Saturday, January 14, 2017

Why Prince Salman's "Vision 2030" Will Fail -- January 14, 2017

Track Prince Salman's plan here.

From Eurasia Review, Saudi Arabia's flawed "Vision 2030" -- analysis, December 26, 2016. Some data points:
  • after Saudi Arabia's cash reserves had dropped $150 billion, Crown Prince Muhammad bin Salman finally weighed in: with a 2030 plan -- developed by McKinsey
  • Saudi's annual GDP growth between 2003 and 2013 (that period included record crude oil prices): 0.8 
  • Saudi's annual GDP growth is less than most emerging economies
  • Prince Salman's plan seeks to reduce role of public sector; increase role of private sector
  • the plan calls for the creation of a huge sovereign wealth fun to be funded by an unprecedented IPO of a 5% stake in Saudi Aramco
  • Riyadh has already wasted precious time: the country spent trillions of dollars 1970 - 2014 on 5-year development plans that left 90% of the annual Saudi budget dependent on oil revenues
  • Analysis: Prince Salman's plan will fail for four reasons
    • it is an overblown mega-project scheme
    • it focuses on economics and discards political development
    • it superficially approaches the challenge of instilling virtues of achievement
    • it takes the generation of non-oil revenues as it ultimate goal
  • The Mega-Project Scheme
    • a $2 trillion investment program; raising that much money is practically next to impossible unless oil prices see a significant appreciation ($50 oil isn't going to do it, folks) or unless Saudi plans to sell a higher proportion of Saudi Aramco
    • identifies eight sectors to generate 60% of Saudi economic growth
    • turns out that the petrochemical sector is already well developed and has little room to absorb more workers
    • same thing for mining
    • most sectors have low-paying jobs, which Saudis won't take
    • Saudi can't possibly compete in health, banking and finance
    • tourism? LOL. It's growing; it is the second largest sector after oil, but Saudi resistant to issuing visas
    • focus on universities? LOL
  • Economic Development But No Political Reform
    • Salman glosses over fact that King Saud's modern Saudi state rests on the three pillars of religion, tribalism, and oil
    • Wahhabi religious doctrine is synonymous with radicalism
    • Salman is trying to deconstruct the pillars of the Saudi political system without replacing them with modern ones
    • the only thing political about Vision 2030: the kingdom will forgo its traditional role of a swing oil producer instead opting for a major role in the global energy industry that requires transformation of Aramco into a "fully-fledged international oil company"
  • Saudi Cultural Values
    • Saudi's cultural values do not support Vision 2030. Does more need to be said?
  • All About Revenues
    • lots of taxes; end of subsidies
  • If The Plan Fails
    • could go the route of Syrian president Bashar al-Assad 
Countries that come to mind:
  • Mexico
  • Libya
  • Venezuela
  • Nigeria
  • Iraq

No comments:

Post a Comment