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Understanding Trump's Visit To Saudi Arabia

23/05/2017 11:09
swisshippo via Getty Images

Businesses will need to cut through the media headlines and political optics to understand where opportunities will come from following the visit. Speculative markets have always been vulnerable to the illusion.

Understanding the rhythm and underlying principles in a market or a region sometimes provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are so difficult to predict.

The region is still emerging from the 2014 oil crash. With oil trade the main economic driver in KSA, the recovery has been slow, and oil is still hovering around $50 US - a long way away from the $100 US price on which many regional governments had set their budgets.

For Saudi Arabia, low oil prices and an increasingly costly war in Yemen have created a budget crisis resulting in public spending cuts, reductions in take-home pay and benefits for government workers and a host of new fees and fines. Huge subsidies for fuel, water and electricity are being curtailed, underlying a move in Riyadh to establish a new social contract between the government and citizens.

The shift from a paternalistic government approach to a focus on growing the economy by , encouraging citizens to engage in private sector enterprise and set up new businesses is significant.

For over a decade the government has sponsored students to study at the best universities in the world, as part of a commitment to closing the country's knowledge and skills gap, and it now hopes that these returning students will bring new ideas and approaches to invigorate the economy.

The Vision 2020 National Transformation Program presents ambitious targets and will cost around SR270 billion to implement in its initial five-year phase. Riyadh expects non-oil revenue to more than triple by 2020 to SR530billion ($141.33billion).

The growth from the non-oil segments of the economy will come in mining and tourism, health, technology and non-petrochemicals manufacturing; the NTP aims to create 450,000 private-sector jobs for Saudi nationals by 2020.

The plan also sets out the introduction of indirect taxation and the reduction of subsidies on water and electricity, subtle shifts which will be significantly unpopular.

Saudi's neighbour the UAE has successfully weathered the fall in oil prices since 2014 after a sustained commitment to economic diversification. The UAE has become the pre-eminent regional commercial hub, home to regional headquarters for global firms including Google, Facebook and Twitter. With the US trade deals finalised during this trip, Saudi Arabia aims to follow in the UAE's footsteps and establish itself as a player in global business.

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