Saudi Arabia outlined ambitious plans Monday to move into industries ranging from information technology to health care and tourism, as it sought to convince international investors it can cope with an era of cheap oil.
A meeting and presentation at a luxury Riyadh hotel was held against a backdrop of low oil prices pressuring the kingdom's currency and saddling it with an annual state budget deficit of almost $100 billion — the biggest economic challenge for Riyadh in well over a decade.
Top Saudi officials said they would reduce the kingdom's dependence on oil and public sector employment. Growth and job creation would shift to the private sector, with state spending helping to jump-start industries in the initial stage.
"It's going to switch from simple quantitative growth based on commodity exports to qualitative growth that is evenly distributed" across the economy, said Khalid al-Falih, chairman of national oil giant Saudi Aramco.
Over 2,400 people — including local and foreign officials, business people, consultants and academics — registered for the event, staged by the government's investment promotion agency.
Commerce and industry minister Tawfiq al-Rabiah said Saudi Arabia had been a victim of the "Dutch disease" — a condition in which the oil sector had crowded out other parts of the economy — but was now working to correct that.
Under the reforms, parts of the national health care system would be converted into independent commercial companies, officials said.
Participants in the conference, including the chief executives of U.S. aerospace firm Lockheed Martin and Pepsico, discussed subjects ranging from how to foster entrepreneurs to ways of developing dynamic cities and increasing the role of Saudi women in the business world.
The heavy presence of foreign business representatives suggested many saw opportunities in the Saudi strategy. Although Riyadh is burning through its foreign assets to cover the budget gap, it still had $628 billion in November, enough to finance years of new projects.
Some participants expressed doubt about the scale of the planned change in a country where about two-thirds of local workers are in the public sector, preferring it to more rigorous private employment.
There is little tradition of entrepreneurship in the world's biggest oil exporter, and financial and legal systems have not been set up to encourage it.
"The transition away from being a rentier state is not a comfortable one," said David Chaudron, managing partner of the California-based Organized Change Consultancy, which works with Saudi companies.
"They're trying,” he said. “But the fundamental question is: Will their trying bear enough fruit before the downside of the current system hits? Or is it a day late and a dollar short? Will the forces of change ultimately be enough to overcome the inertia of the current system? I don't know."
The U.S. ambassador to Saudi Arabia, Joseph Westphal, pointed to risks in administering the plans.
"Saudi Arabia has to have a government system that is adaptable," he said, adding that top officials would need to delegate decisions and authorities would have to be willing to take risks in the recognition that there would be some failures.
Nevertheless, many participants at the conference recognized that strong political momentum had now built up behind the reform plans, many of which had previously been discussed for years without result.
The momentum has increased since King Salman took the throne in January last year and created a powerful Council of Economic and Development Affairs chaired by his son, Prince Mohammed bin Salman. The government is believed to have hired hundreds of Western consultants to work on the plans.
Falih said that in addition to using its spending to start industries such as shipbuilding, Saudi Aramco would use its extensive educational and vocational training programs to help create the human capital needed for the transformation.
"Saudi Aramco will be a bridge for a transition away from itself," he said.