution only if it was put in good practical solution, but Saudi Arabia involved in political acts that gives bad image to it. This will cause future investments with companies to stop, as it is important for Saudi Arabia now to attract future revenues, or it will fail because for vision 2030 to work it needs a lot of government attention or Saudi Arabia will lose its position between the countries. The economy of Saudi Arabia has been depending on oil for many years as it is only source of income but with the volatility of oil prices has become apparent that some effective actions must be done. The only solution for this which should be done long time ago is diversifying the economy away from oil, therefore Kingdom of Saudi Arabia has long process to put solutions in practice like Vision 2030 which will bring the economy of Saudi Arabia to not be reliant on oil, and increase its position in the world economic leading countries, also encouraging investments by multinational companies and other important goals. These actions will make Saudi Arabia economy diversified without being affected of the oil price volatilities.
References:
Alameen, Y.M.M. (2016) ‘The Norwegian Oil Experience of Economic Diversification: A Comparative Study with Gulf Oil’, European Journal of Business and Management, 8(15), 94-101, available: https://iiste.org/Journals/index.php/EJBM/article/view/30570/31409 [accessed 7 Dec 2018].
Alhowaish, A.K. (2014) ‘Exports, Imports and Economic Growth in Saudi Arabia: An Application of Cointegration and Error-Correction Modeling’, Pensee Journal, 76(5), 120-134, available: https://www.researchgate.net/publication/266617552_Exports_Imports_and_Economic_Growth_in_Saudi_Arabia_An_Application_of_Cointegration_and_Error-Correction_Modeling [accessed 7 Dec 2018].
ArabiaNow. (2016) ‘UNESCO to Partner with Saudi Vision 2030 Tourism Plan’, ArabiaNow, 9 Jul, available: https://www.arabianow.de/unesco-saudi-arabia-tourism/ [accessed 7 Dec 2018].
Khan, G.A. (2017) ‘Saudi Arabia launches new tourism initiatives within Vision 2030’, ArabNews, 17 Jul, available: http://www.arabnews.com/node/1130646/saudi-arabia [accessed 7 Dec 2018].
Mishrif, A. (2018) ‘Introduction to Economic Diversification in the GCC Region’, in Al Balushi, Y., eds, Economic Diversification in the Gulf Region, Palgrave Macmillan, 1-26, available: https://doi.org/10.1007/978-981-10-5783-0_1
Saudi Arabia, Vision 2030 (n.d) A renewable energy market, available: https://vision2030.gov.sa/en/node/87 [accessed 7 Dec 2018].
Saudi Arabia, Vision 2030 (n.d) Privatization Program, available: https://vision2030.gov.sa/en/ncp [accessed 7 Dec 2018].
Saudi Arabia, Vision 2030 (n.d) Vibrant Society With Strong Roots, available: https://vision2030.gov.sa/en/node/11 [accessed 7 Dec 2018].
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