When people think about Saudi Arabia many immediately think about the oil production, sheikhs rich off of the ‘new money’, inhibited human rights, and veiled women. Current crown prince Mohammed bin Salman wants to change this and prepare Saudi Arabia for the future through a framework he calls Vision 2030. This framework is supposed to reshape the Saudi Arabian society, change its economic structure and develop the country enough to become resistant to the energy transition.
History
The modern Kingdom of Saudi Arabia was formed in 1932 by King Abdulaziz Al-Saud. At that point it mostly consisted out of desert and was dependent on agriculture. It was not until 1938, when oil was discovered in commercial quantities, that the economy started growing. From that point onwards, the economy of Saudi Arabia became more and more dependent on oil production and the export of oil. The fast growth in the Saudi Arabian economy started during the 1973 oil crisis when the oil prices increased from $3 per barrel to almost $12 per barrel. These oil price increases led to an increase in the economy from $15 billion in 1973 to $184 billion in 1981. Due to this enormous increase in the economy, there was a massive overload in capital in Saudi Arabia, leading to many development projects turning the country into a modern state. With the help of long-term development plans the infrastructure was improved and nowadays Saudi Arabia is one of the most developed and modern countries in the world with an economy worth over $700 billion.
A company that could take advantage of the massive growth of the Saudi Arabian economy was Aramco. They have been managing and exploiting the oil fields from the commercialization of crude oil onwards. In 1973 the Saudi Arabian government purchased 25% interest in the company, slowly increasing their interest to 100% in 1988, renaming Aramco ‘Saudi Aramco’. In 2019 Saudi Aramco went public again through IPO. This was a record-breaking IPO that raised $25.6 billion with the sale of 3 billion shares. This IPO only amounted for 1.5% of the company value, as Saudi Arabia still wanted to remain in control over the company.
For decades Saudi Arabia has been highly dependent on the oil sector. Around 85% of the exports and almost 90% of the fiscal revenue comes from oil. However, oil prices have been decreasing and the world has been shifting its focus to renewable energy sources. Saudi Arabia has realized that it needs to change its economic structure in order to remain the prosperous country that it is today. The entire economy is structured around the oil sector, and there are limited job opportunities outside of the oil sector, and business sectors that are not the oil sector are not well-developed yet. The need for economic diversification is high in Saudi Arabia, as more than half of the population in the Kingdom is younger than 25 years old and will enter the labor market soon.
Vision 2030
In 2016 Crown Prince Mohammed bin Salman introduced Vision 2030, in which he hopes to make Saudi Arabia less dependent on oil by diversifying its economy. The energy transition has kept the whole world busy for the past years, and if the goals of the UN are reached, will seriously harm the Saudi Arabian economy. The plan, however, does not only aim to diversify the economy of Saudi Arabia. It aims to improve the entire country and also develop the public service sectors such as healthcare, recreation, tourism and education. The Vision 2030 framework is designed to make Saudi Arabia one of the most competitive countries in terms of scientific innovation and become one of the world’s next hubs for science and technology. To achieve this, Saudi Arabia wants to spend $20 billion on Artificial intelligence alone.
The Vision 2030 framework is built around three pillars. These are: A vibrant society, a thriving economy, and an ambitious nation.
The pillar ‘a vibrant society’ focuses on the Saudi Arabian people and the Islamic faith. It aims to increase and improve urbanism, culture and entertainment, sports, UNESCO heritage sites. Through this pillar Vision 2030 Saudi Arabia wants to have twice as many UNESCO heritage sites and promote the growth of cultural and entertainment opportunities. Furthermore, it will encourage citizens to live a healthier lifestyle and increase the number of citizens who exercise at least once a week from 13% to 40%. Finally, its goal is that at least three cities are ranked in the 100 top-ranked cities in the world.
