Deputy Head and Senior Research Fellow, Middle East and North Africa Programme (on leave until June 2017)
Low oil prices and a new generation of leadership could help push through the economic reforms needed in the post-oil age. A new social contract will have to follow.
Mohammed bin Salman answers questions during a press conference in Riyadh on 25 April 2016. Photo by Getty Images.Mohammed bin Salman answers questions during a press conference in Riyadh on 25 April 2016. Photo by Getty Images.

Saudi Arabia's new Vision 2030, launched by Mohammed bin Salman, the king's son and defence minister, this week, is a newly ambitious repackaging of the diversification policies that all the Gulf countries have been developing for years now. Most of the policies are not radically new, but reflect a longer term drive for economic reform that has gained fresh urgency from low oil prices and new-generation leadership.

The elements that really stand out as new include the privatization through a local IPO of a small (up to 5 per cent) stake in Saudi Aramco, the state oil company. The remaining shares in Aramco would be transferred to the country's public investment fund, creating a substantial Saudi sovereign wealth fund for the first time: while sovereign wealth funds were pioneered in the Gulf by Kuwait in the 1950s, Saudi Arabia's government has traditionally held most of its savings as US treasury bills at its central bank − a risk-averse approach that has earned tiny rates of return in the past few years. It was bound to follow the other Gulf states in this direction eventually.

Another dramatic move is the suggestion that Arab expats will be able to obtain green cards, ending the current sponsorship system which has facilitated human rights abuses. Bahrain has already technically ended its sponsorship system but phasing out abusive labour practices is a far longer term process. Nonetheless, the move would be welcomed around the Arab world, and would be a positive for Saudi soft power in the region, as well as labour-market flexibility at home.

Similarly striking is the ambitious tourism target to increase tourism numbers fivefold, to 30 million visitors a year, by 2030 − drawing on a strategy already developed by another son of the king to encourage religious pilgrims to travel more widely around the country.

These all form part of a much larger plan to increase the role of the private sector, including through privatizations of state assets and services, and attract more talent, visitors and investments − as the UAE and others have been doing for some time. Even the name is familiar: Bahrain published its own Vision 2030 in 2008 and Abu Dhabi issued one in 2009, both led by crown princes who wanted to associate themselves with economic transformation.

Rather, the main novelty lies in the fact that for the first time in Saudi Arabia they are being espoused by a leader who is both very senior in the royal family and very young, belonging to the generation that will face the post-oil age in their own lifetimes. Previously such policies have usually been communicated by senior technocrats, such as the heads of SAGIA, the general investment authority, or ministers of finance or economy or industry. Ambitions to diversify the economy and develop the private sector have always been far in excess of implementation.

There are four reasons for this. First, these initiatives have not been joined-up across government. Second, the government has not taken on the vested interests of the traditional merchant elite and royal family business people in preserving the status quo: maintaining a model of business dependent on cheap energy, cheap labour and the patronage and goodwill of the government (essential for contracts, land access and licences in a profoundly state-driven economy). Third, the wider public traditionally expects state benefits such as subsidies, public sector jobs and services, seen as their legitimate share in the national wealth, and often described as part of a ‘rentier bargain’, or social contract. Fourth, the high oil prices of recent years have enabled the leadership to put off or dilute some of the planned reforms, and specifically to ramp up public spending every year, with particularly vast handouts at the time of the Arab spring and upon King Salman's succession.

Mohammed bin Salman appears to bring fresh confidence to these efforts because he has the backing of his father and the low oil price makes the case for reform clearer (and is forcing all the other Gulf countries to cut subsidies and spending). Also, perhaps, the turmoil in the Arab neighbourhood is discouraging opposition movements in the countries that remain peaceful, strengthening the appeal of the political status quo compared to uncertain alternatives − reducing the risk that economic grievances will translate into a resurgent Saudi opposition movement. But the changes in the economic relations between citizen and state will inevitably alter the political relations too, especially with an increasingly well-educated and globally connected youth population with economic expectations that typically exceed their job prospects. The nature of the social contract in the Gulf will come under strain, and will need to be reinvented.

To comment on this article, please contact Chatham House Feedback