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Saudi Arabia would completely transform its economy by 2030. The large-scale plan includes gigantic investments, such as a $ 500 billion smart city or a $ 200 billion solar farm. The objective of the comprehensive plan is for the oil power to try to keep its economy on several feet and reduce its dependence on raw materials. What’s more, it is the largest economic project of its kind in the world, but it is increasingly questionable.
In recent weeks, there have been several major announcements from Saudi Arabia about the so-called Vision 2030 project. Saudi Aramco, a state-owned oil giant, for example, has said it will freeze its multi-million dollar investment in Port’s liquefied natural gas (LNG) terminal. Arthur from Sempra Energy. It is also postponing its $ 20 billion investment in a national petrochemical and refining project. The reason: the cash reserve.
Not long ago, Saudi government sources told the Wall Street Journal that However, the $ 200 billion solar farm, which would have been created jointly with Japan’s SoftBank, is not coming to fruition. Riyadh now plans to implement more smaller solar projects.
After that, it turned out that the entire Vision 2030 flagship project, building a smart city called Neom, also became questionable. However, the government will not renounce this, announced the Ministry of Oil financial support for development.
However, the desert super city can be built
After the possibility emerged in recent months that the huge smart city project in Saudi Arabia would be halted, the Saudi Ministry of Energy announced that it is embarking on a $ 500 billion investment to complete construction of the Neom town on time. The Riyadh government has pledged to build a smart city called Neom after news of the epidemic could halt the $ 500 billion project in the spring.
A city with fully renewable energy will be the most important investment in economic diversification plans, but the analysis by Oil appreciate that the particular irony of the whole plan is that moving away from an economic model based on oil depends on the income of oil exports.
However, these revenues have plummeted this year as global demand for oil has dropped significantly due to the epidemic.
While it was previously unclear if the full Vision 2030 would be feasible as originally planned (due to the staggeringly high cost), the kingdom has so far been realistic in building that it shouldn’t be funded solely by its budget. The most important fund was Saudi Aramco’s massive income and capital from its share issue.
In recent months, however, Saudi Aramco has also been hit hard by deepening oil prices, which has led to a drop in the company’s revenue, in part due to the need to stop certain investments. That is, the current situation is that Saudi Arabia does not have enough oil revenues to finance the reduction of its dependence on oil revenues.
What’s more, the irony of the story is that a few years ago, analysts pointed out that if oil prices remained high, the kingdom would have no interest in achieving Vision 2030. And now we can see the opposite.
Meanwhile, the general state of the Saudi economy also shows the contraction of the oil market. In the second quarter of this year, GDP fell and the budget deficit was $ 29 billion. The government has introduced austerity measures and cut spending. Additionally, Saudi Aramco, on the other hand, has to serve shareholders, thus maintaining a dividend payment of $ 75 billion.
The situation in Saudi Arabia is therefore very special, but its difficulties shed light on several aspects. For one thing, the fact that large-scale plans like Vision 2030 can’t be implemented overnight is risk-free. Although presumably the project will not stop, serious changes will be necessary, for example in the case of the solar park. On the other hand, it is also clear, as the recent example of Kuwait has shown, that it is increasingly risky for a country to be too dependent on oil market revenues.
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