Atlantic Council RAFIK HARIRI CENTER FOR THE MIDDLE EAST ASSESSING SAUDI VISION 2030: A 2020 REVIEW By Stephen Grand and Katherine Wolff Atlantic Council RAFIK HARIRI CENTER FOR THE MIDDLE EAST The Rafik Hariri Center for the Middle East examines political and economic dynamics in the Middle East and recommends US, European, and regional policies to encourage effective governance, political legitimacy, and the unlocking of human and economic potential in the region. Our work also highlights success stories of individuals and institutions who overcame significant challenges in pursuit of social, economic, and political progress. ASSESSING SAUDI VISION 2030: A 2020 REVIEW Stephen Grand and Katherine Wolff ISBN-13: 978-1-61977-107-9 Cover: A man walks past the logo of Vision 2030 after a news conference, in Jeddah, Saudi Arabia June 7, 2016. REUTERS/ Faisal Al Nasser/File Photo. This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The authors are solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions. June 2020 ATLANTIC COUNCIL I II ATLANTIC COUNCIL TABLE OF CONTENTS Acknowledgements 1 Executive Summary 2 Introduction and Scene-setting Context 4 Broader Trends Facing Saudi Arabia 6 A Moment of Crisis 10 The Origins of Saudi Vision 2030 12 What Does Saudi Vision 2030 Contain? 15 How Is Vision 2030 to Be Implemented? 17 Establish Fiscal Balance 18 Improve the Functioning and Capacity of the Saudi Government 21 Achieve Greater Workforce Utilization and Employment Rates for Saudis 22 Improve the Business Environment 26 Nurture a Culture of Entrepreneurship and Support Growth in Small and Medium Enterprises 27 Privatize Select Industries and Attract Foreign Direct Investment 28 Open the Social Sphere 29 Repurpose the Public Investment Fund and Develop Megaprojects 32 Financing Vision 2030 39 How Is Vision 2030 Faring? 41 Establish Fiscal Balance 41 Improve the Functioning and Capacity of the Saudi Government 42 Achieve Greater Workforce Utilization and Employment Rates for Saudis 43 Improve the Business Environment 48 Nurture a Culture of Entrepreneurship and Support Growth in Small and Medium Enterprises 50 ATLANTIC COUNCIL III Privatize Select Industries and Attract Foreign Direct Investment 50 Open the Social Sphere 52 Repurpose the Public Investment Fund and Develop Megaprojects 55 Key Conclusions 57 What Data Tell Us about the Future of Saudi Vision 2030 57 What Data Tell Us about Saudi Arabia’s General Approach to Reform 58 Final Recommendations 64 Appendix A 66 About the Authors 72 IV ATLANTIC COUNCIL Assessing Saudi Vision 2030: A 2020 Review ACKNOWLEDGEMENTS any people were instrumental to the writing of of Saudi experts for discussion. Thank you as well to this report, and we are grateful for the time, Phillip Cornell, Ellen Wald, Mathew Burrows, Mohsin Khan, resources, and expertise they contributed to and Jean-Francois Seznec, all of whom spoke with us at this project, although we alone bear responsi- length about energy and the economy in Saudi Arabia. Mbility for the conclusions reached. Thank you to the Smith A particularly warm thanks to William Wechsler, Anders Richardson Foundation for their support of this project Aslund, and Paul Aarts, all of whom reviewed this paper in from its conception, all the way through to this final re- its entirety and gave invaluable feedback. Tuqa Nusairat port. We are grateful as well to the King Faisal Center for deserves special credit for her encouragement and over- Research and Islamic Studies—including its chairman HRH sight of this project from start to finish. And finally, a big Prince Turki al-Faisal, secretary-general Dr. Saud al-Sar- thank you to Zineb Riboua and Kyle Thetford for their han, and director Dr. Abdullah al-Saud—for hosting us so hours spent getting this paper ready for publication. generously in Riyadh and organizing several roundtables ATLANTIC COUNCIL 1 Assessing Saudi Vision 2030: A 2020 Review EXECUTIVE SUMMARY hen global oil prices collapsed in summer and money in the Vision 2030 reforms, with some notewor- 2014, Saudi Arabia confronted one of the thy achievements to date: namely in terms of fiscal stabili- most daunting economic challenges of its zation and macroeconomic management, the development modern history. Upon ascending to the throne of capital markets and the banking system, the digitization Wthe following year, King Salman bin Abdulaziz Al Saud and of government services, and social reforms. In many other his son Mohammed bin Salman Al Saud (now the crown areas, however, reform efforts are falling short of their in- prince) responded by developing an ambitious economic tended objectives, most notably in creating jobs and trans- and social reform plan, Saudi Vision 2030, which was un- forming the private sector into an engine of growth. veiled in 2016 and designed to reduce the country’s de- pendence on oil by facilitating the emergence of a robust private