Following are excerpts from a CNBC interview with Mohammed Al-Jadaan, Saudi Arabia Finance Minister from the World Economic Forum 2017, with Hadley Gamble
HG: Your Excellency thank you so much for joining CNBC. I want to kick off by asking you about your outlook for the next year. There's been a lot of speculation about what the Saudi vision really means for the kingdom. How confident are you that you'll be able to get this budget deficit under control and that Saudi Arabia is really on the right path?
AJ: Thank you very much for having me. It's good to be in Davos and it's good to be with you. I believe Saudi Arabia is on the right track. Vision 2030 provides a very clear strategic map of where we want to be on 2030. It provides for us very specific targets and objectives and that is basically providing a very nice platform for all government agencies and the private sector to see one objective, one target and head to that target. It is basically a combined effort of various government agencies with the new entities that have been established to support the achievement of the targets that are set under 2030. So we have various regimes that are set to ensure that the government has the necessary support, the necessary capacity to achieve these targets so I'm very comfortable. Vision 2030 for those who are not familiar with it, is basically a strategic roadmap that sets where we want to be as a diversified economy. Today we are heavily dependent on oil revenue. We wanted to move out of that dependence gradually with 2030 being the year where we are very comfortably out of that dependence, at least subject to the volatility of the oil price than the single commodity cycles.
HG: Where's the right price to make sure that 2030 is achievable?
AJ: I think we have actually no right price for 2030. By 2030 we wanted to achieve a level where it doesn't matter what the oil prices is, we will be fine. The economy will be fine. We are aiming for the private sector to contribute 65 percent of the GDP by 2030. We're aiming for none oil revenue for the government to cover the budget by. So it doesn't matter what the oil price is, we will be fine.
HG: Talk to me a little bit about the kingdom the place in the region. You are the largest economy. What happenes in Saudi Arabia has a knock on effect to all of the other Gulf States, to Egypt. Tell me a little bit about your confidence over the next year in terms of spending in terms of reinvigorating the private sector because there has been a bit of a slowdown, not just because of oil prices, because but also because of the uncertainty surrounding the kingdom's plans. What's your message to the private sector?
AJ: To those… I think that budget that we announced in 2017 possibly sets the scene of where we are going and how confident we are. It is the largest budget. Despite all that is being said 2017 is the largest budget ever and that is sending the right message. We are spending, we are investing more. The capex part of the budget is higher than last year. We are focusing on the private sector. We announced the four-years programme of stimulus package for the private sector to ensure that they are providing that support to weather all the reforms that we have announced. A 200 billion riyals program for the next four years have been announced. So we are looking at ways to make sure that we support the private sector. We are looking at ways to make sure that we support the purchasing power of the people of Saudi Arabia so that if you are so low income, middle income are going to receive cash allowances for the increased cost of the energy price reform that we are starting to implement in 2017 and beyond. I think generally our relationship with the private sector is a partnership. We wanted to make sure that the people of Saudi Arabia receive the right service and even improved. Wanting to make sure that we are more efficient and our spending so that the rate of return on our investment is higher. We managed as we have announced last year through efficiency programs, to save about 80 billion riyals just from efficiencies and that should continue. Our relationship with the region will continue and these are not subject to a year or two economic developments, it's a strategic relationships. We will continue our support of our friends and allies in the region. One of the key pillars of 2030 is for Saudi Arabia to utilize its position as the center of the Arab and Islamic world. To develop that to make sure that we provide the benefit to our people and to the people of the Arab and Islamic world and to utilize that locally for example to flourish more of the tourism industry, particularly the religion tourism. There is a lot of opportunities for the private sector locally and internationally to come and utilize these opportunities
HG: Is this an age of austerity for the kingdom?
AJ: It is an age of efficiency. It is an age of looking at our strength and making sure that we utilize that. It is an age of looking at our behaviors as government and as people and revisiting how we spend, revisiting on what we spend, revisiting the rate of return and what we spend. And that is actually being started today. We looked at various initiatives that have happened in the last few years. I think the policy over the last 10 years for example have paid significantly today. We are utilizing the wise benefits that was established the last 10 years today, and the downturn of the oil price. So the debt to GDP is one of the lowest in the world. It was 100 percent only 10 years ago. Now it is in the single digits. We have one of the largest reserves. So generally, what we are trying to achieve is a more sustainable economy rather than, you know talking about austerity or otherwise. I think we are just looking to rationalize how we spend make sure that we have a sustainable economy and introduce slowly, and that's what we have announced, and the balanced budget program, introduced over the next 4 years, various reforms that will ensure that our economy is sustainable, is diversified.
