Saudi national transformation plan: Very alive and well
If anyone had any doubts about Saudi Vision 2030 or the National Transformation Plan (NTP) 2020, they should lay them to rest.
The NTP 2020, released in 2016, was designed to overhaul the Saudi economy and shift the country’s economic drivers away from oil.
These programs were devised when oil prices were in the low to mid $50s. Until recently dropping back to the low $70s, oil prices have gone from about $43 to $81 a barrel, since the Saudi Crown Prince Mohammed bin Salman became heir to the throne in June 2017.
These are ambitious programs aiming to not just transform an oil-dependent economy, but an entire country and the latest revisions to NTP2020 are but a natural appraisal and adjustment to the high ceiling the country’s leadership has set for itself and constantly working to reach and achieve.
Saudi Crown Prince Mohammed Bin Salman, in a couple of recent occasions, quelled any concerns or suspicions that these plans have been laid to rest or at least delayed.
To the contrary. Many investors are still banking that the entirety of the promised reforms would be implemented, with many of these reforms already in place, for instance, the introduction of Saudi VAT in Jan 2018, while others await proper timing or circumstances.
Bloomberg recently revealed that Saudi has revised NTP 2020 by lowering some targets, outside major fiscal or energy-related reforms.
Female participation in the workforce by 2020 was scaled down 4% to 24%, while minor adjustments were set for training government employees, and indicators designed to improve health services, according to Bloomberg.
Other revisions, according to Bloomberg, included merging 2020 goals under the larger Vision 2030 umbrella.
“There has been some maturation across government in terms of being able to set more realistic mid-term targets,” Steffen Hertog, a Gulf specialist and associate professor at the London School of Economics and Politics, told Bloomberg.
“Some targets were unchanged, while several new ones have been added. They include improving the kingdom’s ranking on Transparency International’s Corruption Perceptions Index, raising the retail sector’s share of economic output, and better integrating people with disabilities in the workforce,” said Bloomberg.
It’s natural that officials are revising their plans,” said Hesham Alghannam, a senior fellow at Riyadh’s King Faisal Center for Research and Islamic Studies. “It is healthy to continue to evaluate and adjust as we go,” he said.
According to CNN, the crown prince said the Saudi budget for 2019 would be the biggest ever, and unemployment was on track to fall to 7% by 2030, from 12.5% today.
Year 2020 unemployment aims were for a 9% level.
Interest high in Saudi transformation
Consultants for McKinsey and the Boston Consulting Group have been part of the initial think tanks in 2016 that helped devise Saudi’s future economic blueprint, according to the New York Times (NYT).
These future plans were estimated by Economist in 2016 to potentially cost $4 trillion.
“A McKinsey report in 2015 laid out the broad strokes of that plan,” NYT said.
JPMorgan, which holds two operating licenses in the country, will add Saudi Arabia to its emerging market government bond index next year, according to CNN.
Since 2010, HSBC, JPMorgan, Citigroup, and Deutsche Bank have scored $295 million in fees by advising Saudi clients on mergers and debt deals, according to Dealogic, as reported by CNN.
These and other consultants are hoping Saudi goes ahead and sells 5% of Saudi Aramco through an IPO, which though delayed, has been confirmed by the Crown Prince Mohammed Bin Salman in a recent interview that it will go through, at the latest in early 2021.
“I believe late 2020, early 2021,” he said, discussing the timing of the IPO in an interview at the royal palace in Riyadh. “The investor will decide the price on the day. I believe it will be above $2 trillion. Because it will be huge.”
The $100bn that an earlier Aramco sale could have fetched would have partially funded certain aims of NTP 2020.
JPMorgan Chase and Morgan Stanley were reportedly among the US banks advising the kingdom on the IPO, according to CNN.
Saudi borrowing, and spending, fuels more interest
Saudi Arabia has borrowed $52 billion through dollar-denominated bond sales over the past two years, according to Dealogic.
“In September, Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), borrowed $11 billion from a consortium of banks, reportedly including Goldman Sachs, Citigroup, and JPMorgan,” said CNN.
The PIF intends to become “one of the most prominent users of banking services in the region,” the fund’s managing director said in a statement at the time.
The PIF has put $20 billion into a US infrastructure fund managed by Blackstone.
“The kingdom provided nearly half the money for SoftBank’s $93 billion tech-focused Vision Fund, which has made big investments in startups such as WeWork and Slack. When those companies eventually go public, US banks expect to cash in on underwriting fees,” said CNN.
Revisions, not cancellations
During a recent interview with Bloomberg, the Saudi crown prince said the rise in unemployment was an inevitable side effect of the decision to move to a new economic model after the oil price collapse at the end of 2014.
Under his leadership, the government has slashed spending, cut subsidies, and imposed value-added taxes.
“You cannot do the restructuring without the side effects,” he said. “The unemployment rate will start to decline from 2019.”
To meet the 2020 9% unemployment target, 700,000 jobs must be created over the next two years, according to Ziad Daoud, Bloomberg Economics’s chief Middle East economist.
There are just under 8 million expatriates working in the kingdom. So, Daoud points out, MBS could theoretically create the same number of jobs by replacing about 10% of them with Saudis.
The crown prince also rejected the idea that the rise in oil prices was slowing reform.
“I feel the reforms today have happened. We did the reforms of gas prices … electricity prices … the VAT,” he told Bloomberg. “So there are no reforms in the pipeline coming that we will not do because the oil price is high. It’s already done. It’s there.”
Updating the Program’s 2018-2020
In line with the launch of new “Vision 2030” VRPs (Vision Realization Programs), changes to the first version of the National Transformation Program had to take place, the NTP 2020 said on its site.
“These changes required the adaptation, integration, and re-arrangement of many initiatives established under the first version of the NTP delivery plan into the relevant VRPs delivery plans,” it said.
The aim of this update is to define the NTP scope, roles and responsibilities, and the related Vision 2030 strategic objectives that are focusing on the following three principles:
- Achieving Governmental Operational Excellence
- Improving Economic Enablers
- Enhancing the Standards of Living