PHOTO
* Government-led shake-up to go furthest in kingdom's history
* Privatisations to include tourism, infrastructure, education
* Overseas investment will be less conservative in drive for yield
* Some see plan as risky, hard to implement
By Katie Paul, Marwa Rashad and Andrew Torchia
RIYADH/DUBAI, April 14 (Reuters) - In late February, several hundred Saudi officials, company executives and foreign consultants gathered in a luxury Riyadh hotel to discuss how Saudi Arabia's economy could survive an era of cheap oil.
One company manager at the event told Reuters that officials from about 30 Saudi government bodies manned booths in which they described their challenges. Corporate bosses were encouraged to "figure out ways to do partnerships to address those needs, to offer feedback, to complain, and to plan future ventures or even just future meetings," the manager said. "It was like a private sector version of a national parliament."
The workshop was part of Saudi government attempts to work out how to restructure the economy so it no longer relies on oil.
The National Transformation Plan (NTP), as Riyadh has dubbed the changes, is expected to be unveiled in the next few weeks. Much is still secret. Ministries have refused to discuss plans in detail and Western consultancies contacted by Reuters declined to confirm their involvement, let alone policy details.
Officials, consultants and executives, though, say the five-year programme is both ambitious and risky. It includes asset sales, tax increases, spending cuts, changes to the way the state manages its financial reserves, an efficiency drive, and a much bigger role for the private sector.
Such changes have been talked about for years but never put into action. One reason to think this time could be different is that policy-making has in the past year shifted away from conservative bodies such as the finance ministry and central bank. Power is now concentrated in a new 22-member Council of Economic and Development Affairs, formed after King Salman took the throne in January 2015.
The Council is chaired by his son, Deputy Crown Prince Mohammed bin Salman, who is about 30. In his role as defence minister, Prince Mohammed launched Saudi Arabia's military intervention in Yemen in March 2015. Now, he wants to shake up economic policy.
"Since the foundation of the kingdom there has been no government-led programme that innovates in this way," said Mohamed al-Afif, a veteran banker who now runs Cash Solutions, a boutique financial services firm.
CONSULTANTS AND WHATSAPP
People familiar with the NTP said it was born late last year in discussions between Prince Mohammed and a few other top officials. At the time, oil was sinking below $30 a barrel, about half the low point that had been expected. That saddled the kingdom with an annual budget deficit near $100 billion and strengthened the case for radical changes.
While Prince Mohammed is the ultimate decider, he has chosen Economy and Planning Minister Adel al-Fakieh, a former food industry executive and mayor of Jeddah, to help with the detail. As labour minister between 2010 and 2015, Fakieh overcame opposition from business to policies that pushed companies to hire more Saudis. People involved in the NTP say Fakieh, 57, uses WhatsApp on his mobile phone obsessively, conducting chats with dozens of groups until the small hours.
Riyadh is spending tens of millions of dollars on foreign consultants for the NTP. London-based Source Global Research estimated in March that total Saudi spending on consultancies - mostly by the government or state-linked bodies - grew over 10 percent in 2015, from $1.06 billion in 2014.
Consultants and ministry officials, many of them young Saudis with Western degrees, work at the Khozama office building in Riyadh, thrashing out policy in as many as 40 groups known as "delivery labs". The plans are heavy on jargon-labelled targets requiring ministries to hit rigid budget and reform goals, according to documents seen by Reuters.
MODELS
One model is neighbouring United Arab Emirates, which began radical reforms by cutting gasoline subsidies last year, people familiar with the Saudi plan said.
Another model is Malaysia, which in 2010 moved to diversify beyond commodity exports and attract more foreign investment. Consultancy McKinsey & Co played a major role in the Malaysian plan and is now at the centre of the Saudi effort.
The NTP echoes Malaysia's programme in three ways. It puts a single body in charge of implementation to force better cooperation between ministries. It seeks feedback from the private sector early, even during planning. And it aims to boost the private sector's share of investment, something Saudi planners consider vital as oil revenues sag.