HG: How do you keep from moving too fast for everyone. Because there is the question of whether or not these reforms could cause social unrest could cause unhappiness uncertainty, and certainly for the private sector, uncertainty is not generally thought to be a good thing. In your view are we taking a risk by implementing these reforms in such quick succession. Or is Saudi Arabia ready for this?
AJ: I believe Saudi Arabia is ready. I believe the change has been gradual. When we started more than a year ago we said we wanted to reform for example the energy prices over the next five years. So it was not really a sudden change. We told the world, we told our people, we told the private sector that we are going embarking on a gradual change. And when we announced the budget for 2017 we also told the private sector that now you can plan. We hear your concern. We know that you want certainty. We know that you want predictability. We are a predictable government. We are going to provide you with transparent plans on where we are going in the next four, five years. So we published the balanced budget program document that tells the private sector where are we going. And we set the changes that are going to happen in '17 changes that are going to happen in '18, for example the VAT, changes that are going to happen in and '19 - which is some of the gas and other energy prices reform - and changes that are going to happen in '20. So that is a gradual reform and we recognize that we need to make sure that we avoid shocks to the economy and we are very aware of that and wanted to make sure that even on the gradual change we provide the support we have a program that provides for private sector with necessary support for example to be more efficient in their utilization. So we are funding consultancy and specific technology programs for the private sector through soft loans and otherwise to make sure that they utilize energy efficiently and they have the time two years from now to fix for example their plans their manufacturing facilities.
HG: What's exciting to you in terms of the sector specific areas where private investors are really going to have a shot at getting involved in the Saudi economy? Privatizations? what's really exciting?
AJ: Let me tell you, I think the second pillar on the Vision 2030 is Saudi Arabia being an investment power house. And that means transforming the public investment fund into a very powerful sovereign wealth fund that would be the first and the largest in the world, or at least one of the three largest in the world. That would invest locally and internationally and that would be a very important partner. So you would have as an investor, loads of opportunities, really, to come an partner with BIF. In addition Vision 2030 provides a lot of opportunities. Privatization is one amongst others. We have the tourism industry, we have the mining industry that would provide significant opportunities. Some of this had already been announced as part of the Vision 2030. Some of them are being announced. We have heard two days ago only from the energy minister, his Excellency Mr. al-Falih, that the Saudi government is embarking on a 30 to 50 billion US dollars for any renewable energy. That provides significant private sector opportunity. The government is determined and committed to supporting the private sector…
HG: But that also means making sure that people get paid. And there have some been some bumps in the road haven't there?
AJ: There has been some delays in the past because I think that governments in 2015 wanted to make sure that they look at their liabilities generally, assess what is going on in terms of the liability. That took a bit longer than what is expected. We are now on track. I've said that in December and I'm telling you now that we are totally on track. Payments are happening on time. We actually announced, in writing, a commitment from the government that will pay every single use of the private sector within 60 days and that is happening without a single default on that position. So we are very comfortable, the private sector is regaining that confidence very quickly. We see it and we speak to them regularly. IMF confirmed that yesterday and their announcement that they see significant confidence gaining momentum from that and from either confidence votes that we have seen from the international investors investing on the sovereign bond that was issued last year. So a lot of positive signals that are coming our way to show that actually the economy is strong. Opportunities are there and private sector now have the visibility and what the plans are to come and invest.
HG: Consumer spending down quite a bit over the last two years or so. Are these subsidy cuts and then the padding that the Saudi government has promised middle to lower income Saudis, is that going to be enough to boost those consumers in terms of the spending once again? How quickly are we going to see those numbers go back up.
