Saudi Arabia recently announced the implementation of their Saudi Vision 2030 program which is aimed at diversifying their economy from its reliance on oil. This will be accomplished, in part, by partially privatizing the state-owned oil company, Saudi Aramco, and forming the world’s largest sovereign wealth fund. The Vision 2030 program includes the goal of raising the nation’s share of non-oil exports in non-oil GDP from 16 percent to 50 percent and to increase non-oil government revenue from SR 163 billion to SR 1 trillion. The Kingdom also believes that Saudi Aramco has the ability to transform itself from a leader in the global oil sector to a leader in other sectors. What those sectors are has yet to be determined.
The the changes proposed by the Saudi government will help reduce the Kingdom’s reliance on oil revenues, however, a 2015 study by Bassam A. Olbassam shows that the ten five-year development plans that the Saudi government has issued since 1970 have proven to be completely ineffective at diversifying the economy using four variables:
1.) oil share of GDP
2.) share of the private sector in GDP
3.) oil exports as a percentage of the nation’s total exports
4.) oil revenues as a percentage of the nation’s total revenues.
A recent report by McKinsey Global Institute looks at the potential for the transformation of the Saudi economy and, in the report, we find this graphic:
Obviously, reducing the Saudi government’s reliance on oil revenues from 90 percent in 2013 to 30 percent in 2030 will take a mammoth effort.
If you want to get another viewpoint on the importance of oil to the Saudi economy, here is a graphic showing how real GDP has grown since 1970, thanks in large part to rising oil prices:
While the Saudi economy is the first economy that comes to mind when we think of nations that are captive to oil, the economies of other nations are even more reliant on the exports of fuels including oil, natural gas and coal as shown on this graph from the World Economic Forum:
Nations whose economies rely on fuel exports for more than 90 percent of total exports included Iraq, Libya (in 2010), Venezuela, Algeria, Brunei Darussalam, Kuwait, Azerbaijan and Sudan. Notice that Saudi Arabia comes in eleventh place with 87.4 percent of the value of their total national exports coming from fuels.
Here is another way of looking at which nations are most dependent on oil as a key part of their economies:
While Saudi Arabia makes the headlines when it comes to the world’s oil markets, it is interesting to see that many other nations rely heavily on fuel exports as a driver of economic growth. While most of the fuel exporting nations are not global economic heavyweights, the drop in oil prices over the past year and a half have pushed down economic growth levels in the affected nations, including the developing and developed economies of Russia, Norway and Canada, all of which rely on oil exports as a key part of international trade.
Click HERE to read more of Glen Asher’s columns