On April 25, 2016, Crown Prince Mohammed bin Salman unveiled “Vision 2030,” a strategy plan aimed at achieving three interconnected objectives: raising Saudi Arabia’s profile internationally, modernising society in line with cultural traditions, and diversifying the Saudi economy away from oil.
The present pace of Saudi Arabia’s economic growth and social empowerment, as well as its proactive engagement in geopolitics, are signs that the economic diversification agenda is tasting success. The youth and women, who make up the majority of the population, have become the prime beneficiaries of the “Vision 2030″.
Crown Prince Mohammed bin Salman, often known as MBS, is leading the “Vision 2030” from the front. His vision is that of a “strong, thriving and stable Saudi Arabia,” guided by values like “moderation, tolerance, excellence, discipline, equity, and transparency.”
Even though it is important to talk about Vision 2030’s impact on the overall Saudi socio-economic order, we also need to acknowledge the enormous obstacles the roadmap faces, while analysing the Kingdom’s response against the challenges.
Why ‘Vision 2030’ was needed?
The “Arab Spring,” seen in the early 2010s, exposed a hidden threat: the pressing need to fulfil the aspirations of young people for social and economic emancipation. It could not be addressed in an economy that relies heavily on oil earnings and provides few jobs in the public sector.
In light of these compelling circumstances, “Vision 2030” was introduced to secure Saudi Arabia’s position as a major economic player in the Islamic world, while utilising its advantageous location to become a global hub that connects Asia, Europe, and Africa.
Eleven “Vision Realisation Programs” are helping to realise the three strategic pillars, a dynamic society, a booming economy, and an ambitious nation, that the crown prince emphasised in his address. Every programme outlines precise goals that must be met by 2030 through three “National Transformation Programmes,” each lasting five years.
Knowing the pillars
The first pillar, which propelled the social reformation process, aimed to boost household expenditure on cultural and recreational activities from 2.9% to 6% and elevate Saudi Arabia’s position in the global Social Capital index.
The second pillar of the economic plan aimed to reduce the country’s dependence on oil. The goals set were to decrease the unemployment rate from 11.6% to 7%, raise the percentage of non-oil exports in the non-oil GDP from 16% to 50%, increase the contribution of the private sector to the GDP from 40% to 65%, and also to boost foreign direct investment from 3.8% to 5.7% of GDP.
The third pillar aimed to improve national competitiveness and governmental effectiveness by ranking Saudi Arabia in the top five countries in the E-Government Survey Index and in the top 20 in the Government Effectiveness Index.
Nearly all facets of social life, both public and private, have been impacted by the reforms, including sports, travel, entertainment, the arts and culture, and much more. Until 2018, women were not allowed to drive; today, they can work, attend school, and enter public places. Saudi Arabia’s female labour participation rate in 2022 was 37% of the total workforce, far higher than the 30% goal set for 2030. The overall unemployment rate fell to 8%, which is just 1% below Vision 2030’s 7% target. Youth unemployment has also dramatically decreased.
Additionally, there has been a noticeable success in Vision 2030’s efforts to wean the economy from its excessive reliance on oil as a major source of national income. Following the global pandemic, the Kingdom’s economy recovered and grew, which has been especially helpful in reaching the goals set for giga-development projects like the $500 billion, carbon-free futuristic NEOM city. Every fiscal year, trade in non-oil products with China and the rest of the globe rises. The growth of the private sector is being driven by an educated and youthful population. Over the years, small and medium-sized businesses also have experienced tremendous growth.
Judging the success
The Kingdom plans to invest $1 trillion in the tourism sector as part of the National Tourism Strategy, to draw 100 million visitors annually by 2030 and position itself as a major worldwide tourism hub. For that reason, important heritage, entertainment, and cultural places have been built, like Qiddiya, which is close to Riyadh; AlUla, which is in the northwest; and Al-Soudah, which is in the Asir region.
