Why Saudi Arabia’s Economy is Doing Worse than It Seems

Summary

The video discusses Saudi Arabia's Vision 2030, initiated by Crown Prince Muhammad bin Salman to reduce the kingdom's reliance on oil and diversify its economy. Despite ambitious investments in projects like a new football league and futuristic cities, many initiatives have faltered, leading to unexpected budget deficits. The oil sector, still vital, remains volatile, and efforts to boost prices through production cuts have strained finances further. As social reforms take shape, a lack of economic performance could threaten stability and popularity for MBS, raising concerns about potential conflicts with conservative factions in the kingdom.

Takeaways

• 😀 Vision 2030 aims to transform Saudi Arabia from a petro-state to a diverse economy, targeting 50% of energy from renewable sources.
• 😀 Oil accounts for about 90% of Saudi Arabia's export earnings and 80% of the state's budget revenues.
• 😀 The non-oil sector contributes only 15% to GDP despite accounting for 40% of energy consumption, highlighting an economic imbalance.
• 😀 Saudi Arabia's economy is highly dependent on oil price cycles, which have become increasingly volatile in recent years.
• 😀 The country has faced significant financial challenges, including a $3.3 billion deficit in Q1, its sixth consecutive quarterly deficit.
• 😀 Foreign investment has dwindled, leading Saudi Arabia to borrow unprecedented amounts and deplete its foreign exchange reserves.
• 😀 MBS's ambitious projects, such as a new football league and a futuristic city called Neom, have faced numerous setbacks and budget cuts.
• 😀 Despite still having substantial cash reserves, Saudi Arabia's break-even oil price has risen to $108 per barrel, complicating economic planning.
• 😀 Rapid social reforms have occurred alongside economic diversification, including expanded rights for women and a more tolerant approach to Islam.
• 😀 MBS's popularity may be at risk if economic conditions do not improve, potentially leading to political instability in the kingdom.

Q & A

What is Vision 2030?

Vision 2030 is an ambitious plan launched by Crown Prince Muhammad bin Salman in 2016 aimed at reducing Saudi Arabia's dependency on oil and transforming its economy into a more diversified and developed one, with a target of 50% of the Kingdom's energy coming from renewable resources.

Why does Saudi Arabia want to reduce its reliance on oil?

Saudi Arabia aims to reduce its reliance on oil for both economic and political reasons. Economically, an overdependence on oil is unsustainable and leaves the economy vulnerable to volatile oil prices. Politically, oil cannot generate enough jobs to employ a growing population and creates inequality between those in oil and non-oil sectors.

What percentage of Saudi Arabia's GDP is derived from the oil sector?

The oil sector accounts for approximately 40% of Saudi Arabia's GDP.

What were some of the major projects undertaken under Vision 2030?

Major projects include investments in a new football league, acquiring video game studios, and developing a futuristic line city called Neom.

What challenges have these Vision 2030 projects faced?

Challenges include declining attendance at football games, excessive costs for acquiring video game studios, and significant scaling back of the Neom project from 105 miles to just 1.5 miles.

What is the current financial outlook for Saudi Arabia?

The financial outlook has worsened, with the Saudi finance ministry expecting deficits until at least 2026. A $3.3 billion deficit was reported in the first quarter of the year, indicating fiscal strain.

How has foreign investment in Saudi Arabia changed recently?

Foreign investment has decreased due to rising economic strain and concerns over the kingdom's financial health, forcing the government to borrow significantly.

What is the 'break-even' price for Saudi Arabia's oil production?

According to Bloomberg Economics, Saudi Arabia's break-even price for oil production has risen to $108 per barrel, the highest since 2014.

How has the social landscape in Saudi Arabia changed under MBS's reforms?

Under MBS's reforms, Saudi Arabia has seen rapid social changes, granting women new rights to drive and travel, and promoting a more tolerant version of Islam, alongside a burgeoning entertainment sector with cinemas and concerts.

What political risks does MBS face regarding Vision 2030?

MBS faces the risk of growing discontent among the population if the economy underperforms, which could lead to destabilizing conflicts with conservative factions that oppose rapid social changes.