Upon the announcement of the Kingdom’s economic diversification plans, many were left astounded by its size and magnificence. “Vision 2030,” as it was named, was touted as the strategy to diversify its economy away from oil revenue, and at the same point of time, featured a range of projects, from a car-free, carbon-neutral mega-city called Neom in the heart of the desert to a ski slope in the desert and a whole metropolis dedicated to sports and entertainment.
Another goal of Vision 2030 was to alter foreign opinions of Saudi Arabia. The different projects were seen as a symbol of modernisation in this society. That being said, a lot has changed since the announcement of the grandiose plan. Ministers in the Saudi government have provided explanations for the scope reduction of Vision 2030 in the last few months.
There will be delays in several projects, Finance Minister Mohammed al-Jadaan announced in December 2023. During the World Economic Forum meeting in Riyadh in April 2024, al-Jadaan further stated that Saudi Arabia was adjusting to the current situation.
One of Neom’s most significant sub-projects, The Stretch, a massive, glittering stretch of mirrored skyscrapers in the desert, is being shortened from its initial 170-kilometre length to just over 2 kilometres (approximately 1.2 miles).
Moreover, this is not Neom’s first modification. Although 2030 was the original deadline for completion, it now appears that another 20 years will be needed. The estimated cost was USD 500 billion, although some speculate that Neom’s budget might reach USD 2 trillion.
Time Lags And Financial Overruns
Several of the more ambitious projects have failed to materialise, and Saudi Arabia is struggling to attract foreign direct investment, which has stayed below projections. According to analysts, investors are cautious due to regional instability, including the Gaza conflict, and a lack of transparency in Saudi regulatory policies.
Even though Saudi Arabia was always going to bear a large portion of the cost of Vision 2030, it is now required to bear nearly all of the expenses. The Public Investment Fund (PIF), one of the biggest sovereign wealth funds globally, receives a significant portion of its money from Saudi oil profits.
The PIF received 8% of the shares in Aramco, the state-owned oil corporation, in March 2024 from the Saudi government. As a result, the PIF currently owns 16% of Aramco, which is now the fourth most valuable firm in the world with a USD 2 trillion valuation. Critics have also cited the PIF’s meagre USD 15 billion in funding, even though it oversees a USD 940 billion portfolio of assets.
Analysts have stated that the Vision 2030 projects are vulnerable because they rely on oil prices. According to the International Monetary Fund (IMF), Saudi Arabia can only realise Vision 2030 at oil prices of about USD 96 per barrel. Typically utilised as a gauge for the oil market, the price of a barrel of crude has increased by over USD 81 in June from about USD 70 in January so far this year.
Bloomberg, a business news agency, also revealed that Saudi Arabia had surpassed China to become the largest issuer of bonds among emerging economies, a distinction it has held for more than ten years.
Government bonds are loans that the issuing government makes to bondholders; the purpose of the bonds is to finance public spending. According to Bloomberg, the Saudis are borrowing more money of this type than before to make up for the decline in foreign direct investment. Additionally, bankers informed the source that Saudi Arabia won’t be able to issue bonds at the current rate for very long because financing them, or paying the interest, will become too expensive.
Is Vision 2030 In Danger?
According to Robert Mogielnicki, a senior resident scholar at the Arab Gulf States Institute in Washington, “It’s impossible not to come to the conclusion that there is a certain degree of economic policy juggling going on [in Saudi Arabia] right now.”
According to him, some of the recent remarks made by Saudi authorities suggesting that deadlines for some projects could need to be reevaluated might perhaps be viewed as somewhat out of the ordinary. “Since the introduction of Vision 2030, we haven’t really heard anything about it.”
However, according to Mogielnicki, “the situation with Vision 2030 is not as dramatic or dire as many people portray it to be. Actually, it lies somewhere in the centre.”
A few elements of Vision 2030 are performing admirably. US investment bank Citigroup reported in a February 2024 “half-time” report that there had been “substantial development” in areas such as female labour participation, locals’ property ownership rates, and earnings from non-oil-related businesses.
The International Monetary Fund said in June that its researchers had decided that Saudi Arabia’s “historic economic transition is moving well” following their visit. About Vision 2030, they also applauded “spending reprioritization.”
The programmes that make up Vision 2030 have changed since Saudi Arabia introduced it, according to Mogielnicki.
The programme was based on rapid development and included a great deal of variety. He pointed out that reevaluating is necessary right now since the prices of some of the most costly Vision 2030 projects add up to the regular expenditures needed to keep Saudi Arabia operating. Current perceptions indicate that some projects, like the creation of green hydrogen, are more worthwhile. Others will have more time to act.
He said, “None of this is likely to weaken the Saudi royal family’s grasp on power.”
Mogielnicki stated, “It’s true that the Saudis aren’t playing with the strongest hand right now, but they do have a lot of cards to play with. Saudi Arabia’s economic and social trajectories have undergone significant and profound change as a result of Vision 2030. However, a significant amount of work remains.”