Saudi reforms focus on youth empowerment

Vision 2030 was launched in 2016 with the aim of renewing the social contract between the long-ruling Al Saud family and various segments of society, as well as addressing fiscal imbalances resulting from a reliance on oil revenue, low labour force participation rates and generous social benefits.

Some of Vision 2030’s primary objectives were to spur job creation for Saudi nationals; bolster the economic contribution of the private sector; diversify the economy; and catalyse investment in sectors where Saudi Arabia could aspire to be globally competitive. With about two-thirds of citizens aged under 35, and the Vision’s architect Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud in his mid-30s himself, the national blueprint was designed to align with the aspirations of the younger generations of Saudis.

Social Transformation 

Vision 2030 has been the catalyst for a number of landmark reforms in recent years, including curbing the powers of the religious police, easing rules on gender mixing, ending prohibitions on cinemas and playing music in restaurants, introducing a tourist visa alongside rules for a modest dress code for women – rather than all-covering robes, granting women the right to drive and travel abroad, and allowing women to perform the Hajj pilgrimage without a male guardian as of 2021.

Social reforms have been accompanied by significant economic reforms, such as restricting specific jobs to citizens and expanding the quotas for employment of Saudis; introducing value-added tax of 5% in 2018 and increasing it to 15% in 2020; cutting utilities subsidies; launching the initial public offering of a small portion of Saudi Aramco, the state-controlled oil company and raising $29.4bn in the process; and relaxing the 49% limit for foreign strategic investors in companies listed on the Saudi Exchange.

At the same time, sweeping judicial reforms have placed the Kingdom on a path towards codified law, with the Personal Status Law, the Civil Transactions Law, the Penal Code for Discretionary Sanctions, and the Law of Evidence all announced in 2021. Such legal reforms aim to bring the Kingdom in line with international standards and end discrepancies in court rulings and drawn-out proceedings, while building confidence in the strength of legal institutions.

Impact of Reforms

Labour force participation for women between the age of 15 and 24 increased by 6% in 2015-20. For males in the same age group, participation rose by 13%. The total labour force participation rate has remained steady at 58% for people between the age of 15 and 64 during the same period, indicating that youth employment in particular is gaining pace. While these efforts have been positive, there remains room to expand workforce participation.

Fiscal imbalances are also gradually easing. In 2015 the budget deficit reached 15% GDP, but by 2019 this figure had fallen to 4.4% of GDP. On the back of strong oil prices and positive economic reforms, the World Bank forecasts a 9% surplus for 2022, with continued surpluses for 2023 and 2024 and an associated reduction of the debt-to-GDP ratio. Although much of these projected surpluses stem from increased energy prices due to geopolitical tensions, social gains cannot be overlooked. Moreover, the positive momentum of reform in the Kingdom seems to be boosting investor confidence, with significant rises in portfolio and foreign direct investment in recent years. The former has improved from -$11.4bn in 2016 to $23.7bn in 2020, and the latter has increased from $1.4bn in 2016 to $5.4bn in 2020 and $19.3bn in 2021.

One the most significant challenge facing the Saudi government is finding jobs for a rapidly expanding workforce and expanding women’s participation in the economy without enlarging the public sector or upsetting the social balance. Vision 2030 provides the blueprint for sweeping social transformation and, if the economic returns continue to be positive, the renewed social contract will remain on solid ground.