Saudi Arabia’s Strategic Transformation Towards Sustainable Development

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Saudi Arabia’s Strategic Transformation Towards Sustainable Development

Turki Faisal Al Rasheed

In the last decade, governments in the Arab world have been inundated by crises: the food crisis in 2008 was followed by financial crisis, with the most recent fall in oil prices in 2015 affecting fiscal balances even now. Arab governments today are setting their sights on economic success, a good natural environment, and better social outcomes.
This is particularly true in the Gulf Cooperation Council states — the United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait. At a September meeting of the Saudi-Emirati Coordination Council in Jeddah, Saudi Arabia, Mohammed Al Gergawi, UAE Minister of Cabinet Affairs and the Future, said that the UAE and Saudi Arabia share a common vision on many issues: “The two countries are taking deeper, stronger and strategic steps to bring happiness and prosperity to their peoples.”

Through the last four decades, Saudi Arabia has transformed from a Bedouin economy to a modern, developing one, characterized by growing diversification of production and income, mainly oil revenue.

 

Through the last four decades, Saudi Arabia has transformed from a Bedouin economy to a modern, developing one, characterized by growing diversification of production and income, mainly oil revenue. In 2016, Saudi Arabia’s Prince Mohammed Bin Salman launched Vision 2030, demonstrating a strengthening of the national commitment to development through long-term strategic vision. In the introductory remarks to the strategic-vision statement, the aspirations for the nation were focused on economic transformation, but also embraced the long-term development of human capital, the empowerment of women, and the enhancement of religious life.

The key points of Vision 2030 are these: to reinforce and diversify the economy, to develop the world’s largest sovereign wealth fund, to expand into global markets, to make the government more transparent and accountable, and to provide education, employment and health services to all.

In a foreword to Vision 2030, Prince Mohammed Bin Salman wrote: “Our Vision is a strong, thriving and stable Saudi Arabia that provides opportunity for all. Our Vision is a tolerant country with Islam as its constitution and moderation as its method.” The introduction signaled a strategic intent to alter the essential resources of the Saudi economy in a process that moves away from oil and toward people as the country’s key resource.

“We are not dependent solely on oil for our energy needs. Gold, phosphate, uranium, and many other valuable minerals are found beneath our lands. But our real wealth lies in the ambition of our people and the potential of our younger generation. They are our nation’s pride and the architects of our future,” Prince Mohammed Bin Salman continued.

Vision 2030 defined future sustainability largely in economic, social and religious terms, but said little about environmental sustainability.

The plan shares many continuities with those of the past, and it could be argued that it will be the “means” and not the “ends” that might prove most significant from 2016 to 2030. Public statements made by key Saudi ministers at Davos 2018 showed that they are highly aware of the need for greater government capacity in order to make Vision 2030 a success. In particular, they publicized the need for greater attention to interministerial cooperation. At a roundtable discussion, Mohammed Al-Jadaan, the minister of finance, talked about the work of ensuring greater alignment within the government: “We have one target, and we know where we are going.”

Of course, there is much more to alignment with Vision 2030 than ministers focusing on interministerial cooperation. There needs to be coordination and collaboration throughout public administration, and it needs to be dynamic in the face of various problems and changing pressures. Thus, there needs to be an alignment of the actions of public authorities with Vision 2030. There also needs to be a qualitative change in how the process of policy making and implementation is carried out, to ensure that policies in line with Vision 2030 can be made to work, and to work effectively. For example, civil servants need to approach policy formulation with a degree of flexibility and an experimental mindset — ready to learn from implementation and refine and adjust policy ideas to ensure success.

Civil servants need to make a habit of monitoring and evaluation, so strategies and policies can be corrected when they are not working as intended. And there needs to be a recognition that the plans for the implementation of Vision 2030 may have to be adjusted as circumstances change, so that the intentions of the long-term vision can be sustained. If greater alignment is achieved during implementation, then government capacity will have been successfully increased (see Table 1).

Much of the previous history of public governance around the world suggests that major planned change cannot rely solely on preprogrammed moves, but requires a capacity for strategic steering and experimentation to achieve long-term visions and values.

