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 Outside the luxury hotel where they met, worsening business
sentiment and flagging consumer spending suggested the reforms may
not come in time to prevent a deep economic slump.
As cheap oil pressures its currency and opens up a record state
budget deficit of around $100 billion, Saudi Arabia - assisted by a
small army of Western consultants who are believed to number in the
hundreds - is plotting its biggest shake-up of economic policy in
well over a decade.
Stakes in the operations of big state companies, including national
oil giant Saudi Aramco, would be sold off; underused assets owned by
the government, such as vast land holdings and mineral deposits,
would be made available for development.
Parts of the government itself, including some areas of the national
health care system, would be converted into independent commercial
companies to improve efficiency and reduce the financial burden on
the state. The number of privately run schools would rise to around
25 percent from 14 percent.
Meanwhile, the government would use its massive financial resources
to help diversify the economy beyond oil into sectors such as
shipbuilding, information technology and tourism, by awarding
contracts to new firms and providing finance.
Proposals for some of these policies have been kicked around the
government for years with no result. But the political momentum
behind them is clearly stronger than it has ever been, as they are
backed by a powerful new economic policy council chaired by the
king's son, Prince Mohammed bin Salman.
"This is a quantum leap in all aspects," Abdullatif al-Othman,
governor of the Saudi Arabian General Investment Authority, told the
conference.
The problem for Saudi Arabia is that the difficult, complex reforms
are expected to take years to implement. In the meantime, the
kingdom will continue to depend heavily on oil, leaving it at the
mercy of fluctuations in the price of crude.
To ease the drain on its reserves, the government has been forced
into austerity steps that are slowing the economy from last year's
3.3 percent expansion. In December, growth in the non-oil private
sector hit its lowest since at least 2009; retailers say consumers'
discretionary spending is falling.
The government's austerity budget for this year assumed a Brent
crude oil price of about $40 a barrel, analysts estimate. If oil
stays at its current levels of around $30, more austerity could be
on the way.
Fadl al-Boainain, a prominent Saudi private-sector economist who
attended the conference, said he welcomed officials' emphasis on
developing parts of the economy that had long been neglected because
of the focus on oil.
But he added: "The overall economic situation does not support the
great optimism that ministers expressed, and it does not support the
indicators they referred to...
"There is a real concern in the private sector about spending cuts
and the liquidity drain, which will increase borrowing costs. The
sector is also worried about job cuts related to the economic
changes."
WINDOW FOR REFORMS
Three big areas of concern emerged at the conference. One is how
finance will be provided to projects, such as a shipbuilding and
repair complex that Aramco announced it would establish on the
eastern coast, eventually creating as many as 500,000 jobs.
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Market interest rates are rising sharply as commercial banks face a
liquidity squeeze caused by smaller flows of new oil revenues. So
the government may end up footing most of the bill, which would be
costly and involve its inefficient bureaucracy.
Another challenge is creating the skilled Saudi workforce needed for
new projects, in a country where some two-thirds of local workers
are employed by the state, which offers cushy conditions and higher
salaries. Aramco said it would leverage its own extensive training
and education programs to help develop a skilled national workforce.
In some cases, Saudi Arabia's conservative culture may slow reforms.
An all-woman panel at the conference discussed boosting the role of
Saudi women in business, but women are not allowed to drive in the
kingdom.
As many as a million foreign chauffeurs are estimated to be in the
kingdom to drive women around. Eliminating the need for them could
save household budgets hundreds of millions of U.S. dollars which
the workers remit home annually but so far authorities have not said
they are studying the politically sensitive issue.
The size of the central bank's net foreign assets, $628 billion in
November, suggests Saudi Arabia may have a window of several years
to make its economy less vulnerable to oil prices before reserves
fall to levels which would panic financial markets, making further
spending on reforms much more difficult.
Meanwhile, the economy may struggle. An executive at a major Saudi
company told Reuters that one million of the country's roughly 10
million foreign workers might be sent home in the next year as
businesses slowed and construction companies, hit by cut-backs in
state contracts, laid off staff.
Saudi employees will not be laid off in the initial stages but that
could conceivably happen next year, he said.
A foreign banker who has worked in Saudi Arabia for a decade said
the direction of oil prices would ultimately decide whether it faced
a slump as severe as the one suffered in the 1980s, when the economy
shrank for several years.
If oil rebounds to around $60, pressure will ease, he said. If
prices near $30 become entrenched for seven or eight years, "Saudi
Arabia will have a very difficult time."
(Additional reporting by Angus McDowall; Graphic by Vincent Flasseur;
editing by Anna Willard)
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