The second pillar, ‘a thriving economy’, aims to diversify the economy and create more job opportunities for the Saudi Arabian people. In order to reach this goal Saudi Arabia will need to invest in education, innovation and entrepreneurship. Next to that state owned assets will be privatized, a step in this was the IPO of Saudi Aramco in 2020. With this capital, Saudi Arabia can develop industries such as manufacturing, renewable energy, and tourism. Next to that, the Kingdom will be investing in education by modernizing the curriculum and raising the standards in Saudi Arabian educational institutions. The goal is to have a minimum of five universities in the top 200 universities in the world. Finally, Saudi Arabia wants to encourage entrepreneurship through financial assistance. By doing this, they aim to make the SMEs contribute 35% instead of 20% to the GDP.
Finally, the third pillar ‘an ambitious nation’. This pillar focuses on the government of Saudi Arabia. It strives for accountability, transparency, and effectiveness for the Saudi Arabian government. In order to achieve this on the long term, the Kingdom will need to build its foundations again. The kingdom will start with a zero-tolerance policy for all forms of corruption. It will improve the governing standards and expand online services and train more than 500,000 government employees in best practices, in a program called ‘the King Salman Program for Human Capital Development’. Finally, the non-profit will be bolstered through efficiency and impact.
Developments since the framework’s announcement
Mohammad Al-Jadaan aims to transform the major city of Riyadh into an international financial centre with a promising private sector, focusing on tourism and other services. It hopes to have these two sectors account for 65% of the national GDP by 2030, while it was 20% in 2021.
To reach the goals set in Vision 2030 the government promised to invest $30 billion dollars in the renewable energy sector. With this budget the country has set up two projects, the first one being the Sakaka Solar Power Plant, inaugurated in April 2021. This plant consists out of 1.2 million solar panels. With this plant Saudi Arabia can generate clean energy to power 75,000 households and it has created more than 400 jobs already. The second project is the Dumat Al-Jandal plant, a wind farm project in Al-Jouf which started producing renewable energy in August 2021. This wind farm, which consists out of 99 wind turbines, has already set the world record for the least cost for energy produced by wind. This plant will generate enough energy to power 70,000 households and is expected to create more than 600 jobs. Towards the end of 2022 Crown Prince Mohammed bin Salman announced five more renewable energy projects, with two wind energy projects and two solar energy projects. These five projects will have a capacity of 3,300 megawatts of energy.
In March 2021 two initiatives were introduced, the Saudi Green Initiative and the Middle East Green Initiative. Through these projects Saudi Arabia hopes to be a catalyst for climate action. The Kingdom wants to lead the world into tackling desertification and air pollution. The KPI’s of the initiatives are to reduce carbon emissions by more than 278 mtpa by 2030, increase domestic generation capacity for renewable energy to 505 by 2030 and to cut global methane emissions by 30%. For now, Saudi Arabia plans to plant 10 billion trees in Saudi Arabia and rehabilitate 200 million hectares of degraded land.
One of the most striking plants to realize the Vision 2030 framework is NEOM, a $500 billion futuristic city that will be constructed on the coast of the Red Sea. A part of the city is depicted blow. The city will, when it is completed, be powered with 100% renewable energy. This city will contribute to many facets of the Vision 2030 framework. It will contribute to the renewal energy contribution of Saudi Arabia, it will increase tourism, create jobs, and improve business sectors outside of oil, therefore making Saudi Arabia less dependent on the oil industry. The city of NEOM is supposed to become 33 times as large as New York City and is seen as the most ambitious plan in the world. Crown Prince Mohammed bin Salman expects the city to be finished in 2025 and building has started already. Plans for NEOM are very ambitious and technology focused. For example, they want to make artificial clouds with ‘cloud seeding’-technology to create more rain than would be usual in the desert. They want to have the most advanced educational system in the world with holographic teachers, officials say people will be transported with flying taxis. For now, these are only plans or even rumors. We can only say that Saudi Arabia is working hard to change the identity of the country and secure its future.
NEOM is a good illustration of Vision 2030. There are plans and they are being executed, however, it is unrealistic to expect everything to become a reality. Saudi Arabia is, at the moment still, so heavily dependent on the production and export of oil, that it is difficult to expect the country to reduce the production and export significantly in such a short time frame. It should be seen as a positive sign that Saudi Arabia has the intention and framework to change their economic structure, but they should be given the time and space to do so.