The Kingdom’s steady ascent in important global rankings serves as another gauge for evaluating Vision 2030’s effectiveness. As a result of its revolutionary influence on the socioeconomic conditions of the populace, encompassing fundamental facilities like housing, healthcare, and education, the Kingdom was named the third happiest Arab nation in the 2022 World Happiness Report. In the World Bank’s Women, Business, and the Law Index, Saudi Arabia has likewise improved its standing, going from 31.9 in 2016 to 80 in 2022.
In the attitude and values category of the World Competitiveness Yearbook 2022 peer group rankings, Saudi Arabia ranked sixth out of 63 nations based on four indicators: infrastructure, business efficiency, government efficiency, and economic performance. Additionally, the Kingdom advanced fifteen places in the World Intellectual Property Organisation’s 2022 Global Innovation Index. The goal for the higher education industry in 2030 was to have five Saudi universities listed in the top 200 global university rankings by Times Higher Education. Twenty-two universities were listed in 2022.
The Public Investment Fund (PIF), the Kingdom’s growing sovereign wealth fund with a current value of approximately $650 billion, and the private sector, including Saudi Aramco and the petrochemical company SABIC, will provide the majority of the $7 trillion needed to fulfil “Vision 2030.” In this regard, Foreign Direct Investment (FDI) will be a significant source. Since 2018, the Kingdom has hosted the Future Investment Initiative Conference annually, drawing hundreds of influential corporate and industry leaders from the United States, Europe, and other countries. As a result, over the previous seven years, the volume of FDI has doubled, reaching $640 billion in 2022.
Being the most powerful Gulf state, the Kingdom is ideally suited for different diplomatic missions. Saudi Arabia constantly seeks peace, stability, and advancement across borders due to its unique regional and global standing.
The constant enemy of “Vision 2030” has been the volatile geopolitics of the Gulf and MENA (Middle East and North Africa) regions; along with the COVID outbreak. However, the crown prince demonstrated excellent leadership in these difficult times by strengthening and diversifying economic ties with Asia. He was successful in appeasing the United States and even reached out to Iran.
The downside
However, according to experts, “Vision 2030” needs to address the drawback of the oil-rich nation paying investors out of pocket rather than the other way around. It seems even the government is aware of the drawback as it now wants to attract yearly FDI of $100 billion by 2030, a goal around 50% higher than it presently receives and far greater than its prior accomplishments. The Kingdom received a little over $17 billion in FDI inflows year on average between 2017 and 2022. Meanwhile, the nation’s Investment Ministry has set a target of roughly $19 billion for FDI in 2023.
Let’s talk about the deal between Saudi Arabia and Lucid, an American electric vehicle manufacturer. In 2022, the Saudi government agreed to purchase up to 100,000 of the company’s vehicles. However, the burden of financing the deal fell on the shoulders of the MBS administration. The Public Investment Fund (PIF) of Saudi Arabia has already provided $5.4 billion in funding, and in April 2024, the EV manufacturer received an additional $1 billion boost.
Like many other companies, Lucid’s biggest stakeholder is PIF. The business was regarded as a shining example of a foreign enterprise investing in the “Vision 2030” initiative. It could have been a brilliant display of outside capital arriving in the Kingdom. However, Lucid’s insistence on receiving funds from the Kingdom may force oneself to think differently.
Apart from spending billions to fulfil its quest of becoming an EV hub in the Gulf, Riyadh also needs to overcome obstacles including a lack of infrastructure, talent and raw materials. The PIF has a goal to produce 500,000 EVs annually by 2030, up from a target of 150,000 in 2026. Yet by December 2023, the Kingdom’s sole auto factory, which opened in September 2023, had reassembled around 800 vehicles, based on kits supplied from Lucid’s Arizona facility. Still, getting Lucid to operate from the Kingdom is a huge achievement for the MBS administration, especially after the 2019 fiasco, where Toyota declined a deal with the Gulf nation, citing the latter’s high labour costs, a lack of local suppliers, and a small local market.
A viable solution for the Kingdom can be a similar legislation like the United States’ Inflation Reduction Act, which aims to channel investment into creating a lower carbon economy, thereby directing tens of billions into EV manufacture.
