Saudi faces challenge of hitting target in 5-year plan

Saudi Arabia has allocated its largest ever budget for human resources in its latest ninth five-year development plan but it faces a challenge of achieving its target from such investments, according to a Saudi investment firm.

The plan, which was approved by the cabinet last week, is a major step in the Gulf kingdom’s efforts to further intensify key trends of economic and social development in line with the government’s long-term objectives, said NCB Capital (NCBC), which is owned by the Saudi National Commercial Bank.

While boosting the overall financial resources available for spending by a staggering 67 per cent over the last plan, to SR1.44 trillion (Dh1.42trn), the new programme contains little by way of new priorities, NCBC said in a study.

Rather, the continuity of policy constitutes a “welcome reflection” of the consistency of strategy and the enduring importance of the government’s objectives even in the face of extraordinary economic change globally.

Budget details showed that more than half the total expenditure envisaged by the 2010-2014 plan is to be devoted to the broad category of ‘manpower development', much of it education and training.

Social development and health care will receive 19 per cent while economic resource development will get around 15.7 per cent, transport and telecommunications 7.7 per cent, and municipal services and housing seven per cent. Important spending targets include a doubling in the annual capacity of water desalination plants from 1.05 billion to 2.07 billion cubic metres and the construction of nearly one million new housing units.

“The ninth five-year plan marks a new milestone in terms of the growing financial resources being channeled into economic and social development. Few governments can now rival Saudi Arabia in terms of its ambitions. The key challenge, however, remains ensuring maximum returns from the investment. Educating a person or creating world-class infrastructure are necessary but not sufficient conditions for sustained growth,” NCBC said.

“It is essential to make sure that educated Saudis find a bridge to the labor force in a way that properly and sustainably matches the needs of the economy. The growing magnitude of the resources committed represents growing risks and, especially in the current environment of uncertainty, ongoing efforts are needed to vet large projects for their economic viability and results.”

The study said that in this respect, the plan’s commitment to improving transparency, accountability, and regulatory standards is most welcome. A renewed reiteration of the commitment to foster private-sector development is an important aspect of this, given the internationally recognized success of private firms in allocating capital “more effectively” than the government.

Citing government figures, NCBC noted that a central objective of the plan is to boost the sustainable productive potential of the economy.

“The annual real GDP growth rate envisaged for the plan period is 5.2 per cent, while the authorities are simultaneously trying to lay the foundation for the steady acceleration of this rate to 8.7 per cent for the last plan period leading up to 2024 target date adopted for long-term planning in 2004,” it said.

“Achieving these goals is critically conditional on more effectively mobilising the productive resources of the economy, both in terms of mobilising hitherto unutilised resources and in increasing the intensity and efficiency of resource utilisation across the spectrum. An important initiative is Saudi Aramco’s increased emphasis on gas exploration for domestic consumption.”

NCBC said it believes the latest five-year plan “rightly” recognises the importance of sustainable development at an extremely risky time for the global economy. “Saudi Arabia will do well to avoid the mistakes of others, caused by short-term gains that were ultimately undone by bursting bubbles and structural problems. As desirable as sustainable development is, it is not easy to bring about and the kingdom’s track record to date has been fairly uneven,” it said.

It noted that medium-term planning in Saudi Arabia, the largest Arab economy, has come to be more explicitly anchored in long-term planning, notably Target 2024, which seeks to ensure the entry of Saudi Arabia into the group of high-income economies by reaching a GDP per capita of $98,500 (in 1999 prices).

“Viewed from the starting date of the eight development plan, this target would have translated into annual growth of 4.2 per cent, the equivalent of annual real GDP headline growth of 6.6 per cent. While by no means impossible, this figure is high by historical standards, especially as the global crisis has once again highlighted the risks posed by business cycle fluctuations and the persistent structural weaknesses of the global economy,” it said.

“With oil a finite resource, the strategic objectives of the latest five-year plan command great urgency. Saudi Arabia needs above all to replicate key elements of the policies pursued in recent decades by its East Asian peers.  Chief among these is sustained investment in education, training, and economic diversification. The continuity of policy now stands as the most promising aspect of a government  trategy that in many areas has successfully boosted competitiveness, diversification, and growth. More of the same does indeed seem the most logical way forward.”