Saudi Vision 2030: Opportunities and Challenges

Saudi Arabia has recently adopted two ambitious development and transformation programs, Saudi Vision 2030 and the National Transformation Program) to diversify the economy away form an overreliance on  crude oil exports. These changes will be accompanied by a number of business opportunities including more global investments and tech transfer and JV deals with foreign companies.

Eaton & Van Winkle partner Paul Homsy, the head of EVW’s Saudi Arabia/Middle East practice group,  has written a comprehensive analysis of the background of the Saudi economy and the opportunities these development and transformation programs offer. Mr. Homsy can be contacted at or by phone at (646)-738-6418


Saudi Arabia has begun a transformation from an economy dominated by public sector spending and oil export revenues to a diversified economy, where the private sector will take over as the main engine of economic growth.

The goals and objectives are set forth in two documents recently approved by the Saudi Government, namely Saudi Vision 2030 (Vision 2030) and the National Transformation Program 2020 (NTP). This ambitious transformation will bring with it challenges and opportunities in the coming years.

Saudi Arabia has developed rapidly over the last eighty years since the discovery of oil in 1939. During the first few decades of this period oil prices remained relatively low but starting in the mid 1970’s oil prices increased which led to the economic boom of the 1970’s and 1980’s, the construction of a modern infrastructure, growth of the urban centers, the increase in Saudi oil production, and the establishment of numerous joint ventures between Saudi and foreign companies. This growth was accomplished by a massive inflow of foreign workers while Saudi nationals were primarily employed in the public sector.

Oil prices collapsed in 1986 and 1987 which led to a slow down but again rose rapidly during the 2003 to 2014 oil price boom. During this period, Saudi Arabia’s GDP doubled and Saudi Arabia became the 19th largest economy in the world. Like the first oil boom, the Saudi Government invested in infrastructure, healthcare, and transportation. Defense spending continued to account for a significant portion of Government allocations.

There were several important differences between the first oil boom and the second one which have greatly affected the direction of Saudi Arabia’s national transformation program as described in Vision 2030 and the NTP.

First, Saudi Arabia experienced rapid population growth. Despite high oil prices, Saudi Arabia, with one of the highest percentages of youth populations in the world, experienced a dramatic increase in youth unemployment.

Second, the late King Abdullah started Saudi Arabia down the path of increasing liberalization with women entering the work force and Saudi Arabia liberalized access to its economy by joining the World Trade Organization and opening many of its business sectors to 100% foreign ownership.

Third, Saudi Arabia developed a dynamic stock market and started opening Saudi listed companies to foreign ownership.

Fourth, the Arab Spring and subsequent regional turmoil has brought about a rethinking of traditional ways of doing business and government policies.

Challenges: Declining Oil Prices & Fiscal Deficits

Oil prices dropped from­­­ a high of $110 per barrel in 2014 to a low of around $28 in January 2015, which has partially recovered to the $40 to $50 range. While Saudi Arabia’s goal over the last few decades has been economic diversification, the economy still depends heavily on oil revenues which account for 90% of total government revenues ( See “ Moving Saudi Arabia’s Economy Beyond Oil”, McKinsey Global Institute, December 2015 (“McKinsey Report”) ).

The Saudi economy doubled in size from 2003 and 2013 during the second oil boom. Economic growth depended on oil exports and government public sector spending (McKinsey Report). However, in 2015, Saudi Government expenditures reached $260 billion while the deficit reached $98 billion. Unless oil prices return to oil boom levels, Saudi Arabia, without the transformation program, could face the rapid depletion of its monetary reserves to cover fiscal deficits.

Saudi unemployment is around 12% while unemployment among youth (15-25 years old) is around 43%. Unemployment among Saudi women is even higher as many more Saudi women are receiving higher education and entering the work force. According to Vision 2030, the private sector will need to employ 4.1 million on Saudis by 2030 and create a total of 8 million jobs in the public and private sector by that year (see “Arab News”, August 7, 2016).