Riyadh wants private firms to develop tourism facilities on some of its islands, plans to create "free zones" with minimal red tape near airports, and even wants private investment in some schools.
New infrastructure such as roads and port facilities will be constructed under build-operate-transfer contracts, in which private firms finance the projects and then operate them to recoup their investments. "The government will take no risk anymore, it will only provide opportunities," said a Saudi economist who attended a recent workshop.
The NTP will also speed up Saudi Arabia's long-running but slow-paced privatisation programme. Up to 5 percent of national oil giant Saudi Aramco will be sold to the public, Prince Mohammed says, possibly raising tens of billions of dollars. Also on the block: chunks of other companies in up to 18 sectors, including healthcare, mining and transport.
Management of the country's financial reserves will become more aggressive, according to officials and consultants. The central bank, which acts as the kingdom's sovereign wealth fund, holds $584 billion of foreign assets, mostly in conservative investments such as bank deposits and U.S. Treasuries. In the future, privatisation proceeds will be invested in corporate assets around the world, generating income and obtaining access to technology and expertise.
Saudi officials have been visiting the Abu Dhabi Investment Authority - which has over $700 billion invested in developed and emerging market equities, fixed income, private equity, real estate and infrastructure - to see how it works, sources said.
Prince Mohammed told Bloomberg last month that one fund, the Public Investment Fund (PIF), would be expanded to control over $2 trillion eventually. The fund is now believed to have about $100 billion of assets.
DEADLINE
Top officials are reviewing proposals which all the ministries involved were required to submit by March 31, two sources said.
"Everyone is waiting for the NTP announcement for a clue about how things will operate going forward," said a Western diplomat who monitors the economy.
There are many sceptics. Some say the NTP is too late. Local capital markets are too small to absorb a privatisation programme so attracting foreign money will be vital. But investors are wary of Saudi Arabia's prospects given the low oil price.
Eliminating the budget deficit by 2020 will require an additional $100 billion in spending cuts and tax increases - equivalent to about 16 percent of gross domestic product. That could stifle growth and deter the investment the NTP seeks.
Some plans are headline-grabbing but may involve little real change. For example, the PIF will take over assets such as Saudi Aramco but won't be able to reinvest that wealth unless it sells big pieces of the firm, which would be tough for financial and political reasons.
And then there's the mixed fortunes of some of the models Saudi Arabia has looked at. "Most of the economic transformation programmes in various countries didn't succeed or diverged immensely from the original plans," said prominent Saudi economist Ihsan Bu Hulaiga.
Malaysia, for instance, has increased the private sector's share of investment modestly, to 64 percent in 2014 from 52 percent in 2009. But the country's currency has plunged along with commodity prices, something Riyadh wants to avoid. Many question the role of highly paid consultants. "You have people in their 30s with laptops helping to determine the direction of the country," said one foreign consultant. "The potential for change has certainly gone up, but so has the risk."
Some Saudis think an economic shake-up could lead to the kind of social changes many foreign business executives believe are needed to modernise Saudi's economy: allowing women to drive, for instance, or opening up the legal system.
The planning itself suggests some openness to change. Senior officials, normally given to opulent robes, regularly come to workshops in simple clothes, say some attendees. And unuusally, (Additional reporting by Angus McDowall in Riyadh, Tom Arnold and Hadeel Al Sayegh in Dubai, and Joseph Sipalan in Kuala Lumpur; Edited by Simon Robinson) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277)) <
By Andrew Torchia
April 13 (Reuters) - Sometime in the next few weeks, Saudi Arabia is expected to release a National Transformation Plan (NTP) designed to restructure its economy so that it no longer relies so heavily on oil.
The plan, covering the next five years, is not yet complete and details are still secret. But the following policies are being drafted, according to public and private comments by officials, consultants and businessmen involved in drawing up the scheme.
PRIVATISATION
Eighteen sectors have been identified for possible privatisation. In many cases that is likely to mean sales of minority rather than controlling stakes in companies. Up to 5 percent of national oil giant Saudi Aramco is to be offered, and possibly stakes in downstream subsidiaries of the company. Other candidates include the postal system, the ports authority, Saudi Arabian Airlines, state hospitals and even soccer teams.
