With the plunge in oil prices from a peak of USD 115 per barrel in mid-2014 to below USD 50 per barrel today, the shortcomings of Middle Eastern economies have become rather apparent. The abundance of oil dollars that came Arabia’s way since 2005 led to complacency. Oil dollars were used by emirs, sheikhs and kings alike to pay off the local population in the form of cushy government jobs in air-conditioned offices, subsidies and other frivolities (like Qatar’s winning bid for the FIFA World Cup in 2022), whereas some money was diverted to prop up other unworthy regimes, like Egypt’s.

With lower oil revenues something has to give. Leader of the pack is Saudi Arabia, the largest oil producer (with about 10 million barrels per day), which actually brought about the oil price collapse by resisting to cut production as the Saudis don’t want to see their archrival Iran to gain more economic power after sanctions were lifted. Actually, in 2015 the Saudis slightly increased oil production. The Saudi fiscal deficit for 2015 was 15% and this year will not be much better. The IMF projects a significant slowdown in real GDP growth to 1.2% this year and 1.9% next year, whereas – not surprisingly – the current account will show deficits of about 10%. The government introduced a number of money-saving measures, including cuts in fuel subsidies, but this is not enough as the cash burn rapidly depletes the Kingdom’s foreign exchange reserves (USD 576 billion as of March 2016, down from USD 731 billion in August 2014).

Thus, time for the Saudis to open their kimono and show investors that they have a plan. Muhammad bin Salman (MbS in short), the 30-year deputy crown prince and second in line for the throne, announced “Vision 2030”, explaining that the root cause of the country’s problem was its dependency on oil (confirmed by Moody’s, the rating agency, who downgraded Saudi Arabia’s credit rating to A1 on May 14th over concerns about its overreliance on oil, apparently hitherto an unknown unknown for the raters). In order to make ends meet, MbS wants to sell a 5% stake in state oil company Saudi Aramco and to diversify the economy away from hydrocarbons. Although details of the vision still have to be published, the government wants to become a tourist hub for pious Muslims (and unfortunately not for British lads that currently cruise Amsterdam on beer bikes) and expand manufacturing and mining. The Saudis also see an opportunity to build a defence industry, presumably given the ubiquity of potential clients in the region (anyway, Saudi Arabia itself has the world’s third-largest defence budget).

Of course, MbS’s analysis is correct: Saudi Arabia needs to reform and move away from oil to secure its long-term financial viability. However, most of the specific actions that were laid out are simply about raising money: charge for public services, increase the tax base (introducing VAT), lowering subsidies, increase income from investments (including IPOs of state companies, like Saudi Aramco). Instilling a more entrepreneurial spirit in Saudi’s youthful population, most of whom are employed in undemanding government posts (akin to being unemployed but sitting in a plush office), is the real task MbS is up to. For that, he turns to the private sector. The main vehicle for developing an industrial conglomerate will be Saudi Aramco. Although Saudi Aramco has many professional managers, drilling for oil is not exactly the same as building an industrial manufacturing capability. In our view, it makes owning shares in Saudi Aramco less attractive given business uncertainty and governance issues (i.e. meddling by the state). The business overhaul probably means that foreign managers have to be lured to the Kingdom to run some of those new businesses (one idea is to allow foreigners to obtain permanent residence papers, hitherto unthinkable). MbS sees his country as a global hub, connecting three continents. Geographically, this might be true but the culture today is very inward-looking and the country’s religious foundations are, at least in our view, at odds with a more open and transparent society.

Then, there is the personality of MbS himself. Clearly, he is intelligent and has a strong will to succeed. But, as the disastrous war in Yemen shows, he also can be rash and underestimating the challenge at hand. His off the cuff statement that the country would be free from “any dependence on oil by 2020” is another example. Kicking Ali al-Naimi, oil minister for 20 years, out of a job may be necessary but also might create unease within the ruling family. Rapid change in terms of allowing foreigners in and letting women work might upset the powerful Wahhabi clerics and destabilize the regime. A more gradual transformation is probably a better plan and Saudi Arabia does have time at hand given its still sizeable reserves and low debt levels (government debt is expected to reach 10% of GDP this year and total foreign debt is expected to come in at a lowly 15%).

The Vision 2030 document very much looks like a McKinsey blueprint, complemented with praise for Allah and King Salman where appropriate (quite often, actually). But consultants often do not hang around when their recommendations need to be implemented, and there is a reason for that: implementation is a much harder task than dreaming up strategic visions. Transitioning Saudi Arabia’s economy to become more sustainable (i.e. less reliant on oil) longer-term will be challenging given the general mindset of its citizens, both in terms of work and religion. Let’s hope that Vision 2030 is not blown away by a desert storm…