In just two decades, Saudi Arabia could be a post-oil economy.
It makes a person wonder: How can Canada plan for a future beyond oil?
Saudi Deputy Crown Prince Mohammed bin Salman plans on selling shares of the parent company of Saudi Aramco, the state-owned oil firm, and transfer its shares to the Public Investment Fund (PIF), a sovereign wealth fund controlled by the kingdom, Bloomberg reported last week.
Saudi Deputy Crown Prince Mohammed bin Salman. (Photo: Fayez Nureldine/Getty)
A sovereign wealth fund is a pool of money that a country sets aside for investing. Alberta set one up in the 1970s, but didn't feed it, and it's tiny compared to the wealth funds of other oil exporters like Norway.
Saudi Arabia's PIF, whose holdings include telecommunications, energy and aerospace, could one day control over $2 trillion in assets and "technically make investments the source of Saudi government revenue, not oil," Salman said.
The fund would be enough money to buy all of Apple, Berkshire Hathaway, Microsoft and Alphabet, Google's parent company, and have money left over, Bloomberg noted.
Moving off oil
Saudi Arabia signaled its plans to move away from oil as early as January, when officials with the kingdom said they were looking into sectors such as tourism, information technology and health care to help combat a budget deficit of up to $100 billion, Reuters reported.
"It's going to switch from simple quantitative growth based on commodity exports to qualitative growth that is evenly distributed," Saudi Aramco chairman Khalid al-Falih said.
One Saudi minister said the kingdom had become infected with "Dutch disease," the idea that oil had pushed out other industries, but that it was looking to diversify.
But Saudi Arabia isn't the only country that has been dealt that label.
A pumpjack pumps oil from a well on a farmer's frozen field in a Pembina oil field near Pigeon Lake, Alta. on Feb. 17, 2012. (Photo: Bloomberg via Getty Images)
NDP leader Thomas Mulcair used the term to describe Canada in 2012, well before oil prices started plummeting.
Oil came to make up half of Canada's exports after the price jumped to $100 per barrel. And the economy has yet to recover from the shock of prices dropping below $30, before slightly recovering to around the US$35 mark.
When it does, the resource is likely to make up only 40 per cent of the country's exports, Bank of Canada deputy governor Lynn Patterson said last month.
The trend has some wondering how Canada will adapt to a future with a reduced dependence on oil.
But there are signs of hope, as certain industries see uptick from a low Canadian dollar.
Tourism is seeing increased activity as more Canadians take vacations at home, and American, Chinese, British and German visitors pour into the country, Maclean's reported in January.
Total international visits last year hit levels that hadn't been seen since before the 2008 financial meltdown.
But many observers say exporting services is Canada's economic future -- and the shift is already happening. As of November, 2015, the goods-producing sector of Canada's economy had shrunk by 2.5 per cent in a year, while the service sector expanded by 1.4 per cent.
Canada's long-term future "lies in selling services to people in other countries," Macleans recently argued. It noted a Conference Board of Canada report showing that exports were being driven by services such as tech advice and management consultation.
It probably won't be enough to buy Google. But it's a start.
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More people are dying in road accidents, as falling oil costs translate into cheaper prices at the pump - increasing the number of journeys. "A $2 drop in gasoline price can translate into about 9,000 road fatalities a year in the US," sociology professor Guangqing Chi said last month. Chi told The Huffington Post that it typically takes almost a year for drivers to adopt new driving habits in response to changes in gas prices. Last year, US road deaths rose by 9.3% in the first six months of 2015. In the UK, while road deaths have fallen almost every year since 2004, provisional data suggests that fatalities increased in 2015 by 3%, alongside a 2.2% increase in traffic. Research has yet to reveal a link between these in the UK.
Pirates are unlikely victims of the global reduction in oil prices. Piracy in West Africa’s Gulf of Guinea is now at its lowest level since 2002. Speaking to Bloomberg, Florentina Adenike Ukonga, executive secretary of the Gulf of Guinea Commission, said: “With oil at a low bottom price of below $30 per barrel, piracy is no longer such a profitable business as it was when prices hit $106 a barrel a few years ago.” Attacks on oil transported declined by around a third last year, according to a report. Dyrad Maritime found sea crime figures for 2015 "painted a picture of optimism" - although the threat to vessels not carrying oil remains high.
Falling oil prices have translated into rock-bottom "bunker" fuel costs for shipping firms - reducing their incentive to take economical shortcuts. Rather than use routes via the Suez Canal, huge container ships are returning to ports in Asia via the "long way around" the southern cape of Africa. As prices tumble, burning more fuel is cheaper than paying passage rates through the waterway. For one-way passage, an oil transporter can pay as much as $325,000 (2008) to travel through the Suez canal. "For many services it is cheaper to sail south of Africa on the [return journey] than to use the canal routings,” SeaIntel, a shipping monitor, said.
Thousands of oil workers have been sacked as a result of dwindling oil prices. In the UK alone, 70,000 oil-related jobs are feared to have been lost since the price war began 12 months ago. Last month, oil giant BP shed 3,000 jobs on top of previously announced redundancies. An estimated 250,000 jobs have been lost across the oil industry as a whole worldwide.
The plunging oil price has added to turmoil on stock markets the world over, affecting many of the world's biggest pension funds. According to Reuters, shares fell sharply this week as oil prices dropped after Saudi Arabia effectively ruled out reducing the output of oil by its producers. Oil prices, lowered by increased production, are one of a number of factors worrying investors. The FTSE 100 index of Britain's biggest traded companies was down 15.38% on a year ago as of Wednesday. The index holds millions of Brit's pension pots. "The markets are really worried that we are missing something here, that the global slowdown may be more significant than we are recognizing and that slowdown could be causing oil prices to drop, and commodities prices in general," Tracie McMillion of Wells Fargo Private Bank told Reuters.
Perhaps the most surprising effect of diving oil prices has been that demand hasn't risen significantly. Despite costs plunging, European economies remain weak, China is decelerating and growing energy efficiencies mean vehicles need less fuel. So the overall effect has been a flatlining of demand, rather than an increase, according to PwC (PDF).
And despite all of this, airfares for passengers flying in and out of Britain jumped 46% from November to December 2015, the Office of National Statistics found. The increase in fares was the highest since 2002. The "highly variable" changes were a result of increased consumer demand for air travel, the ONS said. In America, air passengers were more likely to benefit from tumbling costs - airfares there were lower throughout most of last year.