Public Governance

The constitution of a country influences its governance processes. Saudi Arabia is an absolute monarchy in which the executive and legislative powers are exercised by the King and the Cabinet. The Shura Council, or Consultative Council, was established to give advice to the king and the cabinet with respect to issues of governance and public policies, and decision making.

During the reign of King Fahd, from 1982 to 2005, decrees were issued to modernize all major laws in Saudi Arabia, and the Basic Law of Governance, the Provincial Councils Law and the Shura Council Law were introduced. From 2005 to 2015, King Abdullah maintained the status quo while making reforms. The constitution, in both design and practice, could, arguably, matter for its effects on the institutional environment that forms part of the context for the long-term national development of a country in terms of economic prosperity, the natural environment, and social outcomes, including the quality of life and happiness of citizens. Some of the effects of a constitution might, therefore, be captured in the ratings of the institutional environments of individual countries produced in World Economic Forum reports.

These ratings rest on a host of factors including property rights, ethics and corruption, undue influence, public-sector performance, and security — including the business costs of crime and violence, organized crime, and the reliability of police services. While biased toward business and the economy, the ratings nevertheless provide an interesting perspective on the institutional structures of different countries. Among a group of Middle East and North African states, Saudi Arabia has a relatively high quality rating for its institutional environment, although slightly lower than the ratings of the UAE and Qatar.

There appears to be some correlation between higher-quality institutional environments and the degree to which countries have long-term strategic visions, government capabilities for alignment and coordination, and effective policy making by civil servants. If this correlation is real and not spurious, it is possible that constitutional and institutional factors may facilitate the development of a more strategic and long-term approach to national development.

The latest civil service employment figures released by Saudi Arabia revealed a sharp rise in the number of females, with more women than men employed in public-sector jobs in 2014. The statistics, published by the Saudi Ministry of Civil Service, also revealed a steep increase in the number of women employed in both teaching and non-teaching positions.

Periodic assessment of employees is an extremely common practice in both private and public sectors. In most countries, this appraisal is annual and is conducted within a specific legal framework. There are a number of steps in the annual civil-service appraisal: specifying the employee’s work objectives and performance to be used in evaluation; appraisal of the employee based on fulfilment of these objectives, and personal and professional qualities; overall assessment of performance; and the setting of work objectives for the next appraisal period.

Beschel, Cameron, Kunicova, and Myers noted in 2018 that the five key factors in successful public-sector performance innovation are institutional capacity building, incentives, transparency, technology, and political leadership.

There are important challenges for the Saudi civil service in learning how to further develop the strategic and enabling capabilities needed to steer strategic transformation and enlist the support of civil society, including the business community. The challenges arise in various forms, including dilemmas and paradoxes. For example, it is often suggested that economic growth is ordinarily a cause of environmental damage and that there is a trade-off between the two. Thus, governments may intervene to act responsibly in relation to the environment, but their actions may then get neutralized or overwhelmed by the negative consequences of economic strategies.

Stakeholders’ Participation in the Success of the Vision

The Saudi economy has faced many international and domestic challenges and pressures, including low oil prices, low global demand, the emergence of alternative sources of energy, weak economic diversification, and the competitive advantage of the local industry. With Vision 2030, the Saudi government’s plan is to raise the performance of the public sector, remove procedural, administrative and financial obstacles, stimulate the private sector and expand privatization, diversification of the economy, and increased exports.

Vision 2030 aims to enhance interactive and responsible participation through information technology by finding new ways of listening to citizens’ opinions as a means of improving policy development and making it more responsive. The private sector is the part of a country’s economic system that is run by individuals and companies, rather than the government. Most private-sector organizations intend to make a profit.

The private sector is one of the key stakeholders in the process of policy development, particularly in relation to economic policy. Close coordination between the government and the private sector is necessary for the success of Vision 2030’s economic elements.

Additionally, there are non-governmental organizations, or NGOs — non-profit, voluntary citizens’ groups organized at the local, national or international level. Task-oriented and driven by people with a common interest, NGOs perform a variety of services and humanitarian functions, bring citizen concerns to governments, advocate and monitor policies, and encourage political participation through the provision of information. Some are organized around specific issues, such as human rights, environment, or health. They provide analysis and expertise, serve as early warning mechanisms, and help monitor and implement international agreements.

