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 One company manager at the event told Reuters that officials from
about 30 Saudi government bodies manned booths in which they
described their challenges. Corporate bosses were encouraged to
"figure out ways to do partnerships to address those needs, to offer
feedback, to complain, and to plan future ventures or even just
future meetings," the manager said. "It was like a private sector
version of a national parliament."
The workshop was part of Saudi government attempts to work out how
to restructure the economy so it no longer relies on oil.
The National Transformation Plan (NTP), as Riyadh has dubbed the
changes, is expected to be unveiled in the next few weeks. Much is
still secret. Ministries have refused to discuss plans in detail and
Western consultancies contacted by Reuters declined to confirm their
involvement, let alone policy details.
Officials, consultants and executives, though, say the five-year
program is both ambitious and risky. It includes asset sales, tax
increases, spending cuts, changes to the way the state manages its
financial reserves, an efficiency drive, and a much bigger role for
the private sector.
Such changes have been talked about for years but never put into
action. One reason to think this time could be different is that
policy-making has in the past year shifted away from conservative
bodies such as the finance ministry and central bank. Power is now
concentrated in a new 22-member Council of Economic and Development
Affairs, formed after King Salman took the throne in January 2015.
The Council is chaired by his son, Deputy Crown Prince Mohammed bin
Salman, who is about 30. In his role as defense minister, Prince
Mohammed launched Saudi Arabia's military intervention in Yemen in
March 2015. Now, he wants to shake up economic policy.
"Since the foundation of the kingdom there has been no
government-led program that innovates in this way," said Mohamed al-Afif,
a veteran banker who now runs Cash Solutions, a boutique financial
services firm.
CONSULTANTS AND WHATSAPP
People familiar with the NTP said it was born late last year in
discussions between Prince Mohammed and a few other top officials.
At the time, oil was sinking below $30 a barrel, about half the low
point that had been expected. That saddled the kingdom with an
annual budget deficit near $100 billion and strengthened the case
for radical changes.
While Prince Mohammed is the ultimate decider, he has chosen Economy
and Planning Minister Adel al-Fakieh, a former food industry
executive and mayor of Jeddah, to help with the detail. As labor
minister between 2010 and 2015, Fakieh overcame opposition from
business to policies that pushed companies to hire more Saudis.
People involved in the NTP say Fakieh, 57, uses WhatsApp on his
mobile phone obsessively, conducting chats with dozens of groups
until the small hours.
Riyadh is spending tens of millions of dollars on foreign
consultants for the NTP. London-based Source Global Research
estimated in March that total Saudi spending on consultancies –
mostly by the government or state-linked bodies – grew over 10
percent in 2015, from $1.06 billion in 2014.
Consultants and ministry officials, many of them young Saudis with
Western degrees, work at the Khozama office building in Riyadh,
thrashing out policy in as many as 40 groups known as "delivery
labs". The plans are heavy on jargon-labeled targets requiring
ministries to hit rigid budget and reform goals, according to
documents seen by Reuters.
MODELS
One model is neighboring United Arab Emirates, which began radical
reforms by cutting gasoline subsidies last year, people familiar
with the Saudi plan said.
Another model is Malaysia, which in 2010 moved to diversify beyond
commodity exports and attract more foreign investment. Consultancy
McKinsey & Co played a major role in the Malaysian plan and is now
at the center of the Saudi effort.
The NTP echoes Malaysia's program in three ways. It puts a single
body in charge of implementation to force better cooperation between
ministries. It seeks feedback from the private sector early, even
during planning. And it aims to boost the private sector's share of
investment, something Saudi planners consider vital as oil revenues
sag.
Riyadh wants private firms to develop tourism facilities on some of
its islands, plans to create "free zones" with minimal red tape near
airports, and even wants private investment in some schools.
New infrastructure such as roads and port facilities will be
constructed under build-operate-transfer contracts, in which private
firms finance the projects and then operate them to recoup their
investments. "The government will take no risk anymore, it will only
provide opportunities," said a Saudi economist who attended a recent
workshop.
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The NTP will also speed up Saudi Arabia's long-running but
slow-paced privatization program. Up to 5 percent of national oil
giant Saudi Aramco will be sold to the public, Prince Mohammed says,
possibly raising tens of billions of dollars. Also on the block:
chunks of other companies in up to 18 sectors, including healthcare,
mining and transport.
Management of the country's financial reserves will become more
aggressive, according to officials and consultants. The central
bank, which acts as the kingdom's sovereign wealth fund, holds $584
billion of foreign assets, mostly in conservative investments such
as bank deposits and U.S. Treasuries. In the future, privatization
proceeds will be invested in corporate assets around the world,
generating income and obtaining access to technology and expertise.
Saudi officials have been visiting the Abu Dhabi Investment
Authority – which has over $700 billion invested in developed and
emerging market equities, fixed income, private equity, real estate
and infrastructure – to see how it works, sources said.
Prince Mohammed told Bloomberg last month that one fund, the Public
Investment Fund (PIF), would be expanded to control over $2 trillion
eventually. The fund is now believed to have about $100 billion of
assets.
DEADLINE
Top officials are reviewing proposals which all the ministries
involved were required to submit by March 31, two sources said.
"Everyone is waiting for the NTP announcement for a clue about how
things will operate going forward," said a Western diplomat who
monitors the economy.
There are many skeptics. Some say the NTP is too late. Local capital
markets are too small to absorb a privatization program so
attracting foreign money will be vital. But investors are wary of
Saudi Arabia's prospects given the low oil price.
Eliminating the budget deficit by 2020 will require an additional
$100 billion in spending cuts and tax increases – equivalent to
about 16 percent of gross domestic product. That could stifle growth
and deter the investment the NTP seeks.
Some plans are headline-grabbing but may involve little real change.
For example, the PIF will take over assets such as Saudi Aramco but
won't be able to reinvest that wealth unless it sells big pieces of
the firm, which would be tough for financial and political reasons.
And then there's the mixed fortunes of some of the models Saudi
Arabia has looked at. "Most of the economic transformation programs
in various countries didn't succeed or diverged immensely from the
original plans," said prominent Saudi economist Ihsan Bu Hulaiga.
Malaysia, for instance, has increased the private sector's share of
investment modestly, to 64 percent in 2014 from 52 percent in 2009.
But the country's currency has plunged along with commodity prices,
something Riyadh wants to avoid.
Many question the role of highly paid consultants. "You have people
in their 30s with laptops helping to determine the direction of the
country," said one foreign consultant. "The potential for change has
certainly gone up, but so has the risk."
Some Saudis think an economic shake-up could lead to the kind of
social changes many foreign business executives believe are needed
to modernize Saudi's economy: allowing women to drive, for instance,
or opening up the legal system.
The planning itself suggests some openness to change. Senior
officials, normally given to opulent robes, regularly come to
workshops in simple clothes, say some attendees. And unusually,
female consultants are working closely with men.
(Additional reporting by Angus McDowall in Riyadh, Tom Arnold and
Hadeel Al Sayegh in Dubai, and Joseph Sipalan in Kuala Lumpur;
Edited by Simon Robinson)
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