What is Vision 2030?
Vision 2030 is crown prince Mohammed Bin Salman’s — or MBS as the western media calls him — crown jewel. The kingdom is slowly starting to tip the iceberg and moving towards a more diversified economy and developing its economy, which today is mostly selling oil. To understand the motives of Vision 2030 and evaluate its effectiveness, we must dial back in time.
The country that is now Saudi Arabia has its origins in the 1900s when a country popped out of nowhere in the Arabian peninsula and proclaimed its independence. It was a very poor country. In fact, very poor could be an understatement. The Kingdom of Saudi Arabia was struggling to fund itself and make ends meet (Almtairi).
The discovery of “black gold”
It was during this time that British geologists started to see that the Arabian/Persian gulf had something that can power machines en masse: black gold. Across the gulf, the British had struck a contract with the Persians to let them extract oil in Abadan. Even though the initial investors were private citizens, the onset of world war one brought about changes in the British attitude about oil. Due to oil having a higher energy density than coal, and it being more reliable, the British government became the spearhead for the Anglo-Persian oil company (Lumen Learning).
In 1938, this black gold was found in a field near Dammam by an American-owned firm. The firm saw that Saudi Arabia could have billions buried under its surface. This company was later to be Chevron (National Geographic). In the 1940s, the US started to invest in the Kingdom of Saudi Arabia and developed ties. This was when the largest oil field in the world was found, causing the country to rise to prominence on the world stage. Saudi Arabia has remained there ever since. The newly exploited black gold littered the country with investment, which was funneled into developing the country. Roads were built, pipelines were built and the people started becoming rich (Council on Foreign Relations).
The formation of OPEC
The steady stream of investments pouring into the country was the start of the ‘good times’. The Kingdom got richer and as the world demand for oil skyrocketed, its stage on the world stage rose, too. Saudi Arabia later formed the OPEC, an organization which consists of oil exporting countries. OPEC, economically speaking, is an example of an oligopolistic firm: colluding in the free-market to influence the price of oil.
By the establishment of OPEC, Saudi Arabia and other middle eastern nations were able to exploit the oil market by fixing prices in accordance to what they wanted. This is illegal in most countries, but on a global scale, this is very normal and common. The organization would sell their oil at a price of P1 on the market, and the quantity sold would be QPROFIT. The sketched area represents the profit made by the OPEC. Now imagine this on a global scale. This is what brought immense wealth to the Saudis; and many thought that this system would hold (National Geographic).
However, this idea was flawed. Oil is a scarce resource and with ever growing demand, it is being exhausted quickly. However, the bigger issue is that now there are two threats to the economy: the demand for oil has tapered off in developed countries causing crashes in oil prices and secondly, oil deposits, nonetheless, are running out. This is a dilemma Riyadh faces. The country, despite being extremely blessed with oil and wealth, has started to face shortages in cash due to the falling oil prices. Falling prices mean that it is harder for oil-based countries to break even. This means that they are more likely to have deficits and build up debt. This is not in the interests of the central bank, and neither is it good for the economy in the long-run. Secondly, with the fall in demand from countries such as the US, Canada and the EU, the oil market is being over-supplied more often which, possibly increases the chances of lower oil prices.
How Saudi Arabia has responded to decreasing oil prices
With price wars, falling demand for oil, and oil being cheaper-than-ever-before in history, Saudi Arabia has realized that this phenomenon of black gold is fading, and that they should revolutionize their economy to respond appropriately. According to MBS and the published plan, the plan is to:
- Turn Saudi Arabia into a powerhouse for investment.
- Use the Kingdom’s geographic location to diversify the economy.
- Open a relatively closed-off-state to one that is open and inviting to all.
MBS and the team behind Vision 2030 are highly ambitious. They want to change how Saudi Arabia functions and runs. Everything mentioned in the plan are regular government-adverts for investment, however, what is striking is that the Kingdom is trying to invest elsewhere and move away from oil. This shows us that the government realizes that oil is a dying resource and is seeking to industrialize Saudi Arabia — not fueled by oil, but by pure willpower and costs.
With COVID-19 impacting oil demand, and since oil accounts for most of the Saudi budget, it can be argued that the Kingdom has had the first major setback when it comes to Vision 2030. Nonetheless, they are making progress. MBS has been at work fixing issues and making Saudi Arabia more open. For example, the easing of visa restrictions will make it very easy to visit the nation and invest in it. However, with the advent of the pandemic, it can be questioned how effective the policy will be. Will it lead Saudi Arabia out of the oil trap, or fail to? Only time will tell.