The main representative bodies of the private sector are chambers of commerce and industry throughout Saudi Arabia. Apart from the private sectorial committees within the chambers, there are no independent sector organizations in Saudi Arabia that represent the interests of certain groups, such as industrialists or financiers, or that can coordinate sectoral training standards and initiatives as in some developed countries such as Switzerland or Germany.

Saudi Arabia’s leadership, the National Center for Privatization and Public Private Partnership, introduced economic policies that paved the way to diversify the Saudi economy. Policies, rules, and regulations were enacted in order to attract foreign investments as well as local capital to address potential investors’ concerns.

The introduction of the first comprehensive bankruptcy law in August 2018 was designed to encourage foreign and domestic investment in private business. The move was also seen as providing a boost for competitiveness and jobs, and to help pave the way for the transfer of knowledge and skills as part of a drive to modernize the economy. Based on internationally recognized insolvency standards, the new rules offer protection to creditors, such as banks, as well as stricken companies that seek to wind up their affairs in an orderly manner, thereby shielding themselves from arbitrary seizure of their assets.

The Five Challenges

The Saudi Arabian government is currently facing five challenges: Saudization, food security and dwindling water resources, the Saudization of the fisheries sector, the citizen-account program (mowateen), and the privatization of government sectors.

The cross-case discussion points to some early lessons about the factors important in implementation of Vision 2030. In meeting these challenges, there are also consequences that affect the citizens’ social and economic well-being. For example, on privatization of government assets, there will be lay-offs; Saudi nationals will be out of jobs, so they will apply for unemployment benefits, which will be taken from government funds.

Saudization Strategy

Saudization, or the Nitaqat system in Arabic, is the Saudi nationalization scheme to increase the employment of Saudi nationals in the private sector and reduce the country’s reliance on foreign workers. It is implemented by the Saudi Ministry of Labor and Social Affairs.

In an effort to provide Saudi nationals with more employment opportunities in the private sector, the government in September released a list of retail sales jobs that are strictly for locals only. The 12 retail sectors are: watches, eye wear, medical equipment and devices, electrical and electronic appliances, auto parts, building materials, carpets, cars and motorcycles, home and office furniture, children’s clothing and men’s accessories, home kitchenware, and confectioneries.

One of the government’s successes is the strict enforcement of Saudization in the retail sector for mobile phones and accessories. Currently, all sales staff and owners are Saudi nationals, and business is thriving in this sector. This is a result of government drive and personal site visits to shops by the proper authorities to strictly enforce the Saudization of this part of the retail sector.

However, according to Labor Minister Mufrej Al-Haqbani in 2016, Saudi Arabia’s Saudization program has failed in some sectors due to a lack of coordination between government authorities monitoring the initiative.

The planned Saudization in the private sector and health sector has been slow. For example, the Saudization of the fruit and vegetable market, limousine and jewelry sectors should have been completed by now; however, the scheme failed because Saudis receive higher salaries than foreign workers and are not willing to work long hours, unlike foreign workers.

The social notion embedded in Saudi society is that Saudi workers work less than their foreign counterparts. In 2016, civil service minister Khaled Al Araj said during a debate on the Saudi TV network MBC that civil servants in the Kingdom barely put in 60 minutes’ work per day in the office and have little incentive to work. “It directly and negatively affects government institutions,” Al Araj said.

If true, then this needs to change, for example, by creating job opportunities for Saudi nationals to prove their talents. Many Saudi nationals are not willing to take a low-paying job and work long hours; however, some Saudi job seekers lack the experience and training to perform high-paying jobs.

For example, the Center for College Affordability and Productivity in 2010, a research group in Washington, underscores growing public concerns about the availability of good jobs and the value of college education. The study, based on 2010 U.S. Labor Department data, says the problem is that the stock of college graduates in the workforce — 41.7 million in 2010 — was larger than the 28.6 million jobs that required a college degree. That explains why 15 percent of taxi drivers in 2010 had a bachelor’s degree vs. 1 percent in 1970. Among retail sales clerks, 25 percent had a bachelor’s degree in 2010; less than 5 percent did in 1970.

