Dawn of a Kingdom Reformed?

There are changes afoot in the kingdom. They may well reshape the country to beyond recognition. For the first time in its history, women are invited to play an active role in the nation’s economy. Abuses of power for personal gain are no longer tolerated. Crown Prince Mohammed bin Salman – the future ruler of Saudi Arabia – has both the ambition and a plan. He also has been touring world capitals – London, Washington, and others – to provide details, explain his vision, and solicit support. The crown prince has not been disappointed and is being hailed as his country’s great hope, although sticky issues, such as the war in Yemen, remain and slightly dampen the spirits – but not by much.

Prince Salman recognises a looming problem when he sees one: the heyday of oil is nearly over and if the kingdom doesn’t want to revert back to an oversized sandbox, its economy needs to be diversified and put on a more sustainable footing. That realisation comes just in time as the kingdom’s erstwhile abundant reserves – not such much of oil as of ready cash – are shrinking fast, necessitating the introduction of a 5% value-added tax – extremely modest by most standards but an alarming novelty in Saudi Arabia.

After flooding the world with cheap oil in a largely failed attempt to flush the fracking industry out of the market, Saudi Arabia seems to have given up on that rather Quixotic – and very expensive – pursuit in order to concentrate its collective efforts on shaping a truly modern nation. Unveiling the biggest budget in its history – all of $261 billion – for the current fiscal year, the government clearly expects to net a windfall from the new taxes. The kingdom also introduced surcharges on tobacco products (100%) and fizzy sugary drinks (50%).

Prince Salman, not insensitive to public opinion, also cut the salaries of his ministers, imposed a wage freeze on civil servants, and stopped numerous major construction projects which he wants audited before ordering a resumption of work.

This succession of moves is meant to plug a $97 billion hole in the budget – which would help recover investor confidence in the kingdom’s long-term financial health. Investors have been fleeing Saudi Arabia in droves, last year taking an estimated $64 billion with them. The Ritz Hotel episode, whilst understandable and – up to a point – even laudable, did not do much in that regard. It did, however, send a clear message that a new wind is blowing through the kingdom and that family ties may no longer have the value they once did.

Kicking the Habit

Prince Salman is determined to wean his country off its oil dependency. That is a tall order: the proceeds of the sale of fossil fuels underwrite 87% of the 2017 budget. To develop alternatives, the kingdom needs the help of foreign investors. The proposed sale of a slice of state-owned oil company Aramco – now delayed over listing issues until early next year – will help set the tone and signal that Saudi Arabia is open for business. The partial privatisation of the company is a key element of Prince Salman’s modernisation plans – not just a way of raising some additional cash.

Launched in 2016, the crown prince’s Vision 2030 sketches a society centred on a liberalised economy with a vibrant private sector no longer looking to the government for answers or life support. The vision’s targets are ambitious, perhaps overly so considering that its hour zero is but twelve years hence. At the moment it seems unlikely – though not entirely impossible – that the Saudi economy will have reduced its dependency on oil exports to below 50%. The envisioned increase of non-oil government revenue by a factor of five also seems rather farfetched.

Whilst the Saudi government has made noises before about the need for deep economic reform – typically coinciding with oil gluts – in the mid-1980s and late-1990s – the difference is that back then the country’s leadership was merely going through the motions and displayed little vision and almost no interest in transforming society. Crown Prince Mohammad bin Salman – MbS for cognoscenti – seems cut of a different cloth: he well and truly believes that the kingdom can no longer afford to remain stuck in time – and in its profligate old ways – not with the end of the oil era in plain sight.

Vision 2030 is a carefully and thoughtfully crafted programme – not some hastily drafted exercise in wishful thinking – that, whilst optimistic, also recognises the dangers of postponing yet again the kingdom’s reform agenda. Its prioritising of the private sector is somewhat of a novelty – and a welcome one. Prince Salman and his government are only too aware that demographics conspire against them. The kingdom’s well-educated young people need plenty of good jobs – something only private businesses can supply in the numbers required. The days when Saudi youth were unthinkingly absorbed into the kingdom’s civil service are past. Government jobs are no longer a given.

Vision 2030 also touches on the need for educational reform in order to clear the present mismatch between the skills taught at schools and universities and those in demand by the private sector. The vision, of course, also means to address the paradox that 60% of the Saudi workforce is made up of foreigners whilst the kingdom’s unemployment level hovers around an estimated 30%. ‘Saudisation’ is not a new idea and has been talked about since the late 1970s. However, plans were never implemented, as at the time most young Saudis shunned the jobs on offer. Until quite recently, working at a shop or office was frowned upon by young people as unworthy pursuits best left to others.

Though not a great reformer, King Abdallah, who passed away in 2015, must receive recognition for laying the groundwork on which Crown Prince Salman now wants to erect a modern kingdom. The late king’s social reforms, whilst exceedingly modest in scope, did pry open Saudi society just enough for reformers to move to the fore.

© 2019 Photo by Pálacio do Planalto