What Saudi needs to immediately focus upon is the development of a domestic automobile supply chain. Only then, more and more global automobile giants will have the confidence to set up their factories in the Kingdom. Not only production activities will get streamlined, but the overall process will become cost-effective too.
Apart from Lucid, the Kingdom’s domestic EV manufacturer Ceer, a joint venture between the PIF and Taiwanese company Foxconn, plans to launch a car by 2025. Ceer has awarded a contract to Modern Building Leaders (MBL) to begin construction of its EV manufacturing complex in King Abdullah Economic City, Saudi Arabia.
We believe that the success of Ceer is more important than the Lucid bet. The joint venture between PIF and Foxconn has a promising future to make the dream of Saudi residents come true, which is to own a “Made in Saudi” car and to establish a domestic supply chain that is much needed.
Apart from Ceer and Lucid, in October 2023, Hyundai and the PIF announced a joint venture to build a factory for internal combustion engines and electric vehicles that, together with Lucid and Ceer, would create a cluster of factories in Jeddah’s King Abdullah Economic City. Saudi wants to become a hub for manufacturing and supplying EV batteries, but to achieve that, the nation needs raw materials, notably lithium, which Saudi Arabia’s Vice Minister of Industry and Mineral Resources Khalid bin Saleh Al-Mudaifer told Reuters was one of the metals the Kingdom sought to produce, although no reserves have been announced.
Robert Wilt, Chief Executive Officer of the PIF-backed mining company Maaden, told Reuters in 2023 that attempts to extract lithium from salt water were at the pilot stage. The PIF in January 2023 launched Manara Minerals, a joint venture with Maaden, to secure minerals abroad.
Course correction
Overseas investors are becoming cautious about the Kingdom’s 2030 prospects, according to a Bloomberg article that cited bankers, investors’ lawyers, and people familiar with Saudi Arabia’s fundraising activities.
The government is reevaluating its plan and accounting for the prospect of financing a larger amount of its economic transformation within a short timeframe. There are indications that massive initiatives meant to boost its $1.1 trillion economy are being scaled down. In addition, the government is bonding billions of dollars to help pay down a fiscal deficit that it did not foresee until far into 2023.
Let’s undergo another case study here. Under “Vision 2030″, the Kingdom initiated large-scale projects like Neom, a $500 billion initiative that, with the help of foreign capital and expertise, is supposed to turn a desolate area of the northwest desert into a high-tech, carbon-free metropolis.
Neom’s fundraising attempts have not yielded considerable results, even with marketing campaigns and investor roadshows. And it has resulted in the Kingdom downsizing plans for its $500 billion linear city. By 2030, development was planned in stages to ultimately cover a stretch of 170 kilometres of coastal desert and house 1.5 million people.
However, as per Bloomberg, the project will now be scaled back to 2.4 kilometres, with a reduced capacity of less than 300,000 residents.
“The pullback on The Line comes as the kingdom’s sovereign wealth fund has yet to approve Neom’s budget for 2024. It shows that the financial realities of the trillions of dollars of investment are starting to cause concern at the highest levels of the Saudi government as it tries to fulfil its ambitious “Vision 2030” programme, the overarching initiative tasked with diversifying the kingdom’s economy,” Bloomberg wrote, while citing unnamed sources familiar with the matter.
Challenges also face other projects, such as the entertainment city Qiddiya, which is located near the capital. Despite having promised to spend over 1 trillion riyals ($266 billion), Qiddiya is only supported by PIF and a Saudi developer that it owns.
However, the Qiddiya Investment Company (QIC) is going ahead with the project. It has unveiled another addition for Qiddiya, in the form of a Dragon Ball theme park. Spanning over half a million square metres, the theme park will captivate visitors with its immersive journey into the beloved Dragon Ball universe.
The park will feature seven distinctively themed zones, each encapsulating the essence of the series’ most iconic storylines, moments, and characters. From the inception of the original Dragon Ball series to the latest saga, Dragon Ball Super, visitors will get to witness the franchise’s evolution.
