A key move as part of Vision 2030

The next five years promise big changes for the Kingdom and those who live here. In one way or another, everyone is going to be affected. The developments that will take place will be transformational. By 2021 Saudi Arabia will have taken decisive steps to spread its wealth-creation well beyond hydrocarbons.
The ambition to develop a vibrant non-oil economy in the Kingdom is of long-standing. The income from oil has been used to develop world-class cities and infrastructure. Riyadh and Jeddah boast some of the most dramatic metropolitan skylines to be found anywhere. This achievement cannot be underestimated. 
And it would be wrong to ignore the advances that have been made in the non-oil economy. Saudi construction companies are some of the most successful in the region. We have the largest dairy industry in the Arab world which exports widely. At many levels of consumer manufacturing in food and household products, Saudi companies have built up from their domestic base to become profitable exporters.
But it is not enough. The Kingdom needs more. And the 112-page National Transformation Program (NTP) sets out in compelling detail how this more is going to be achieved.
The NTP was approved this week by the Cabinet, chaired by Custodian of the Two Holy Mosques King Salman. The NTP is part of Vision 2030, which is being spearheaded by the Council of Economic and Development Affairs chaired by Deputy Crown Prince Mohammed bin Salman.
The program is a startling document. It envisages a fundamental reorientation of government revenues. This will impact everyone. The price of water and power will rise. The cost of their production can no longer be heavily subsidized by the state. The new value-added tax is a fair way of taxing consumption. The “sin taxes” on sweet drinks and tobacco are sensible and some would argue overdue. Too many young people are obese. The rise in diabetes among the population has been alarming. Making harmful treats more expensive will hopefully cause a rethink about buying them. The tax on tobacco is a no-brainer.
There will be no income tax for Saudi citizens. The news of the income tax for expatriates has caused some alarm. But compared with tax obligations back home, the six percent level is extremely modest. And the tax will fall to two percent after five years. This will reward the loyalty of expatriates who commit themselves to live and work in the Kingdom.
The NTP is also looking to boost the quality of service in the bureaucracy. The government wage bill is to be cut from 45 to 40 percent of the state budget. This is likely to impact wages. It may mean a reduction in the number of public sector employees. At the least there will probably be a freeze on pay rises and recruitment. The introduction of serious performance management should boost efficiency.
By the same token, the private sector will receive stronger support. In the next five years, the NTP envisages the creation of 450,000 new jobs. The Kingdom joined the World Trade Organization 11 years ago. Since then many Saudi firms have implemented international quality standards. Private sector productivity significantly exceeds that of the state sector. Cost controls exist as a matter of course. But as with businesses around the world, there are always further savings to be found. There are always extra efficiencies to be introduced.
The challenge for Saudi business is clear. It must use its strengths to take a larger economic role. Thus the NTP envisages that the private sector will fund 40 percent of government earmarked projects in the next five years. Companies will use their own resources or fresh shareholder money through capital increases to finance these works. Encouragement will also be given to further import substitution. In industries such as defense and automotive, Saudi enterprises will produce more than SR270 billion of goods and services which are currently sourced outside the country.
There can be no doubt that the NTP is going to have a profound effect. It is a key part of the transformational Vision 2030 policy. The Kingdom is adjusting to changing economic realities. But new budgetary control does not mean cost-cutting. It is not introducing austerity. Instead, it is promoting stringency. It is promoting private sector growth. It is underpinning the commercial imperative, where every riyal spent must produce a real return.
Five years from now, the NTP will surely be seen as a watershed moment in the Kingdom’s economic history.

Source : Arab News