Saudi Arabia Sets Forth “Vision 2030” Economic Reform Agenda

As much as $1 trillion in foreign direct investment could flow into Saudi Arabia over the coming 15 years, as the oil-rich nation seeks to diversify its economy and boost its private sector, according to a study by Oxford Strategic Consulting.

The kingdom has set forth its objectives in a reform agenda it calls “Vision 2030,” that plans for the country to move towards a more open and engaged society and decrease its dependency on oil so as to make for a productive society and boost economic growth.

According to the UK-based consulting firm, “The kingdom is at a critical juncture: its economic model is no longer sustainable in a world of depressed oil prices, and there is a youthful, connected population entering the workforce and eager to integrate with the outside world.”

Among the targets Saudi Arabia has set is to boost its GDP growth and double it by 2030, creating up to 6 million new jobs in the process. Better management of its human resources could unleash as much as $6.44 billion in economic output for the country, Oxford Strategic Consulting expects.

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Another aim is to boost foreign direct investment so that it contributes as much as 5.7% to GDP, up from the current 3.8%. This would call for 21% growth in foreign direct investment into the country, taking it to $1 trillion in the next 15 years. To this end, Saudi Arabia is looking to do away with its bureaucratic orientation, make it possible for foreigners to invest in more of the country’s economic sectors, and also do over its regulations.

Also, while the country’s private sector output currently makes up 40% of its GDP, Saudi Arabia is looking to raise this to a 65% stake by 2030. Oxford Strategic Consulting expects that the country would have to boost growth in its private sector by 5 percentage points a year to achieve this goal. Saudi Arabia is looking to promote its small and medium business sector, so that 2.5 million more Saudi Arabian workers are employed in these enterprises, taking the total to 4.1 million workers by 2030, to aid private sector growth.

And the country is also aiming to diversify its oil-dominated export base and increase its non-hydrocarbon exports by an average of 22% a year, so that they grow twentyfold by 2030.

According to Graham Griffiths, an Oxford Strategic Consulting analyst, “Saudi Arabia is embarking on a radical transition that promises to open up many economic opportunities for investors. However, the kingdom will remain a challenging environment to work in, as the traditional way of doing business – both within the government and in the private sector – meets the new economic model. Informed analysis of the rapidly changing political, economic and social landscape in the kingdom will be vital to seizing the opportunities presented by Saudi Vision 2030.”

Tags: diversification, GDP, Oxford Strategic Consulting, Saudi Arabia

Rising equity markets failed to boost the funding status of pension plans in the S&P 1500 Index, another sign that lump sum or buyouts of pension plans may strengthen in the months ahead, according to new data from Mercer.

In a release, Mercer said the funding levels of companies in the S&P 1500 Index remained the same—83%—in April 2017. As of April 30, 2017, Mercer said the estimated aggregate deficit of $392 billion represents an increase of $1 billion compared to the deficit measured at the end of March 2017. The aggregate deficit decreased $16 billion from the $408 billion measured at the end of 2016.

While the decrease in discount rates was offset by positive equity markets, funding levels failed to improve. These funding estimates are based on each company’s latest available year-end statement and by projections to April 30, 2017, that correspond to financial indices (the S&P 500 and the MSCI EAFE). The estimates include US domestic qualified and non-qualified plans, and all non-domestic plans.

“Falling interest rates have now given back most of the ground they gained following the election. Sponsors who were hoping that recent rate increases signaled a long-term trend should re-evaluate their plans for dealing with a prolonged low-rate environment. Recent rate movements could also make lump sum exercises look more attractive in 2017,” according to Matt McDaniel, a partner in Mercer’s Wealth Business.

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The estimated aggregate value of pension plan assets of the S&P 1500 companies as of March 31, 2017, was $1.85 trillion USD, compared with estimated aggregate liabilities of $2.24 trillion USD. Allowing for changes in financial markets through April 30, 2017, changes to the S&P 1500 constituents, and newly released financial disclosures, at the end of April the estimated aggregate assets were $1.86 trillion USD, compared with the estimated aggregate liabilities of $2.25 trillion USD.

Tags: Aquity, buyouts, discount rates, Mercer