PRIVATE SECTOR INVESTMENT
Officials plan to create "free zones" near airports to attract foreign businesses. The zones will offer attractive visa and tax rules and streamlined licensing procedures. Ministries, including education and health, will seek private investment in some of their operations. The government aims to attract private investors for tourism projects in undeveloped regions. Expect a heavy emphasis on contracts that require private firms to finance and operate infrastructure projects in exchange for revenues generated by the projects.
REGULATIONS
The Council of Economic and Development Affairs is to announce 133 measures to improve the transparency and consistency of laws that affect business. Saudi Arabia currently comes 82nd in the World Bank's "ease of doing business" ranking, behind countries such as Russia and Tonga.
GOVERNMENT EFFICIENCY
Ministries will be assigned rigorous numerical targets known as 'key performance indicators'. They will be encouraged to convert some operations into independent commercial firms in the hope they can become more efficient even if they remain state-owned.
FINANCIAL RESERVES
Expect the government to invest its petrodollars more aggressively in international markets and assets, seeking higher returns and stakes in companies that can help with NTP projects. The Public Investment Fund will play a much bigger role in managing national wealth, taking over assets such as Saudi Aramco, which would take the fund's size above $2 trillion.
FISCAL REFORMS
The government aims to balance its budget by 2020 through further cuts in energy subsidies, tax increases and higher fees. For example, a Gulf-wide value-added tax of up to 5 percent will be introduced in 2018; more money will be raised by charging companies to import foreign labour. The budget deficit was $98 billion in 2015.
LABOUR REFORMS
The government aims to create an additional 1.3 million jobs for Saudi citizens over the next few years, partly by restricting or even prohibiting foreign nationals from working in sectors such as travel and tourism, real estate, jewellery and vegetable markets.
(Reporting by Andrew Torchia; Edited by Simon Robinson) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))
* Privatisations to include tourism, infrastructure, education
* Overseas investment will be less conservative in drive for yield
* Some see plan as risky, hard to implement
By Katie Paul, Marwa Rashad and Andrew Torchia
RIYADH/DUBAI, April 14 (Reuters) - In late February, several hundred Saudi officials, company executives and foreign consultants gathered in a luxury Riyadh hotel to discuss how Saudi Arabia's economy could survive an era of cheap oil.
One company manager at the event told Reuters that officials from about 30 Saudi government bodies manned booths in which they described their challenges. Corporate bosses were encouraged to "figure out ways to do partnerships to address those needs, to offer feedback, to complain, and to plan future ventures or even just future meetings," the manager said. "It was like a private sector version of a national parliament."
The workshop was part of Saudi government attempts to work out how to restructure the economy so it no longer relies on oil.
The National Transformation Plan (NTP), as Riyadh has dubbed the changes, is expected to be unveiled in the next few weeks. Much is still secret. Ministries have refused to discuss plans in detail and Western consultancies contacted by Reuters declined to confirm their involvement, let alone policy details.
Officials, consultants and executives, though, say the five-year programme is both ambitious and risky. It includes asset sales, tax increases, spending cuts, changes to the way the state manages its financial reserves, an efficiency drive, and a much bigger role for the private sector.
Such changes have been talked about for years but never put into action. One reason to think this time could be different is that policy-making has in the past year shifted away from conservative bodies such as the finance ministry and central bank. Power is now concentrated in a new 22-member Council of Economic and Development Affairs, formed after King Salman took the throne in January 2015.
The Council is chaired by his son, Deputy Crown Prince Mohammed bin Salman, who is about 30. In his role as defence minister, Prince Mohammed launched Saudi Arabia's military intervention in Yemen in March 2015. Now, he wants to shake up economic policy.
"Since the foundation of the kingdom there has been no government-led programme that innovates in this way," said Mohamed al-Afif, a veteran banker who now runs Cash Solutions, a boutique financial services firm.