The government created the Hafiz Program to assist and support unemployed youth. The program provides employment support services as well as financial assistance of up to 2,000 SAR monthly to enable the job search. These significant benefits are intended for active job seekers with a desire to gain knowledge and skills on their way to finding employment. Financial support, provided for a period of one year, may ease the financial strain of unemployment and allow job seekers to fully focus on finding work. Most of those who registered to benefit from the Hafiz program were women.

Saudi Arabia’s Food Security and Dwindling Water Resources

In recent years, due to the Saudi government’s prohibition on wheat production, local farmers switched to fodder production. But fodder consumes far more water than wheat, and so in November, a law was passed to stop fodder cultivation and import the majority of fodder requirements. Small farmers are most affected, as they have less capacity and capability to import fodder products due to the high cost of importation and the legal paperwork. However, farmers can cultivate wheat for a total of 50 hectares with the issuance of a permit through the Ministry of Environment, Water and Agriculture, or MEWA. Irrigation equipment will be metered to monitor water usage.

The MEWA’s issuance of rules and regulations is for the effectiveness and sustainability of the agricultural sector. Yet, at the same time, small farmers will have a hard time due to the new policies — either they will survive or they will go out of business and will be forced to migrate from their rural villages to cities to find a better livelihood.

An issue with agricultural investment abroad arose when small Saudi private agriculture companies investing abroad entered into an investment with minimal support from the government. Additionally, there are no laws governing investment in foreign agricultural land should problems arise about what laws to follow, should it be domestic law or international investment contracts, etc.

For example, in a 2015 article published by the Saudi newspaper Arab News, investors accused Ethiopian government officials of robbing them of their land and equipment. Mohammed Al-Shehri, who leads a body of investors in the African country, claimed that certain Ethiopian officials falsely accused him and others of criminal activities so that they could confiscate their property. Al-Shehri was quoted as saying that the alleged corruption was rife in certain areas, with some investors imprisoned and accused of forgery, and not allowed to bring their equipment back to Saudi Arabia. He said that all farming operations of Saudi citizens in Ethiopia had come to a virtual standstill six years after their inception, adding that Ethiopia had failed to live up to promises made to investors. Al-Shehri said that 50 percent of Saudi investors in Ethiopia had left the country, some leaving behind their farms and others selling them. He added that many did not want to return there because they feared being framed for crimes they had not committed. He further said that the investors had contacted the foreign ministries of both countries but had not received a response about the allegations. Saudi investors were facing similar problems in other countries, including Sudan, he claimed.

An alternative to agricultural investment abroad is to create a public company that is jointly owned by the public and the investors. The government can withdraw taxes from these public companies, provided the land is not leased to these companies but owned by them. This is a solution that will benefit everybody — the investors, host government and local people.

The Saudi government should create a long-term contract with Saudi investors who have invested abroad and provide them with cheap finance and barter trade agreements to guarantee a sustainable food supply in Saudi Arabia. The Saudi government should act as a facilitator/protector between Saudi investors and the host country.

Fisheries Sector Saudization Scheme

The Ministry of Environment, Water, and Agriculture (MEWA) aims to aims to encourage young Saudis to venture into the business of fishing, as required by Saudi Vision 2030, which states: “We will continue to build safe and sufficient strategic food reserves, to better guard against emergencies. Aquaculture will be promoted, as will strategic partnerships with countries blessed with natural resources such as fertile soil and water reserves. In Saudi Arabia, the use of water in agriculture will be prioritized for those areas with natural and renewable water sources. We will also continue to collaborate with consumers, food manufacturers and distributors to reduce any resource wastage.”

The implementation of Saudization in the fishing sector began September 30, 2018, when every fishing vessel in the Kingdom’s waters was required to have a Saudi national aboard. A number of Saudi fishermen have called upon the ministry to study the project well before requiring all fishing boats to have a Saudi fisherman on board; they are worried that the decision is not based on realistic studies of the fishing sector.

There are more than 15,000 fishing boats operated by individual fishermen in the Kingdom. They are concerned that the decision might not succeed in achieving its goals due to Saudi fishermen’s lack of proper training and qualifications. They say the project might cause a crisis in the fishing sector and make it difficult for them to pay outstanding installments to the Agricultural Development Fund.

