Saudi Vision 2030 likely to fall short of goals: CE

Saudi Arabia’s Vision 2030 reform program is likely to face several implementation challenges, and shies away from key measures needed to boost the Kingdom’s economic growth, such as promoting non-oil exports and overhauling the education system, London-based Capital Economics (CE) said in a report on Tuesday.  

“The result is that Vision 2030 is likely to fall short of its lofty intentions. We foresee only a modest boost to long-run GDP growth, which will remain sluggish at no more than 2.5-3 percent,” the consultancy said.

Saudi Arabia’s economy has been hit hard after crude prices crashed in mid-2014, which led to a series of measures announced last year under the Vision 2030 initiative to overhaul the economy of the world’s top oil exporter. These include plans to privatize several state entities and develop the non-oil private sector.

While some reforms like privatization measures and the new bankruptcy law will improve the Kingdom’s long-term prospects, the ambitious diversification plan still fails to tackle several key issues.

“Little emphasis has been placed on promoting non-oil exports, which would expose firms to foreign competition and support efficiency gains. The government has also shied away from a major revamp of education, as well as steps to close the wage gap between Saudi nationals and migrant workers,” said Jason Tuvey, Middle East economist at CE.

Saudi Arabia needs to actively encourage firms to expand export operations, the report said, noting that policies that have been found to work well in other countries include tax incentives, export subsidies and providing finance to small and medium enterprises (SMEs).

The lack of radical education reform means that skills mismatches in the Kingdom’s labour market are likely to persist, with private sector companies continuing to refrain from hiring Saudi nationals.

The recent elevation of Mohammed bin Salman to crown prince might give fresh impetus to the reforms, but the Saudi government “is still likely to struggle to overcome vested interests within the royal family, the business elite, the civil service and the religious establishment,” Tuvey said.

Meanwhile, unemployment among Saudi nationals is anticipated to remain elevated in coming years, the report said, noting that the government will struggle to meet its target of slashing the unemployment rate to 9 percent by 2020 and 7 percent by 2030.

Saudi Arabia’s workforce is likely to expand considerably over the next two decades, while the government plans to reduce the number of public sector workers under the National Transformation Program (NTP), which is targeting a 20 percent drop in the number of civil servants by 2020.

Saudi nationals currently make up two-thirds of the country’s population of 31 million, with more than half of the Kingdom’s population under the age of 25.

“Even if the labour force participation rate remained at its current level of around 55 percent that would mean more than three million workers joining the labour force over the next fifteen years,” Tuvey said.

However, the Saudi government is “no longer in a position to absorb these new entrants into the labour market,” he added, noting that the upshot is that workers will have to increasingly turn to the non-oil private sector for employment going forwards.

Write to Jerusha Sequeira at jerusha.s@argaamnews.com