CONSULTANTS AND WHATSAPP
People familiar with the NTP said it was born late last year in discussions between Prince Mohammed and a few other top officials. At the time, oil was sinking below $30 a barrel, about half the low point that had been expected. That saddled the kingdom with an annual budget deficit near $100 billion and strengthened the case for radical changes.
While Prince Mohammed is the ultimate decider, he has chosen Economy and Planning Minister Adel al-Fakieh, a former food industry executive and mayor of Jeddah, to help with the detail. As labour minister between 2010 and 2015, Fakieh overcame opposition from business to policies that pushed companies to hire more Saudis. People involved in the NTP say Fakieh, 57, uses WhatsApp on his mobile phone obsessively, conducting chats with dozens of groups until the small hours.
Riyadh is spending tens of millions of dollars on foreign consultants for the NTP. London-based Source Global Research estimated in March that total Saudi spending on consultancies - mostly by the government or state-linked bodies - grew over 10 percent in 2015, from $1.06 billion in 2014.
Consultants and ministry officials, many of them young Saudis with Western degrees, work at the Khozama office building in Riyadh, thrashing out policy in as many as 40 groups known as "delivery labs". The plans are heavy on jargon-labelled targets requiring ministries to hit rigid budget and reform goals, according to documents seen by Reuters.
MODELS
One model is neighbouring United Arab Emirates, which began radical reforms by cutting gasoline subsidies last year, people familiar with the Saudi plan said.
Another model is Malaysia, which in 2010 moved to diversify beyond commodity exports and attract more foreign investment. Consultancy McKinsey & Co played a major role in the Malaysian plan and is now at the centre of the Saudi effort.
The NTP echoes Malaysia's programme in three ways. It puts a single body in charge of implementation to force better cooperation between ministries. It seeks feedback from the private sector early, even during planning. And it aims to boost the private sector's share of investment, something Saudi planners consider vital as oil revenues sag.
Riyadh wants private firms to develop tourism facilities on some of its islands, plans to create "free zones" with minimal red tape near airports, and even wants private investment in some schools.
New infrastructure such as roads and port facilities will be constructed under build-operate-transfer contracts, in which private firms finance the projects and then operate them to recoup their investments. "The government will take no risk anymore, it will only provide opportunities," said a Saudi economist who attended a recent workshop.
The NTP will also speed up Saudi Arabia's long-running but slow-paced privatisation programme. Up to 5 percent of national oil giant Saudi Aramco will be sold to the public, Prince Mohammed says, possibly raising tens of billions of dollars. Also on the block: chunks of other companies in up to 18 sectors, including healthcare, mining and transport.
Management of the country's financial reserves will become more aggressive, according to officials and consultants. The central bank, which acts as the kingdom's sovereign wealth fund, holds $584 billion of foreign assets, mostly in conservative investments such as bank deposits and U.S. Treasuries. In the future, privatisation proceeds will be invested in corporate assets around the world, generating income and obtaining access to technology and expertise.
Saudi officials have been visiting the Abu Dhabi Investment Authority - which has over $700 billion invested in developed and emerging market equities, fixed income, private equity, real estate and infrastructure - to see how it works, sources said.
Prince Mohammed told Bloomberg last month that one fund, the Public Investment Fund (PIF), would be expanded to control over $2 trillion eventually. The fund is now believed to have about $100 billion of assets.
DEADLINE
Top officials are reviewing proposals which all the ministries involved were required to submit by March 31, two sources said.
"Everyone is waiting for the NTP announcement for a clue about how things will operate going forward," said a Western diplomat who monitors the economy.
There are many sceptics. Some say the NTP is too late. Local capital markets are too small to absorb a privatisation programme so attracting foreign money will be vital. But investors are wary of Saudi Arabia's prospects given the low oil price.
Eliminating the budget deficit by 2020 will require an additional $100 billion in spending cuts and tax increases - equivalent to about 16 percent of gross domestic product. That could stifle growth and deter the investment the NTP seeks.
