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Progress report on Vision 2030: so far, so good

Saudi Arabia’s economic health is still reliant on global oil markets, but this dependency is reducing

Saudi Arabia Vision 2030 progress Aramco
Even in a relatively bad year for global oil markets, Saudi Aramco managed to turn in the second highest profit in its history

Saudi Arabia’s almost simultaneous publication of revised economic statistics and full year figures from Saudi Aramco was a good occasion to assess the journey along the road towards the Vision 2030 diversification goals.

The verdict from this snapshot of economic progress, roughly halfway through the transformation strategy, has to be: so far, so good.

The official figures on economic growth in the kingdom in 2023 confirmed what we already knew in broad outline: that reduced oil volumes over the past year would be a drag on the overall economic performance, despite crude prices remaining relatively high.

The revised figures for last year were actually pretty stark, a sharp reminder of just how much the Saudi economy is still reliant on hydrocarbons.

The oil economy contracted by 9 percent, offset by a commendable 4.4 percent increase in non-oil activities. Overall, Saudi Arabia now calculates the 2023 recession at a mere 0.8 percent.

The good news is that the downturn should be short lived. The IMF is predicting a gentle recovery this year after which GDP growth will climb back to 5.5 percent in 2025.

But the 2023 blip also reminds us of another fact: that Saudi Arabia’s overall economic health is still reliant to a large degree on what happens in global oil markets.

That dependence is reducing as Vision 2030 rolls on. The IMF recently calculated that hydrocarbons as a proportion of GDP had fallen from nearly half to around 20 percent since the diversification strategy was unveiled in 2017.

But the same study showed that the kingdom was still heavily reliant on oil for government revenue (around 60 percent of the total) and exports (around 75 percent), though declining from the previous decade.

The full year results from Aramco were a further reminder of the crucial role that oil still plays in the Saudi economy, and the extent to which the kingdom’s policymakers will rely on its revenue to prime the pumps of Vision 2030.

Even in a relatively bad year for global oil markets, Aramco managed to turn in the second highest profit in its history and whetted the appetite of investors with a 30 percent dividend hike to just short of $100 billion. 

It makes you think what Aramco may do in a good year.

Two sidelines about the dividend: it is adequately covered by free cash flow, and will be a lure for international investors if they get the chance to buy shares in any forthcoming secondary flotation, expected imminently.

But the most important point about the Aramco dividend is the part it plays in Vision 2030 investments.

The government owns 82 percent of Aramco shares, so gets the lion’s share of dividend payouts to reinvest in the giga-projects under way and planned in the kingdom as well as funding other items of state expenditure.

And 16 percent goes to the Public Investment Fund, the institution which has evolved to become the prime mover in the economic diversification strategy.

It may seem ironic that current hydrocarbon revenue is being used in a strategy to diversify away from oil, but that is and always was the central proposition of Vision 2030.

The irony is even more acute in the case of Aramco. A large proportion of its ongoing capital expenditure will be spent on what is broadly labelled “energy transition” – the move away from hydrocarbons as a primary fuel source towards petrochemical usage and the development of fuel sources in direct competition with oil: natural gas, renewables like wind and solar, and alternatives like hydrogen and nuclear power.

It is against this background that the recent decision to reduce maximum sustainable capacity from 12 million to 13 million barrels per day should be seen. It frees up capital to invest in the energy transition, as Aramco CEO Amin Nasser highlighted, rather than signalling an imminent move away from oil.

Nonetheless, Nasser and the rest of the world knows that the age of fossil fuels is drawing to a close, however many years or decades away, and the job is to manage that transition to the best advantage.

The strategic objectives of Saudi Arabia, as it enters the second half of the Vision 2030 strategy, must be threefold: to continue as a leading and reliable supplier of traditional hydrocarbons, to help maintain crude prices through its leadership of Opec+, and to pioneer the energy transition towards sustainable sources.

Getting those right will help ensure the economic and financial resources are in place to see Vision 2030 through to a successful conclusion.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE

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