The Saudi Arabian oil-dependent economy, once built on low-taxes, heavy subsidies and a large public sector, is no longer a sustainable economic model with decreasing oil prices. The government’s objective is to find how they can achieve major growth in the public sector as the government release control of public sector entities. However, King Salman’s country-wide development program, Vision 2030, ushered the country into the process of developing a long term sustainable economic state.
The major oil price downturn in 2014 saw the Saudi government take drastic measures to keep the country afloat. The struggling oil sector saw the beginning of the government loosening their reins on the sectors that were previously public and handing them over to foreign investors, some in part and others in full.
This privatization plan is in effect in the oil sector, with Saudi Aramco’s initial public offering (IPO), the postal sector, the food industry, professional sports, airports, healthcare, airlines, education, electricity and water sectors. According to PwC, in 2015, Saudi Arabia had 135 state-owned entities, but with the opportunity to save billions (US) in capital expenditures and generate billions from the sales of utilities, airport assets and IPOs, the government is on track to creating a more privatized market and sustainable economy.
In Saudi Arabia, the ratio of public to private owned consumption was 0.72 (2015), the third highest in the GCC region and 73% of the government’s revenue was dependent on oil. This will inevitably decrease as the privatization plan takes full effect. The government have eased previous barriers to entry and have simplified the process for companies to enter the Kingdom. Additionally, new licenses and incentives have been introduced to create a market environment that’s attractive for foreign investors and benefits both parties long term.
The privatization plan made it easier for foreign investors to expand into the country. Previously, misconceptions and difficult and lengthy processes associated with business set up acted as barriers to entry, however, with the new state reforms, the government are welcoming foreign investors into the country. The reforms simplified the processes and allowed 100% foreign ownership of specific industries and business types, such as engineering firms and entrepreneurs, encouraging foreign investors to move to the Kingdom, knowing that they would now be able to take full control of their entities.
Vision 2030 pioneered the reforms being executed in the Kingdom and it has proved beneficial to Saudi as they follow suit of many countries in the GCC and the rest of the world. Private companies are taking full advantage of these reforms and are establishing businesses in many fields as they now have access to this attractive market that they previously felt was impenetrable. The Saudi market is evolving and will most likely see much progression towards a more private sector economy to allow the government to decrease expenditure and increase revenue in the next decade while Vision 2030 takes full effect.