sector. “Four years after the Saudi reform Saudi Arabia initially decided to evaluate with benchmark program was unveiled, this study goals the first four years of its economic transformation in 2020. With unfortunate timing, the coronavirus pandemic seeks to take a comprehensive and dramatic shock to oil prices (which occurred just as this publication was going to print) hit Saudi Arabia’s econ- look at the state of the Vision omy hard in 2020. The project the Saudi royals took on 2030 effort: What were the was never going to be easy, but plummeting oil prices, disruption of global trade and financial markets, a freeze objectives of its creators, what has on industries like tourism, and huge lost productivity in the government and private sector spell an uncertain future happened so far, to what extent for the Saudi plan. Even before the pandemic, the govern- are reforms advancing these ment’s detention of wealthy Saudi businessmen at the Ritz- Carlton in Riyadh, the murder of journalist Jamal Khashoggi initial objectives that the Saudi in Istanbul, and increasing tensions with Iran had diverted international attention from the economic reform effort and government set for itself, and what damaged Saudi Arabia’s international reputation. changes need to be enacted for However, it is perhaps clearer than ever that it remains reforms to succeed?” in the interest of Saudi Arabia and the United States for the economic transformation to succeed. Four years after the Saudi reform program was unveiled, this study seeks As for the Saudi government’s approach to reform, there to take a comprehensive look at the state of the Vision is broad recognition that Saudi Arabia must change. 2030 effort: What were the objectives of its creators, what However, when the authors spoke to officials in 2018 and has happened so far, to what extent are reforms advancing 2019, there seemed less of a sense of urgency regard- these initial objectives that the Saudi government set for ing the pace and a lack of understanding of the depth of itself, and what changes need to be enacted for reforms the transformation required. The government has concen- to succeed?1 trated economic and political decision-making at the top and focused its efforts on using institutions like the Public Using Vision 2030’s own “Key Performance Indicators” Investment Fund (PIF) to attract foreign investment, so far (KPIs) where available, economic data on Saudi Arabia, and without great success. comparative national surveys, the authors attempt to objec- tively assess the progress and approach toward this reform Saudi Arabia now faces another economic crisis, only six program to date. What they find is that the Saudi govern- years after the 2014 oil price collapse, and it may feel the ment has invested a tremendous amount of energy, effort, need to reevaluate some of its Vision 2030 programs. 1 To note, this is not an assessment of Saudi Arabia’s human rights record or political governance. To the extent that this paper does address either of these two issues, it is in the context of how they have affected the economic reform plan. This is an assessment of progress against the Saudi leadership’s own vision for itself and of whether that vision provides for a sustainable economic path, not against any number of aspirations held by individual Saudis or the international community. 2 ATLANTIC COUNCIL Assessing Saudi Vision 2030: A 2020 Review Saudi Vision 2030 relies on massive government spending bolstering the private sector, diversifying the economy, and and the ability to attract foreign capital, particularly in areas investing in sectors where Saudi Arabia can be globally like the PIF-funded megaprojects; both spending and in- competitive. vestments are likely to be impacted by the current crisis. The International Monetary Fund (IMF) predicts that Saudi In the study’s final recommendations, the authors urge the Arabia’s economy may contract by 2.3 percent in 2020, Saudi government to abandon the temptation to micro- and the non-oil GDP may slow by 4 percent. It remains to manage economic change from on high and to return to be seen if Saudi Arabia has the political and fiscal space the original spirit of the Vision 2030 reforms, which was to to both address the crisis at hand and implement an eco- find sectors where Saudi Arabia can compete globally, and nomic reform program amid a potential global recession.2 to enable the entrepreneurial capacities of its citizens. To achieve these goals, Saudi Arabia should turn away from If there is good news to be found, it is that Saudi Arabia has megaprojects and a completely top-down approach, and already identified the fundamental reforms required for the make serious commitments to education and human capital kingdom’s long-term economic health, and it has begun development, to ceding space in the economy to the private the work of implementing many of them.