Citizen Account Program (Mowateen)

The Citizen Account Program, or Mowateen, aims to reduce the negative effects of the implementation of Saudi Vision 2030 and is part of Saudi Arabia’s social safety net. Due to the fall in the price of oil in 2015, the Saudi Fiscal Budget went into deficit.

Mowateen was developed to ease the burden on Saudi nationals of the incoming high prices on basic utilities and commodities coupled with value added tax. The government initiative is to ease the fiscal budget and lessen expenses on subsidies.

Via the Mowateen program, the Saudi government is to provide thoughtful cash grants to Saudi citizens. Registration began in February 2017, and money was paid at the end of 2017. The cost of compensation payments will be gradually reduced to between SR 60 and 70 billion in 2020.

The challenge facing the Mowateen program is the ability of the government to continue financing the program. The Saudi November budget statement stated that the government’s expenses had risen by 21 percent year-on-year in Q3 2018, to a total of SR 231. Current expenditure, the lower economic growth-enhancing element of government spending, was up 24 percent year-on-year, mainly as a result of higher “social safety nets,” which rose by 158 percent to SR 28 billion, due to payments under the Citizen Account Program.

Privatization of Government Sectors

Saudi Arabia is taking action to privatize state assets on a massive scale. The scope is extensive: the privatization program targets 10 key sectors in the first phase: health; housing; education; labor and social affairs; energy, industry and mineral resources; municipalities; transport and aviation; environment, water and agriculture; Haj and Umrah; and communications and IT. This is being labelled as action under the Vision 2030 strategy.

Privatization in this scope is the transfer of ownership of specified assets or services from the government to the private sector. The transfer of ownership can be done in several forms, including but not limited to full or partial assets sale, initial public offering, management buy-out, public-private partnership (build-operate-transfer, concessions or outsourcing), according to Saudi Vision 2030.

The execution, however, is slow. One of the main challenges facing privatizing government or state-owned institutions is the multidimensional challenge of economic, social, political, and national security.

Some government institutions, when privatized, do not have alternative jobs for civil servants. There is also a risk in privatizing state-owned institutions. For example, there is slow privatization of government sectors, notably in Saudi Aramco, where the government published the initial public offering in 2018 but rescheduled it to 2021. This was also the case in the wave of privatizations that swept Latin America in the 1980s and 1990s, as governments sold off everything from airlines and energy producers to utility providers, which left hundreds of millions of citizens stranded, too poor to participate in the expanding market economies.

The challenges illustrated above indicate the Saudi government’s quest for a sustainable and diversified economy for the benefit of the Saudi society, to uplift the standard of living of its citizens and enable them to achieve a happy life. The motivation of the public sector, notably the civil servants, to improve their capabilities and credibility will result in great improvement in the private sector. The Saudi economy is being driven by the government’s vital role in creating employment, education, health care, and foreign direct investments. These create healthy competition in both public and private sectors that stimulates the economy. Capable and effective civil servants mean an improved private sector business environment.

Fiscal context matters for success. The launching of the Citizen Account Program (Mowateen) by the government in 2017 was a success on the part of the government’s safety net programs, yet challenges are inevitable due to concerns about the increasing population and the fall of government revenues. The question is: for how long can the government maintain Mowateen for locals, taking into account the volatility of the price of oil?

The ambitious housing program (Sakani) to provide citizens with affordable housing needs transparent rules and regulations for the benefit of all the stakeholders.

The government’s non-consultation with all stakeholders, which resulted in their lack of participation, has weakened the SME private sector.

Privatization is taking off, albeit slowly, and is one of the key pillars for the success of the government’s diversification program. The government is trying to shift the massive expense to the private sector because the infrastructure requires a huge amount of capital that is not available to the government.

Through Saudi Vision 2030 the Saudi state is changing from being bureaucratic to strategic.