The park will have interactive and explorable landmarks inspired by the Dragon Ball sagas. This anime-themed park has over 30 rides. One of the park’s flagship attractions features a rollercoaster that traverses through a towering 70-metre “Shenron” landmark. The facility will also have themed in-park hotels. Qiddiya’s Dragon Ball theme park has been the result of its partnership with Toei Animation, Japan’s leading animation company and the original creators of Dragon Ball. Apart from the newly-launched theme park, Qiddiya also has the world’s first multi-use Gaming and Esports District, the high-tech Prince Mohammed bin Salman Stadium and Speed Park Track.
One of the goals of “Vision 2030” is to make the Kingdom an entertainment hub and Qiddiya’s rise will be crucial in fulfilling the goal. Qiddiya’s partnership with Toei Animation will make other entertainment ventures enter into similar partnerships with QIC. Will Qiddiya challenge Disneyland? We need to wait and watch. However, as of now, prospects for the project look promising.
Riyadh is also making more of an effort to draw in foreign investment even as it keeps drawing on its reserves. According to the publication, this has recently been the case with Kuwait, a neighbouring country, whom the Kingdom has requested to invest over $16 billion in the Neom project and others.
Even if US-based Air Products and other businesses have agreed to joint ventures at Neom, Riyadh is still responsible for financing around half of the project’s total cost, which is equivalent to half of its present economic output.
Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, said, “It’s still essentially a development model led by the public sector. They’re employing every resource they have for this transformation plan right now, and in the long run, I believe it will still be primarily a Saudi-led development plan.”
The expenditures made by Saudi Arabia will affect private assets, governments, Wall Street, and even projects it has across the globe. The new circumstances will compel the Kingdom to once more rely on oil to close its financial shortfalls.
This insight is prompting the PIF to adopt a policy that centralises spending power. The fund, which is anticipated to provide at least $20 billion in dividend payments in 2024, was recently given a $164 billion investment in Saudi Aramco by the Kingdom.
The Middle East and North Africa expert economist at Bank of America Corp., Jean-Michel Saliba, hypothesised that the Kingdom would likely back prolonged production cuts by OPEC+, the oil organisation it co-leads with Russia. The preservation of oil prices has been greatly aided by this reduction. According to Bloomberg Economics, prices remain below the minimum threshold of $108 a barrel that MBS requires to finance its plans, even with the supply constraints imposed by the reductions in oil output.
The road to success
Even though the PIF presently oversees assets valued at $900 billion, as of September 2023, its cash reserves were only $15 billion. According to PIF Governor Yasir al-Rumayyan, the public organisation has previously committed over 30% of its capital to international investments; it currently plans to commit 20–25%, with more contributions anticipated.
Yasir al-Rumayyan stated in February 2024, “We will continue to deploy internationally, but for now, our focus is on the projects that we have in Saudi Arabia.”
Mohammed al-Jadaan, the minister of finance of Saudi Arabia, has admitted that there is a financial shortfall and hinted that more debt may be issued. He was part of an MBS-led team that examined the substantial financial needs of “Vision 2030” and contrasted them with the Kingdom’s anticipated income.
“Vision 2030” represents a monumental effort to transform Saudi Arabia’s economy, society, and global standing. Halfway through its implementation, the initiative has made significant strides in various sectors, especially when it comes to the reforms improving the quality of life for women and the youth.
At the same point of time, the need to fund large-scale projects like NEOM has strained the Kingdom’s finances, leading to increased government borrowing and the drawing down of reserves. There are concerns about the high project costs and the failure to attract significant foreign investment, and these concerns need immediate government attention.
The MBS administration’s response has been that of adapting and recalibrating “Vision 2030” in response to the emerging challenges. The recent focus on centralising spending power and reevaluating the allocation of resources demonstrates a pragmatic approach to managing financial constraints.
“Vision 2030” may continue to face hardships but its transformative impact on Saudi Arabia’s socio-economic landscape is undeniable. What the Kingdom needs to do is to navigate the complexities, attract sustainable foreign investment, and implement effective fiscal policies to ensure long-term economic stability. The journey towards a diverse Saudi economy is a work in progress, and the next decade will be crucial in determining its ultimate success.