Some plans are headline-grabbing but may involve little real change. For example, the PIF will take over assets such as Saudi Aramco but won't be able to reinvest that wealth unless it sells big pieces of the firm, which would be tough for financial and political reasons.
And then there's the mixed fortunes of some of the models Saudi Arabia has looked at. "Most of the economic transformation programmes in various countries didn't succeed or diverged immensely from the original plans," said prominent Saudi economist Ihsan Bu Hulaiga.
Malaysia, for instance, has increased the private sector's share of investment modestly, to 64 percent in 2014 from 52 percent in 2009. But the country's currency has plunged along with commodity prices, something Riyadh wants to avoid. Many question the role of highly paid consultants. "You have people in their 30s with laptops helping to determine the direction of the country," said one foreign consultant. "The potential for change has certainly gone up, but so has the risk."
Some Saudis think an economic shake-up could lead to the kind of social changes many foreign business executives believe are needed to modernise Saudi's economy: allowing women to drive, for instance, or opening up the legal system.
The planning itself suggests some openness to change. Senior officials, normally given to opulent robes, regularly come to workshops in simple clothes, say some attendees. And unuusally, (Additional reporting by Angus McDowall in Riyadh, Tom Arnold and Hadeel Al Sayegh in Dubai, and Joseph Sipalan in Kuala Lumpur; Edited by Simon Robinson) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277)) <
By Andrew Torchia
April 13 (Reuters) - Sometime in the next few weeks, Saudi Arabia is expected to release a National Transformation Plan (NTP) designed to restructure its economy so that it no longer relies so heavily on oil.
The plan, covering the next five years, is not yet complete and details are still secret. But the following policies are being drafted, according to public and private comments by officials, consultants and businessmen involved in drawing up the scheme.
PRIVATISATION
Eighteen sectors have been identified for possible privatisation. In many cases that is likely to mean sales of minority rather than controlling stakes in companies. Up to 5 percent of national oil giant Saudi Aramco is to be offered, and possibly stakes in downstream subsidiaries of the company. Other candidates include the postal system, the ports authority, Saudi Arabian Airlines, state hospitals and even soccer teams.
PRIVATE SECTOR INVESTMENT
Officials plan to create "free zones" near airports to attract foreign businesses. The zones will offer attractive visa and tax rules and streamlined licensing procedures. Ministries, including education and health, will seek private investment in some of their operations. The government aims to attract private investors for tourism projects in undeveloped regions. Expect a heavy emphasis on contracts that require private firms to finance and operate infrastructure projects in exchange for revenues generated by the projects.
REGULATIONS
The Council of Economic and Development Affairs is to announce 133 measures to improve the transparency and consistency of laws that affect business. Saudi Arabia currently comes 82nd in the World Bank's "ease of doing business" ranking, behind countries such as Russia and Tonga.
GOVERNMENT EFFICIENCY
Ministries will be assigned rigorous numerical targets known as 'key performance indicators'. They will be encouraged to convert some operations into independent commercial firms in the hope they can become more efficient even if they remain state-owned.
FINANCIAL RESERVES
Expect the government to invest its petrodollars more aggressively in international markets and assets, seeking higher returns and stakes in companies that can help with NTP projects. The Public Investment Fund will play a much bigger role in managing national wealth, taking over assets such as Saudi Aramco, which would take the fund's size above $2 trillion.
FISCAL REFORMS
The government aims to balance its budget by 2020 through further cuts in energy subsidies, tax increases and higher fees. For example, a Gulf-wide value-added tax of up to 5 percent will be introduced in 2018; more money will be raised by charging companies to import foreign labour. The budget deficit was $98 billion in 2015.
LABOUR REFORMS
The government aims to create an additional 1.3 million jobs for Saudi citizens over the next few years, partly by restricting or even prohibiting foreign nationals from working in sectors such as travel and tourism, real estate, jewellery and vegetable markets.
(Reporting by Andrew Torchia; Edited by Simon Robinson) ((andrew.torchia@thomsonreuters.com; +9715 6681 7277; Reuters Messaging: andrew.torchia.thomsonreuters.com@reuters.net))
