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Saudi Arabia opts for smart governance

The slump in revenues from crude has hit the economy, and the government opted for merging a number of ministries and scrapping some altogether.

As part of a strategy to overhaul the Saudi economy, Khaled Al Falih has replaced oil minister Ali Al Naimi. This is one of the biggest changes at the top aimed at ending the dependence on oil by 2030. Deputy Crown Prince Mohammed bin Salman had been at the vanguard of reforms in an attempt to diversify the economy. The slump in revenues from crude has hit the economy, and the government opted for merging a number of ministries and scrapping some altogether. Naimi's exit, after 20 years in office, indicates that the crown prince wants tighter control over the commodity, and subsequently usher in policies that will lessen the dependence on black gold. Which is why a new department managing energy, industry and mineral resources is being set up to make the decision-making process a one-window affair. The discovery of shale in the United States, dip in oil prices due to upheavals in the region and Naimi's refusal to cut oil production led to a glut of supply. Last but not the least, the intransigence from Iran and other oil producing countries to keep supply at the same level had compounded the crisis.
The question is what's next? Irrespective of the fact that 72 per cent of its revenues come from oil, Riyadh faces a huge budget deficit this year. The country is likely to face tough time as it increasingly relies on the private sector to drive growth, and provide new sources of revenue to the state. The setting up of the world's largest sovereign wealth fund and reliance on privatisation proceeds could be a game-changing strategy. Saudi Arabia has made use of an opportunity as oil prices fell below $30 per barrel. The leadership's quest for an effective government and buoying its private sector is promising. Riyadh understands that Opec will no longer be in a dictating position, as supply and demand will determine the price of oil. Falih's challenge will be to coordinate its domestic energy policy with oil exports, which was missing in the past, and draw up in a new economic contract. The new policy is an opportunity for Saudi Arabia to soar to new heights.