A senior figure at the International Monetary Fund (IMF) has urged the government of Saudi Arabia to harness more private investment as it aims to transform its economy.
In Vision 2030 – an ambitious economic plan published on 26 April – the Saudi monarchy sets out a range of initiatives to tackle what Deputy Crown Prince Mohammed bin Salman described in a separate statement as an “oil addiction” that has developed “among everyone” in the kingdom.
“That is dangerous,” Mohammed said, “and that is what has hampered the development of many different sectors in recent years.”
As such, Vision 2030 asserts that “a thriving economy provides opportunities for all by… creating economic opportunities for the entrepreneur, the small enterprise as well as the large corporation”.
It adds: “Small and medium-sized enterprises (SMEs) are among the most important agents of economic growth; they create jobs, support innovation and boost exports. SMEs in the Kingdom are not yet major contributors to our GDP, especially when compared to advanced economies.
“Therefore, we will strive to create suitable job opportunities for our citizens by supporting SME entrepreneurship, privatisation and investments in new industries.”
In order to achieve that goal, the paper explains, the government has established a SME Authority, and will continue to encourage young entrepreneurs with “business-friendly regulations, easier access to funding, international partnerships and a greater share of national procurement and government bids”.
In tandem with that, it states: “Our productive families now enjoy vast marketing opportunities through social media and digital platforms. We will facilitate access to these channels, enable microfinance and motivate the non-profit sector to build the capabilities of our productive families and fund their initiatives.”
However, Masood Ahmed – IMF director for the Middle East and Central Asia – argued that, while the measures were positive, they were not good enough by themselves.
Speaking to CNBC, Ahmed said: “They’ve got budget deficits that are going to be unsustainable at current and projected oil prices and they have a growth model primarily driven by oil, so diversifying the economy and trying to balance the budget are the right objectives.”
The problem for Saudi Arabia now, he said, was “how to make sure this gets implemented, and building the institutional capacity to deliver on these objectives.”
With that in mind, he added, “I think a lot of the growth has to come not from the investment of public money, but from the attraction of private money, because the growth model in Saudi Arabia and many of the Gulf countries has been one where the state has been playing a big role in terms of investment and being an economic agent. Going forward, more and more, that economic activity funding has to come from private companies with the state playing more of a traditional role of regulator.”
Ahmed was not the only expert to form that view. Quizzed by Reuters on the long-term outlook for Vision 2030, Patrick Dennis – lead economist at forecasting specialist Oxford Economics – suggested that he had seen it all before.
“I think you need to see action in a country like that,” he said, “rather than yet another medium-term national transformation paper, because… even diversification that you have seen in terms of non-oil GDP going up is not real. You only get increased spending on the non-oil economy when oil prices go up.”
He added: “You can argue this time is different because the pressures are magnified compared with in the past, given the pressure on the public finances, and the [oil-based] currency peg, so they may be forced to do these things. But it will be very difficult for them to do, whether they have the skills… and they need foreign investment to achieve this.”