Overdependence on Foreign Labor
The second oil boom during 2003 to 2013 was accompanied by a rapid increase of foreign workers and their families, which now comprise one third of the Saudi population. Despite Saudiazation efforts going back to the 1980s, foreign workers, mostly from South Asia, comprise over half of the total workforce. It is no simple matter to substitute Saudis for these foreign workers as many of them are employed in low pay unskilled jobs. Saudis are mostly employed in the public sector, where salaries are higher than the private sector.

Broad Goals and Commitments of Saudi Vision 2030
Vision 2030 sets forth, in broad strokes, various goals, and commitments to shift the Saudi economy from oil dependence and the domination of the public sector to a more diversified economy, less reliant on oil exports, and more focused on the private sector. There will be a particular emphasis on developing sectors that have the maximum potential for employing Saudis and on growing businesses that can compete within Saudi Arabia and globally. Behind these efforts is an overall goal of knowledge transfer and creating an entrepreneurial culture.

Prince Mohammed Bin Salman, the Saudi Deputy Crown Prince, announced that Vision 2030 is based on three pillars:

  1. Saudi Arabia is the “heart of the Arab and Islamic worlds”.
  2. Saudi Arabia will become a “global investment powerhouse which will be used to stimulate our economy and diversify our revenues”.
  3. Saudi Arabia is strategically located and can be a hub for global trade among Europe, Asia, and Africa.

Public Investment Fund and Aramco
Aramco is the economic crown jewel of Saudi Arabia. Aramco controls the world’s largest oil reserves and has a value of up to $3 trillion. Key to Saudi Arabia’s transformation is converting Aramco from an oil production and export company “into a global industrial conglomerate” and making the Saudi Public Investment Fund (PIF) the world’s largest sovereign wealth fund by transferring ownership of Aramco to PIF. The first step in unlocking value from Aramco would be to publically list five percent of Aramco on one or more stock exchanges and allow foreigners to subscribe to this IPO. Such an IPO is expected to yield $150 billion to PIF.

PIF was established in 1971 to invest in projects that are strategic to the development of Saudi Arabia’s economy. PIF has about $160 billion in assets and holds stakes in Saudi Telecom, Saudi Basic Industries Corp., one of the world’s largest petrochemical manufacturers, Tadawul (Saudi stock exchange), and the National Commercial Bank, the largest Saudi bank. PIF has also made some significant overseas investments including the purchase of a 38% stake in South Korea’s POSCO Engineering and Construction Co. for $1.1 billion and a 5% stake in Uber.

PIF would become more actively involved in making acquisitions around the world and encourage international expansion of Saudi companies by investment in such companies. Saudi Arabia is also planning to tap global debt markets through a series of international bond sales. PIF will also invest in emerging technologies on a global basis and broaden foreign access to Saudi Arabian capital markets while building a sophisticated financial system and market for equity, debt, and derivatives.

Saudi Arabia will also broaden its relationships with countries in the Middle East and internationally to facilitate trade and technology transfer. It appears that PIF intends to expand its foreign investments from 5% currently to 50% by 2020.

Mining Sector
Saudi Arabia has substantial mineral resources besides oil, which include aluminum, phosphate, gold, copper, and uranium. The NTP has targeted this sector to contribute about $28 billion to Saudi GDP and create 90,000 jobs. Saudi will adopt various structural reforms and new licensing procedures to encourage private investment in this sector including partnerships with international mining companies which will have a side benefit of increasing the competitiveness and productivity of Saudi companies.

A key challenge to expansion of the mining sector, as well as a business opportunity for construction and finance companies, will be creating the internal infrastructure to transport and ship the raw materials or refined products to export markets. Given Saudi Arabia’s low cost of energy, it can be expected that much of the metals will be smelted or refined in Saudi Arabia.

Defense Industry
Saudi Arabia currently has the third largest annual defense budget in the world (approximately $87 billion) after the United States and China. Only 2% of this budget is spent within Saudi Arabia. Saudi Arabia intends to develop its local defense sector source 50% of its military equipment within Saudi Arabia by 2030, including sophisticated equipment such as military aircraft. Such a program will present various opportunities for joint ventures, and technology transfer agreements with foreign military contractors.