AJ:I am reasonably confident that purchasing power in Saudi is still very strong. Yes we have seen that it had a bit of dip, but it is stabilizing and I think by the end of 2017 it would pick up. The most impacted category of the society - 40 percent of the society or even more 40 percent of society lower income and middle income - are going to receive 100 percent allowance to cover the energy reform impact.
HG: For how long?
AJ: At least until 2020. So that is that is set clearly until 2020. And it will be revisited that time to see if we need to continue, or otherwise. There are two other categories, which is another the other 40 percent, so the lower 40 percent are going to receive hundred percent allowance to cover all the cost of the reform. The other 40 percent are going to see anything between 50 and 75 percent. So impact on the purchasing board is going to be very limited. There are obviously various opportunities for SME's that are being provided. Capital Market Authority have announced the establishment of the second market. It's called Numuww, which is growth, that is going to cater for the small and medium enterprises. This will provide a lot of opportunities for nationals to come and do small businesses and generate more income and generate more purchasing power. So, there are a lot of initiatives that the government has enabling and encouraging the private sector and supporting the private sector to generate more opportunities for locals to be employed or to do that on business.
HG: This year at the World Economic Forum, you have the largest Saudi delegation in history. You have several ministers here. The message is really that Saudi Arabia is open for business and that Saudi Arabia understands the challenges going forward. What is your message to the average Saudi about how he or she is going to have to live their life going forward? Are they going to need to save more? Are they going to need to plan ahead much more in terms of their daily spending? What's the message?
AJ: The message is the message that I would give to my sister and brother and my kids is that today they have a brighter future than a few years back. Today there is a plan of where we are going. There is a clear road map or diversified economy. There is a more sustainable economy that would support their kids education their kids health care. And there is a lot of programs that would support new businesses to come in and utilize the various opportunities that are coming their way through with a vision 2030, through the BIF, various and huge investments that are coming in the next few years. 2017 is going to see significant announcements. And there is a very busy calendar for the government throughout 2017 that is going to send very clear concrete messages to our people and to investors in Saudi Arabia to investors outside of where we are going, where are the opportunities. That are significant investment opportunities for even the small investors. So we are telling the people, spend wisely, invest. We are providing various new opportunities to invest. We are opening the capital markets and the debt capital markets for even investments instead of just investing in the equity side, providing more strong debt capital market that would enable the average household to invest. We are allowing the average household to spend more to open a new business, a small business. We are streamlining the business opening processes bureaucracy around it. We are allowing very, very transparent clear process and more smooth process for the ease of doing business. So there is a lot of things that would support the average citizen. There is a lot of things and initiatives that would support small businesses, large businesses and obviously general welfare of the people.
HG: And finally. Okay. And finally Your Excellency what could put a spoke in the wheel. What's the challenge that keeps you up at night?
AJ: I am a lot of nights working. It's an exciting time and so did you when I joined the Ministry of Finance, I was really impressed by the energy that existed across the government. There is a lot of people working 12 hours and even more than that in the government and this is nothing not one governed government lifestyle that you would hear about before. So there is a lot of energy. I am excited about what's happening. I'm working hard. So is a lot of people around the ministry and the various ministries to make sure that we deliver on our promises, to make sure that we plan properly, to make sure that we execute the plans, to make sure that we have the capacity within the ministry. We wanted to make sure that we have a balanced budget. We are more efficient in our spending. We provide the necessary support to the private sector. We support all the services and utilities that provide services to the citizen. So there is a lot happening a lot of excitement there. And I am having enough sleep but I'm working so hard.
HG: And what do you say to those who doubt Saudi Arabia's vision?
AJ: I think that is the deliverables that we have made in the last 18 months. We said that we will establish a debt management office we did establish it and it showed the most successful emerging market ever in the world. We said we will work on our efficiency on spending and increase the rate of return on our investment. We did, and we saved only in 2016, 80 Billion riyals of more efficient spending. We said we are going to be efficient, accountable. We established the performance management unit that is tracking our performance. And within this quarter will publish to the world how we are doing. We are delivering and supporting the private sector we established a 200 billion riyals program that will support and stimulate the private sector. So we are delivering. And I think the confidence is very high the people confidence is very high as I mentioned earlier 80 percent of those surveyed were surveyed in the survey that I mentioned earlier have a very strong positive confidence that we're out on the right track.