In a region where grand is the default scale, Saudi Arabia's latest economic reforms are as grand as they come. Vision 2030, announced by Deputy Crown Prince Mohammad Salman last month, is designed to transform the kingdom into an economic and investment powerhouse and end its "addiction" to oil.
Vision 2030 will expand Saudi Arabia's tiny non-oil economy, provide sustainable sources of non-oil revenue, reform the civil service and introduce a more competitive economic environment. This shift from a state and oil-driven economy to one that has a vibrant private sector is meant to lead to long-term sustainable economic progress. All this within 14 years in a country where change is slow and incremental.
Saudi Arabia is no ordinary country undertaking such systematic reform. It is the world's biggest and one of the cheapest producers of oil, a leader of the Muslim and the Arab world and a centre for stability in an otherwise volatile region. Should the proposed reforms succeed, their impact will not only transform the kingdom but also be felt across the region, showing others that change can happen without revolutions and violence.
The collapse of oil prices is the obvious factor forcing reforms in Saudi Arabia but that in itself is not the only explanation. The Middle East has fallen off the radar of the United States, whose perceived shift towards regional rival Iran has many in the region alarmed. Concurrently, there are full-fledged wars in Syria and Yemen and insurgencies or civil wars in Iraq and Libya which could easily spill across regional borders. While the Arab Spring was put down with a combination of money, political and military resources, its causes - jobs for youth, better governance and political accountability - continue to remain unaddressed in many parts of the Middle East.
Most importantly, in this uncertain regional environment where security concerns are high, oil prices low and viable political alternatives few, Saudi Arabia itself is also undergoing a leadership transition, arguably the most important since Abdulaziz Saud came to power and created modern Saudi Arabia in 1932. Since his death, power has passed down from one of his sons to another, including the present 80-year-old King Salman, the last of his generation.
The shift to the next generation will likely be more contested. King Salman's 31-year-old son, Deputy Crown Prince Mohammad, has been tasked with leading this economic transformation. Should the reforms succeed, he will be in a stronger position to lay claim to the title of the next-generation leader that Saudi Arabia and the Arab world can rally behind.
When Prince Mohammad announced the reforms on April 25, he didn't mince his words. Change is necessary and needed quickly, he said, adding that, in fact, the "addiction" to oil must end in just four years from now, not in 16.
Indeed, Saudi Arabia needs to move quickly - as it has few other options. Its foreign exchange reserves have fallen at an alarming rate and its fiscal deficit has widened sharply. While it won't go bankrupt any time soon because its government debt is still low, such weak financials do strain the resources needed to sustain a cradle-to-grave political economy and to keep the region from imploding without an uninterrupted supply of petrodollars.
The kingdom has already cut subsidies on fuel and other services and plans to prune its bloated and inefficient bureaucracy - seven out of 10 Saudis work for the state and layoffs are expected. While income and wealth will remain tax-free, there could be new taxes on property and perhaps even a low value-added tax to diversify the tax base. There are also plans to transfer Saudi Aramco - the world's biggest oil company - from direct government ownership to one of Saudi Arabia's existing sovereign wealth funds, the Public Investment Fund (PIF).
These measures will yield results and help diversify non-oil sources of income for the kingdom. The success of Saudi Aramco's share sale - and other assets that are privatised - will depend not only on the promised financial returns but also the robustness of the governance system put in place to manage it and the PIF.
Prince Mohammad also highlighted the need for a broad, non-oil economy. But here, the goals are modest and include promoting Islamic tourism and building domestic logistics and defence sectors to spur innovation and growth.
The greater challenge - subtly addressed by Prince Mohammad himself - is cultural change, a difficult task in a kingdom steeped in tradition and governed under the watchful eyes of a religious establishment that wields enormous power. This establishment does not oppose economic development per se but it has successfully resisted social change.
With women making up half of the kingdom's university graduates, the Vision 2030 goal of raising their participation in the labour force by just 6 percentage points to 30 per cent underscores that change - if any - will be slow so as not to upset the religious establishment, especially at a time when succession could be more contested. Labour reforms - promised without many details - would need to go beyond giving women a greater role in the workforce. With the official unemployment rate at almost 12 per cent, Saudi Arabia needs to build a labour force that is technically skilled, employable and able to compete globally. Maths and science, rather than religious studies, will get it there.
If Saudis need an impetus to embrace change, they just have to look at the competition in the region. The United Arab Emirates has slowly and painstakingly built a non-oil economy and is politically stable. Not far away, Iran is opening up and is a viable investment alternative because its domestic market is twice as big as Saudi Arabia's and it has a better skilled labour force.
Iran will never be the leader of the Muslim world but it would be the biggest regional beneficiary of failed reforms in Saudi Arabia, an outcome that could make the kingdom less relevant than it is today.
• The writer is managing director of HJ Advisory (Singapore), a Singapore-based country risk and investment advisory firm.
A version of this article appeared in the print edition of The Straits Times on May 09, 2016, with the headline 'A prince, an oil kingdom and hopes of change'. Print Edition | Subscribe
We have been experiencing some problems with subscriber log-ins and apologise for the inconvenience caused. Until we resolve the issues, subscribers need not log in to access ST Digital articles. But a log-in is still required for our PDFs.