Retail Sector
Saudi Vision wants to expand the retail sector by opening this sector to modern and international brands with the expectation that this sector can employ one million Saudis. The Saudi retail sector is relatively undersupplied and there is substantial room for growth by foreign retailers and mall developers, especially outside the main urban centers of Jeddah, Riyadh, and Dammam/Al Khobar. E commerce will also be increased.

Renewable Energy
Saudi domestic consumption of oil has increased dramatically and now accounts for 25% of total Saudi oil production (“Wall Street Journal”, July 2, 2015). Vision 2030 targets the development of a local renewable energy industry, including nuclear, solar, as well as natural gas, in order to increase the amount of crude oil for export.

Tourism, Culture, and Entertainment
Currently, the only tourism allowed is religious tourism, i.e. pilgrimages to the Holy Cities of Mecca and Medina. Approximately 8 million Muslim pilgrims visited Saudi Arabia in 2015. Saudi Arabia would like to increase the capacity to receive pilgrims to 15 million by 2020 by improving related services and infrastructure.

Vision 2030 also contemplates the expansion of the entertainment and cultural sectors, with local and international investors and entertainment companies as well as an increase in the number of libraries, museums, and cultural events.

Despite low oil prices, the Saudi Government increased the 2015 health budget by 48% to approximately $42 billion. Vision 2030 mentions that public corporations will have the primary role in developing healthcare although they will also help prepare for a shift to privatization in the long term.

The Saudi healthcare market is expected to expand at a CAGR (Compound Annual Growth Rate) of 11.4% through 2018 (see “Oxford Business Group Report” on Saudi Healthcare Sector). Saudi Arabia will continue to prioritize the healthcare sector even with low oil prices. Saudi Arabia is expected to also try to attract more outside investors into the pharmaceutical production sector as well as other parts of the Saudi healthcare sector.

Miscellaneous Other Initiatives
Vision 2030 calls for a number of other goals and initiatives including the following:

  1. Better utilization of the extensive Saudi subsidies for food, fuel, water, and electricity by “redirecting them towards those in need”.
  2. Emphasis in education on vocational training, technology, and entrepreneurship.
  3. Improving access to funding for small and medium size business.
  4. Equal opportunity for men and women.
  5. Improving working and living conditions for non-Saudis including ownership of real estate.
  6. Establishing special economic zones including logistic, tourist, industrial, and financial zones.
  7. Restructuring the Saudi economic cities and the King Abdullah Financial City.
  8. There will be no taxes on income or wealth of Saudi citizens and the emphasis will be on more “efficient spending by the government”.

Key NTP Initiatives
The NTP provides a number of interim objectives to be accomplished by 2020 in order to facilitate the goals of Vision 2030, which include the following:

  1. A balanced budget through improved financial governance.
  2. Creation of more than 450.000 jobs.
  3. Private sector takeover of 40% of the funding of the NTP goals through private/public sector partnerships and privatisations.
  4. Redirect or change government spending programs and projects.
  5. Increase the supply of residential housing through incentives to real estate developers, improved licensing procedures, and the like.
  6. Increase vocational training and improve the overall education system.
  7. Increase non- oil exports from approximately $55 billion to $100 billion.
  8. Increase value add domestic production of imported products and increase the sourcing of local products and services for Aramco and other purchasers.

Vision 2030 and the NTP call for major transformations that touch every aspect of the Saudi economy and society in general. These broad goals will require time and detailed planning and legislative changes for implementation. While these transformations re designed to make Saudi Arabia more self-reliant in terms of human resources and the growth of local industry, Saudi Arabia will also adopt changes to broaden access to foreign technology, expertise, and capital.

Paul C. Homsy is a partner in Eaton & Van Winkle, where he specializes in cross border financial and corporate transactions. Mr. Homsy is a leading authority on the laws  of the Middle East, where he has over 35 years of experience including 5 years practicing law in Riyadh, Saudi Arabia, as the head of a global law firm’s local office there.