Saudi Vision 2030 will it work?

Economic diversification is now important for countries that depend on one source of income that is affected by prices like oil. No country is important in affairs of oil like Saudi Arabia and the drop in oil prices in 2016 has caused promptly deteriorating budgets of oil-producing countries (Wall Street Journal 2016).  Volatility of oil prices is a real concern for countries that are rich with oil and natural gas. This essay will talk about the economy of Kingdom of Saudi Arabia and the importance of diversifying it and it will mention Norway as a case study and then it will talk about the reasons for Saudi Arabia to launch vision 2030 and what Saudi Arabia will do to diversify its economy.

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Economy of Saudi Arabia and the importance of diversifying it

The backbone of Saudi Arabian economy is oil and it’s the main source of its improvement (ISPI 2016). Alhowaish stated that Saudi Arabia economy is dependent on oil with a wealthy natural possession (2014). Aboudah mentioned that Saudi Arabia is the largest exporter of oil derivatives and it is also have the highest capability to produce oil on an international market, and it represents 18 percent of the international petrol reserves supply (2015). Considering the improvement of technology in renewable energy, and the drop of oil prices and decreasing demand for it, Gulf countries economy is affected by the Instability of international oil prices, and there is growing worry over environmental change, so diversification has become important for gulf countries as it is economy is unsustainable (Mishrif 2018). Bokhari mentioned thateconomic diversification can be defined as: to not depend on one source that is affected to any change that happen to it by reformation the economy and raising contribution of different economic areas in a country by building diverse exported commodities (2017). Hvidt stated that oil is a finite resource and the demand for it have varied significantly for this reason diversification is now a priority for the gulf countries  because oil is their only main source of income (2013). Benefits of economic diversification is numerous, In the first place, even within the sight of defined fiscal rules one thing to be taken in consideration is that volatility of oil prices is especially challenging for oil rich countries through its unexpected effect on the sovereign balance sheet, diversification could be as a support against fluctuation of commodity prices. Secondly, it also can result to long haul benefits by bringing new abilities and technology to the economy. It can make in the non-resource area of the economy a new employment opportunities. Finally, with more extensive resource curse it can be as shield against it (Alsharif et al. 2016). Al-Kawaz said when Gross domestic product, hiring, distribution, and other economic factors are created from different segments, a significant instability in economic activity is dropped, and that diminishing hazard is the main issue behind accomplishing the diversification target. It should also aim to use the similar favorable circumstances to empower an economy to make utilization of its gifts of oil (2008). Mishrif stated that diversification can also happen by moving investments from one sector in economy to other from the main source of income to the second and so on to increase the value of local products, and raising another sectors of economy for growth. For example, leisure industry, investments and broadcasting (2018).

Economic diversification: the case of Norway

When it comes to diversification only few countries that are rich-resource have been able to do well, although they have unlike encounters (Ismayil 2015). Alameen pointed out that by creating and keeping solid infrastructure with oil revenues and development of economy and good management, Norway considered as an Ideal example for this (2016). Aboudah mentioned that the Norwegian economy had a huge growth in the end of 1990 and in that year Norway was behind Saudi Arabia in oil distribution, but later the oil prices had started to decline which is normal for natural resources to fluctuate in price, so this forced Norway to take actions to bring up a replacement for oil, which was sustainable energy, Saudi Arabia should have learnt from Norway that sustainable energy could be the solution (2015). Elwerfelli and Benhin said that “Norway is a small open economy, which is indeed rich in resources including oil, gas, hydropower, and minerals. But its other significant industries are shipbuilding, paper products, electronics, timber, textiles, and fishing, an indication of a highly diverse economy” (2018).  Norway retained a huge savings from oil income through the years which the country invested in global market; the country was capable to improve renewable energy costs, Norwegian government introduce duty of 90 dollars each ton on emission for pollute on all manufacturers, the money from duty was invested in creating a renewable energy production, Norway put an importance to hydrogen fuel cells technology, this was to shift international energy towards green efficiency and no emissions, Norway did this for sustainable economy away from oil, this was a good chance to stimulate the country industrial economy, it used moral investments work which was that the companies that are related to diversification plan are not allowed to have above than 10% of investments (Aboudah 2015). Ismayil stated “Unlike many resource-rich countries, Norway limits the spending of the oil revenues and accumulates its reserves in the Government Pension Fund” (2015).