Saudi Arabia is turning the tide and moving with a clear vision towards 2030 and beyond following 2020 struggles that saw revenues fall and taxes and unemployment rise.
Jobs on the rebound
Saudi Crown Prince Mohammed bin Salman (MBS) has identified increasing home-ownership and falling unemployment as two signal achievements.
MBS pointed out that unemployment in Saudi Arabia at the beginning of Vision 2030 was about 14%. He indicated that in the first quarter of 2020, the kingdom reached 11% unemployment citing the pandemic’s impact on jobs but he also said that Saudi will break the 11% level and reach just over 10% until future better rates are achieved.
He also revealed that the Kingdom is in discussions to sell 1% of state oil firm Saudi Aramco to a leading global energy company, with China being a leading candidate in the next one year or two, according to reports.
Aramco shares trade at around SAR35.8 ($9.66) each and the stake would then be worth about $19 bn based on Aramco’s market value.
Aramco’s 2019 IPO of 1.7% shares of the company initially raised $25.6 billion, and the company later exercised its “greenshoe option” to sell 450 million more shares, bringing the total size to $29.4 billion.
“In the non-oil (sector), we raised revenues from SAR 66 bn ($17.82 bn) to SAR350 bn ($94.5 bn). Foreign investment tripled. The Saudi stock market was stuck between 4,000 points to 7,000 points. Now we have exceeded the 10,000 (mark), which means that the private sector has started to grow.”
The July 2020 decision to triple value-added tax to 15% was a temporary measure that could last for a maximum of 5 years aiming for a target of 5-10% VAT.
“One of the measures to avoid cancelling allowances or reducing salaries was to increase VAT to 15%. It’s my duty to build a long-term future that will continue to grow,” MBS said.
Expenditures to increase
MBS announced that the Kingdom would spend more in the next 10 years, and with the announcement of the program, named Shareek, he said Saudi Aramco would lead investments in the private sector to the tune of $1.3 trillion by 2030.
Talking about the sovereign wealth fund, the Public Investment Fund (PIF), Crown Prince Mohammed bin Salman said: “Our goal is to ensure that the fund achieves growth. We aim to increase the fund’s assets to SR10 trn ($2.7 trn) in 2030.”
Tourism to expand
Saudi Crown Prince Mohammed bin Salman also lauded the progress made in environmental protection, pointing out that vegetation cover across the Kingdom has increased over the past four years by 40%, which will likely have a direct impact on tourism and foreign investment. This is no small matter given that, as the crown prince said, the tourism sector alone is expected to create 3 million jobs by 2030.
Snags in the plan
A sale to a foreign investor could help raise more money to fund bin Salman’s vision. But oil companies in the United States and particularly in Europe are trying to shift away from oil and have unveiled plans to invest billions of dollars into clean energy projects. Major institutional investors are also trying to de-carbonize their portfolios.
The crown prince’s economic diversification efforts were dealt a blow by the coronavirus pandemic, which torpedoed demand for oil as global travel came to a standstill and much of the world plunged into a deep recession. Aramco’s profits nearly halved to $49 bn in 2020.
The country’s budget shortfall is projected to be 4% of gross domestic product by the end of this year, narrower than last year’s 12% gap.
Aramco reported a free cash flow of $18.3 billion in Q1 2021, a 30% increase from Q1 2020.
At the same time, Aramco stated that it will maintain its dividend, with $18.8 billion due to be paid out in both the first and second quarter.
Aramco also reported a net income of $21.7 bn in the first three months of the year, an increase of $5.1 bn in comparison to 2020. At present, the Saudi giant is close to the same level of net income as it saw in 2019 when it brought in $22.2 bn.
The company’s main underlying financial indicators have been substantially boosted by an improved global oil market, higher oil prices, and lower storage levels. The demand for OPEC oil is picking up while global prices, demand, and economic growth all appear to be improving. Aramco also indicated that its refining and chemical production margins are improving.