Ever since oil was discovered in the Arabian desert in 1938, Saudi Arabia has been the world’s premier petro-state and the dominant force within the Organization of the Petroleum Exporting Countries.
Flush with oil revenue, the country has had neither income taxes nor corporate taxes while bestowing on its people heavy subsidies for food and fuel. And the royal family has built spacious palaces at home while buying swanky houses abroad in places like London and yachts in the south of France.
But now the oil-rich kingdom wants to look beyond oil. The crash in crude oil prices that began in 2014 has left the country with a gaping budget deficit. And while oil prices have recovered, climate activists have tried to bring the end of the hydrocarbon age closer and many analysts have predicted the approach of “peak demand” that would mark the end of a long climb in global oil consumption.
The 31-year-old deputy crown prince, Mohammed bin Salman, son of the king, has set out to reinvent the Saudi economy by the year 2030. His plan, called Vision 2030, would foster new private businesses, improve education and trim the budget deficit by cutting subsidies and introducing a 5 percent value-added tax.
Most startling of all: The government has proposed selling off a chunk of its crown jewel, the state-owned oil company Saudi Aramco. The company, which for decades was in the hands of four big U.S. oil companies and whose nationalization became a powerful political symbol, is widely believed to be worth as much as $1 trillion to $2 trillion; its share offering could be the biggest in history. And many analysts think the secretive giant holds closely guarded secrets such as the true cost of a Saudi barrel and the size of payments made to the royal family.
Many of the reforms in Vision 2030 have been discussed before, but they suddenly seem pressing. The kingdom’s population has soared 50 percent since 2000, with large numbers of young people unemployed. The government has been borrowing abroad to cover domestic spending, which spiraled upward when oil prices were high. In March, it set terms for a multibillion-dollar Islamic bond, which gives investors a return while complying with the Muslim prohibition of interest.
And costs are believed to have soared on the war in Yemen, where Saudi Arabia has backed the beleaguered president, Abed Rabbo Mansour Hadi. Military spending makes up a quarter of the official budget, and analysts say the true cost of the Yemen fighting could be concealed in a supplemental appropriation.
“It’s all about stability,” said Bassem Snaije, a financial adviser who teaches Mideast economics courses at two major French universities. “Vision 2030 sounds like a positive project, but I would call it Obligation 2030. Extremely high oil prices over a number of years allowed them to build in a spending system. When oil prices came back down to a more reasonable level, they were burning capital faster than they were breathing.”
Ultimately, Mohammed wants the kingdom to be able to run a balanced budget and more balanced economy — without counting oil revenue, which in 2015 accounted for 72.5 percent of government revenue.
“Vision 2030 comes as a response to challenges that we are facing in the medium to long term,” said Mohammed al-Jadaan, who became the Saudi finance minister in November. “We need to come up with something different that basically ensures that by 2030 we are independent of our current dependence on oil only. It also comes as a response to a young population that is looking for a better lifestyle, a better footprint in the world.”