Through Saudi Vision 2030 the Saudi state is changing from being bureaucratic to strategic. It involves setting up a Center for Performance Management of Government Agencies, a strategic management office, with responsibility for coordinating government and sectoral programs. These together with the intention of working in partnership with the private sector, the commitment to engage with all the stakeholders, and the interest in government responsiveness, accountability and transparency, all suggest a desire to create a reformed system of governance based on strategic state capabilities and an enabling relationship with citizens Paul Joyce and Turki Al Rasheed wrote in 2017.

If the Saudi government fails to achieve transformation and a diversified economy, the consequences will be political decay of the sort originally described by Samuel P. Huntington, who wrote how chaos and disorder can arise from social modernization increasing more rapidly than political and institutional modernization.

If the Saudi government fails to achieve transformation and a diversified economy, the consequences will be political decay of the sort originally described by Samuel P. Huntington, who wrote how chaos and disorder can arise from social modernization increasing more rapidly than political and institutional modernization.

The Saudi population is embracing the support for a change to sustainable economic, social and environmental reforms including women’s participation, as well as to bring about a new valuing of human capital within the country’s economic system; however, the challenges for sustainable development and strategic transformation stretch beyond public administration of public services to involve civil society.

Strategic transformation is achievable through the creation of long-term strategic visions backed by the government’s increased ability to implement policies for the benefit of the country. In the face of constraints and challenges, the country’s leaders are determined to pursue the country’s sustainable and strategic transformation to create a society for Saudi citizens that is prosperous because of a diversified economy and a society that has happy citizens who are satisfied with their lives.

 

Table 1: Saudi Arabia’s Percentile Rank in Worldwide Governance Indicators 2012-2016

Governance Indicator Percentile Rank  
  2012 2013 2014 2015 2016 2017
Government effectiveness 58 58 62 60 63  

62.50

Regulatory quality 56 55 54 54 56  

54.81

Date Source: World Bank 2017

Table Notes:
The following definitions have been taken from the World Bank website.

“Government Effectiveness captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.

“Regulatory Quality captures perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.

Percentile rank indicates the country’s rank among all countries covered by the aggregate indicator, with 0 corresponding to lowest rank, and 100 to highest rank. Percentile ranks have been adjusted to correct for changes over time in the composition of the countries covered by the WGI.”

Table 2: Institutional Frameworks and Strategic Government Capability

Country

Strategic Government Capability
(Average rating for 2012 and 2016)

Ratings of Institutional Environment (2012-18)
[Higher scores indicate higher quality]

 

Algeria

Low

3.3

Bahrain

High

4.9

Egypt

Low

3.6

Kuwait

Low

4.1

Oman

High

5.1

Qatar

High

5.8

Saudi Arabia

Medium

5.1

Tunisia

Medium

3.2

UAE

High

5.7

Notes:
1. Ratings of Strategic Government Capability (long-term vision, alignment and integration, and policy making) based on computations using IPD data published by the French Government.

2. Institutional Environment ratings taken from Global Competitiveness Index data contained in reports produced by the World Economic Forum (2012—2018).

Saudi Vision 2030 teams have been established to provide advice and support delivery.

Table 3: Saudi Vision 2030 Teams: Main Roles and Responsibilities

Function Vision teams provide a consultative function that represents the private sector view and impact on citizens
Vision team composition Vision teams are comprised of private sector representatives and topic experts on the respective L1 objectives
Scope Provide non-binding recommendations to program committee: VRP plan, quarterly and annual reports
Provide ad-hoc advice to SMC and program committees
Review mechanism Program Chairman presents Vision team inputs along with the quarterly and annual reports to SMC
Review frequency Quarterly – quarterly report
Yearly – VRP Plan and annual reports

Source: Saudi Vision 2030 Strategic Objectives and Vision Realization Programs 2016

12 Vision Realization Programs (VRPs) to be measured against strategic objectives every five years.

  • Enriching the Hajj and Umrah Experience
  • National Transformation
  • Public Investment Fund
  • National Industrial Development and Logistics
  • Financial Sector Development
  • Lifestyle Improvement
  • National Companies Promotion
  • Strategic Partnerships
  • Housing
  • Privatization
  • Saudi Character Enrichment
  • Fiscal Balance

 

 

http://mepc.org/journal/saudi-arabias-strategic-transformation-towards-sustainable-development

 

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