With plans for brand new megacities, allowing women to drive and foreign-run cinemas, Saudi Arabia’s Crown Prince Mohammed bin Salman is on a charm offensive trying to promote his country as an international investment destination.
The strategy aims at luring foreign money to help the world’s biggest oil exporter create a new economy away from oil dependency in order to prevent future instability.
On Wednesday, the International Monetary Fund (IMF) said Riyadh’s break-even oil price for 2018 is likely to be around $88 a barrel. North Sea Brent is currently trading down around $74 a barrel.
And although the oil price is up considerably from 2014, the director of the IMF’s Middle East department Jihad Azour said the focus in Saudi needs to remain on economic and social reforms.
“I think the fact that we are currently witnessing a recovery globally and in the region, and the fact that the oil price is going up, it shouldn’t at any point in time be considered as a way for them to relax efforts and to be complacent,” said Azour.
I wouldn’t necessarily say they’re [Saudi Arabia] taking on too much risk, but I would say that they are biting off more than they can chew, so maybe they need to take smaller bites.
Oil levels are still too low to balance the books. The 2018 budget deficit is predicted to come in around $52bn.
“The Saudi market hasn’t been very open to foreign investment yet, but years down the road, there could be tremendous opportunities,” Richard Segal, a senior emerging markets analyst with US-Based Manulife Asset Management, told Counting the Cost.
“In order for the Saudis to meet their goal for increasing the size of a non-oil economy, they either have to be more patient – meaning wait 10-15 more years, or allow the economy to become much more diverse and I think it’s probably more likely the latter. I think they will achieve their goals, but it will take longer than they hope.”
Segal says that a lack of transparency in the country isn’t going to sit well with investors, so “this is something Aramco and other companies that will be privatised will have to consider.”
While Saudi Arabia has a $250bn sovereign wealth fund that’s being put into everything from artificial intelligence to robotics, those kinds of investments take time to pay off.
“I wouldn’t necessarily say they’re taking on too much risk, but I would say that they are biting off more than they can chew, so maybe they need to take smaller bites,” said Segal. “They will eventually get there, but not as quickly.”
Also on this episode of Counting the Cost:
EU funding: The European Commission rolled out its long-term trillion-dollar EU budget proposal this week. A cup of coffee a day is all it costs its citizens, according to the Commission. But new funding rules contained in a new EU budget are making some members very unhappy.
John Bachtler, professor of European Policy Studies and a director of the European Policies Research Centre at the University of Strathclyde offers his take.
The Telegram ban: Iran and Russia want to block the hugely popular messaging app Telegram. In Russia, people are flying paper planes to protest against recent restrictions on internet freedom. They’re a symbol of support for Telegram, which the Kremlin recently banned, as Jonah Hull reports.
Gold smuggling in South Sudan: Mining for gold is the only source of income for many people living in the eastern part of South Sudan. But the country isn’t benefiting from it, because most of the gold discovered is quickly smuggled out of the country, as Hiba Morgan reports from Kapoeta state, where gold digging is a way of life.
Ireland and Brexit: Talks between the United Kingdom and the European Union over how Britain exits the bloc are in crisis. And one of the key reasons is disagreement over what will happen with Ireland after Brexit. People there are worried about the return of customs checks and security posts on the long-troubled Irish border, as Laurence Lee reports from the Ireland-UK border.
Cambodia’s prized pepper: The price of pepper around the world has plummeted and is forecast to stay low because of an oversupply from Vietnam and India. But one remote region in the south of Cambodia seems to be immune from the slump. Wayne Hay reports from Kampot, where people claim to produce the most expensive pepper in the world.
Source: Al Jazeera News