Tuesday, January 26, 2016

Why the Saudis will either blink...or collapse

As Saudi Arabia`s budget has come under pressure from low oil prices, I see that the Kingdom (KSA) has announced a diversification initiative into IT, healthcare and tourism (via CNBC):
Saudi Arabia outlined ambitious plans on Monday to move into industries ranging from information technology to health care and tourism, as it sought to convince international investors it can cope with an era of cheap oil.

A meeting and presentation at a luxury Riyadh hotel was held against a backdrop of low oil prices pressuring the kingdom's currency and saddling it with an annual state budget deficit of almost $100 billion - the biggest economic challenge for Riyadh in well over a decade.

Top Saudi officials said they would reduce the kingdom's dependence on oil and public sector employment. Growth and job creation would shift to the private sector, with state spending helping to jump-start industries in the initial stage.

"It's going to switch from simple quantitative growth based on commodity exports to qualitative growth that is evenly distributed" across the economy, said Khalid al-Falih, chairman of national oil giant Saudi Aramco.

What KSA faces is a classic problem in development economics. How do you create new industries and employment in an economically depressed region?

The full post is at our new site here.

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