Saudi Arabia 2017 | DIPLOMACY | YEAR IN REVIEW

Saudi Arabia is seeking nothing short of a revolution in how it obtains revenues, with plans to ditch hydrocarbons in favor of a diversified economy and a vibrant private sector.

Saudi Arabia has barely dropped from television screens over the past year, with key events including a continued war against Houthi rebels in Yemen, the appointment of Mohammed bin Salman, son of HH King Salman, as Crown Prince, a foreboding visit from President Trump, and fanfare around Vision 2030, a far-reaching scheme to shed reliance on oil and gas and promote a diverse economy driven partly by an emboldened private sector.

Unsurprisingly, the world's largest oil exporter has seen its economy slow significantly alongside depressed oil prices in recent years. GDP growth fell to 3.63% in 2014 and 3.48% in 2015 following dizzying highs in 2011, when the economy expanded almost 10%. Despite a slight recovery in the price of oil after OPEC production cuts, 2016 was even more difficult, with GDP growth falling to 1.4%, the lowest since the 1.82% figure posted during the middle of the worldwide economic recession in 2009. The World Bank expects growth to slow even further in 2017, to 0.6%, although, and playing the part of silver lining in this saga, the non-oil economy is expected to grow 2.1%.

To realize its dreams, Saudi Arabia is gearing up to stage the world's largest IPO, offering up a slice of Saudi Aramco, the state oil giant. According to the Vision 2030 blueprint, a stake of just 5% will be made public. Nonetheless, this will still generate around USD100 billion—far exceeding Alibaba's USD25 billion listing on the NYSE, the biggest IPO to date. In selling off a stake in the firm, the government hopes to simultaneously invigorate the foreign investment environment and fill the coffers, in this instance the Public Investment Fund (PIF), Saudi Arabia's main investment arm. Already valued at over USD100 billion with key domestic assets through stakes in SABIC and National Commercial Bank, the PIF is on course to become the world's biggest fund once Aramco's partial sale materializes.

Vision 2030 calls for SMEs to play a greater role in the economy, upping their contribution from 20 to 35% via increased access to funding. At the same time, the Saudi government plans to launch incubators, venture capital funding centers, and training networks that draw upon the Kingdom's international relations to build the skills a young and rapidly growing population needs to increase entrepreneurship.
At the public-sector level, belt tightening is also underway as part of a mission to cut public sector wages from 45% of the annual budget to 40% by 2020, with bonuses for public-sector employees abolished and minister salaries slashed by 20%.

The reforms are also set to be transformational at the sector level, with several emerging as clear benefactors, including transport, ICT, and aviation. The latter already has a jump in terms of privatization, with Saudia Airlines' subsidiaries Saudi Catering and Saudi Ground Services going public in 2012 and 2015. On a much grander scale, the new King Abdulaziz International Airport recently opened its doors in Jeddah and has an annual capacity of 34 million passengers, while the government has commenced plans to privatize at least 11 of the country's airports by 2020. And it all comes in good time, with local low-cost airline Flynas, just a decade old, stunning the industry in early 2017 by purchasing 80 new aircraft from Airbus in a deal worth USD8.6 billion. The aviation sector has been especially singled out for special treatment, vital as it is to the annual Hajj and year-round Umrah pilgrimages. According to plans within Vision 2030, the number of pilgrims will increase from 8 million in 2016 to 20 million by 2020 and 30 million by 2030. The success of the aviation sector is also tied to a growing aerospace industry, which in turn is key to the country's growing defense ambitions—Vision 2030 seeks to localize 50% of defense spending.

Renewable energy is also high up on the agenda, and its fortunes can only grow. Renewable energy currently accounts for less than 1% of Saudi Arabia's production, but the government is taking strides to change that. The Kingdom's Saudi Vision 2030 plan includes growth in renewable energy sources as one of its major targets, setting a goal of increasing energy from renewables to 9.5GW by 2023 and tripling renewable energy output by 2030.

But to achieve any of this, Saudi Arabia is ironically dependent on the course of oil prices, and led a proposal for the bloc to slash production by 1.8 million bpd in late 2016. This was extended in 2017 in a deal that includes some non-member states such as Russia, a nation with which it has learned to worked closely as part of a shared understanding that collaboration is necessary to succeed in the new global oil environment.