In late February, several hundred Saudi officials, company executives and foreign consultants gathered in a luxury Riyadh hotel to discuss how Saudi Arabia’s economy could survive an era of cheap oil.
One company manager at the event told Reuters that officials from about 30 Saudi government bodies manned booths in which they described their challenges. Corporate bosses were encouraged to “figure out ways to do partnerships to address those needs, to offer feedback, to complain, and to plan future ventures or even just future meetings,” the manager said. “It was like a private sector version of a national parliament.”
The workshop was part of Saudi government attempts to work out how to restructure the economy so it no longer relies on oil.
The National Transformation Plan, as Riyadh has dubbed the changes, is expected to be unveiled in the next few weeks. Much is still secret. Ministries have refused to discuss plans in detail and western consultancies contacted by Reuters declined to confirm their involvement, let alone policy details.
Officials, consultants and executives, though, say the five-year program is both ambitious and risky. It includes asset sales, tax increases, spending cuts, changes to the way the state manages its financial reserves, an efficiency drive, and a much bigger role for the private sector.
Such changes have been talked about for years but never put into action. One reason to think this time could be different is that policy-making has in the past year shifted away from conservative bodies such as the finance ministry and central bank. Power is now concentrated in a new 22-member Council of Economic and Development Affairs, formed after King Salman took the throne in January 2015.
Riyadh is spending tens of millions of dollars on foreign consultants for the NTP. London-based Source Global Research estimated in March that total Saudi spending on consultancies—mostly by the government or state-linked bodies—grew over 10% in 2015, from $1.06 billion in 2014.
Pressure Building
The signs of pressure on the Saudi economy are building up by the day, as the country struggles to cope with low oil prices, waning confidence and nervous investors, Forbes reported.
The country’s banks are having to cope with conditions not seen for several decades and the stock market is down by almost a third over the past year. The tough environment is leading to cuts in credit ratings and warnings of further turmoil to come.
But the government appears determined to hold its nerve and stick to its current strategy.
A number of reports released over the past few days highlight the range of problems the country is facing. In a report on the Saudi economy released on April 3, local investment bank Jadwa Investment points out that in February, year-on-year growth in money supply turned negative for the first time since 1994 and the total value of bank deposits fell year-on-year for the first time in nearly 22 years.
New data from the Saudi Stock Exchange (Tadawul) adds to the picture of an economy under pressure. In its first quarter performance report, released on April 3, the bourse said the Tadawul All Share Index (TASI) closed the first quarter down 29% compared to the same time last year. Total market capitalization was down by 24% over the same period and the value of shares traded in the first quarter fell by 36%.
The worsening economic conditions are making life harder for many of the country’s banks which will be facing higher borrowing costs as a result of downgrades to their credit ratings.
