Saudi Defense Minister and Deputy Crown Prince Mohammed bin Salman gestures during a press conference in Riyadh, on April 25, 2016. The key figure behind the unveiling of a vast plan to restructure the kingdom's oil-dependent economy, the son of King Salman has risen to among Saudi Arabia's most influential figures since being named second-in-line to the throne in 2015. Salman announced his economic plan reform best known as "Vision 2030". / AFP / FAYEZ NURELDINE (Photo credit should read FAYEZ NURELDINE/AFP/Getty Images)
Prince Mohammed bin Salman: ‘We have an addiction to oil . . . this is dangerous’ © AFP

Saudi Arabia has unveiled a long-awaited plan for a radical transformation of its economy, pledging to end its “addiction to oil” and bolster its private sector in a shift that will see the planned $2tn listing of the state-owned Saudi Aramco.

Spurred by the collapse in oil prices, the kingdom has set out ambitious targets for economic and social reform under a “Vision 2030” plan that is the brainchild of Mohammed bin Salman, the 30-year-old deputy crown prince and the favoured son of King Salman bin Abdulaziz.

The kingdom could end its reliance on oil within four years, the prince said in a television interview after the Saudi cabinet approved the plan on Monday morning. Saudi Arabia currently derives more than 90 per cent of its budget revenues from hydrocarbons.

“We have an addiction to oil . . . this is dangerous,” Prince Mohammed said in the interview on the state-owned al-Arabiya channel. “It has delayed development of other sectors.”

The planned flotation of a 5 per cent stake in Aramco would value the oil giant at more than $2tn and mark a historic transformation of the kingdom’s primary economic engine, boosting transparency around the state-owned company’s finances, as well as granting Saudi Aramco more independence from government oil policy.

Saudi Aramco would be converted into a holding company and all financial information related to the company will be disclosed. Subsidiaries of the entity will also be listed and its board will be elected.

“After the IPO, the Aramco board can take its own decisions,” said the prince. According to the plan, the ownership of Saudi Aramco will then be transferred to the state’s Public Investment Fund, which will help bolster it into a sovereign wealth fund valued at up to $3tn, the world’s largest, with a mandate to kick-start domestic investment.

The prince, who is also defence minister and oversees economic ministries, has emerged as the key decision maker in the country since his father, King Salman, assumed the throne. He has since worked with a group of technocrats and management consultants to slash expenditures, reform energy subsidies and lay out a vision for a post-oil economy.

The collapse in oil prices, precipitated by Saudi Arabia’s decision to protect its market share rather than the oil price, has forced a re-evaluation of economic priorities in Riyadh, prompting the prince to press for the development of non-oil sectors.

“Mohammed bin Salman wants to light a fire under a system that is accustomed to moving at a glacial pace. His thinking is sound. His timeframe less so,” said Jim Krane a fellow at Rice University’s Baker Institute for Public Policy: “The kingdom desperately needs to diversify its economy.”

Daniel Yergin, author of The Prize, the history of the oil industry and vice-chairman of data provider IHS, said that one result of the plan would also be to make Saudi Arabia a bigger force in global finance.

The vision sets out plans to boost the role of the private sector from 40 per cent to 65 per cent of gross domestic product by 2030.

The kingdom is seeking to develop a mining industry that could create 90,000 jobs by 2020 and a domestic military industry that would allow 50 per cent of defence spending to be sourced locally by 2030.

Privatising government assets, from Saudi Aramco to healthcare and education, will also help meet ambitious diversification targets of raising non-oil government revenue from SR163bn ($43bn) to SR1tn by 2030s.

The plan also aims to reduce unemployment from 11.6 per cent to 7 per cent by 2030, increase women’s participation in the labour force from 22 per cent to 30 per cent, and boost the share of small and medium-sized enterprises from 20 per cent of GDP to 35 per cent.

Prince Mohammed said the vision had been planned with a price of $30 a barrel in mind.

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