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Home | World | Can Saudi Arabia's economic reforms succeed?

Can Saudi Arabia's economic reforms succeed?

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Can Saudi Arabia's economic reforms succeed?
 Reforms spearheaded by Saudi Arabia's crown prince may be insufficient to wean the economy from its addiction to oil and create a thriving private sector able to generate sufficient jobs, economists and analysts say. 
Prince Mohammed bin Salman's "Vision 2030" master plan aims to transform Saudi's economy as sluggish oil prices squeeze its finances.
Since Mohammed bin Salman cracked down on corruption earlier this month, some observers have voiced concerns about the impact of political risk on his plans, amid fears of a backlash.
"Nobody actually expects Vision 2030 to be fully implemented, but it is an attempt to show the world that there is a direction of travel away from oil," Jane Kinninmont, a senior research fellow at the Chatham House think-tank in London, told Al Jazeera.
"Ultimately, success depends on the willingness of foreign investors to put their money in the country, and there are some concerns at the moment about political risk, which are not helping the country get the levels of investment they need."
The kingdom has long tried to diversify away from its dependence on oil, but this effort has gathered pace with the collapse in prices since 2014.
Unveiled last year, Vision 2030 is a radical strategy by Mohammed Bin Salman - popularly referred to as "MBS" - to kick-start development of the non-oil private sector.
His ambitious targets envisage increasing the private sector's contribution to GDP from 40 to 65 percent.
Reform is crucial if the Saudi government is to defuse a demographic time bomb that makes it essential to create jobs - fast.
Jason Tuvey of Capital Economics in London said that as many as 5.5 million new workers could enter the Saudi labour force by 2030.
"The working-age population is expanding rapidly. UN estimates suggest that, by 2030, it will rise by more than a quarter. This is one of the steepest rises in the emerging world," he said.
The shrinking Saudi state cannot provide enough jobs for these new workers and unemployment is growing, hitting 12.7 percent earlier this year, underlining the priority of private sector growth.
However, while Mohammed Bin Salman's reforms have generated enthusiasm in predictable quarters such as the International Monetary Fund (IMF), economists are not entirely convinced.

"While the scope of the programme is impressive, it will face numerous implementation challenges and still fails to address several key issues holding back economic growth," Tuvey said.

"The result is that Vision 2030 is likely to fall short of its lofty intentions."

There are a number of reasons for the scepticism. While diversification has been a policy priority since the 1970s, efforts have often fallen short of targets.

Research at Chatham House suggests that Vision 2030's ambitious goals could reflect a long tradition of "optimism bias" in Saudi diversification plans aimed at grabbing international attention.

One example of such lofty ambitions came with the announcement in October of proposals to build a vast new $500bn economic zone on the Red Sea called "Neom".

"Neom has helped Saudi Arabia to make a splash and rebrand itself, but I think it is highly unlikely that they will be able to secure that volume of inward investment at a time when the Saudi system is changing so dramatically that there is quite a lot of political uncertainty," Kinninmont told Al Jazeera. 

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The economy of the Saudia day by day down because they did not think about their future. Now it is the alarming time for this country and they are thinking about this solution and try to raise their economy. I am hoping that they will succeed so soon.
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