Mohammed bin Salman, remaking Saudi Arabia?

A report from Foreign Policy notes that “Saudi Arabia on Monday unveiled a sweeping plan to diversify its economy and wean its excessive reliance on crude oil exports by 2030, a blueprint that represents the most ambitious effort yet to drag Riyadh and its ruling class into modernity. “The kingdom can live in 2020 without any dependence on oil,” Saudi Deputy Crown Prince Mohammed bin Salman told Al-Arabiya News Channel in an extensive interview Monday. “The Saudi addiction to oil has disturbed [the] development of many sectors in past years.” Prince Mohammed, a 30-year-old who has rapidly consolidated power in the kingdom nominally ruled by his father, oversees both Saudi economic affairs and defense policy and has aggressively sought to overhaul the oil-dependent and secretive state”.

The report goes on to mention, “Among the reforms he announced Monday are continued reduction in state subsidies for oil, electricity, and water, a hugely expensive drain on public coffers but long considered the birthright of Saudi citizens; raising more revenue from taxes; and opening up the country to more expatriates and tourists, a tough sell given stringent religious restrictions banning alcohol and sharply limiting the jobs and public roles available to women. The Saudi government on Monday laid out in extensive detail its plans for economic and financial rejuvenation, calling them “an ambitious yet achievable blueprint.” The Saudi government on Monday laid out in extensive detail its plans for economic and financial rejuvenation, calling them “an ambitious yet achievable blueprint.” The centerpiece of Saudi Arabia’s economic transformation is the planned public listing of Saudi Aramco, the world’s biggest oil company. Prince Mohammed said that the state would list less than 5 percent of the oil giant and that revenues from the sale would help feather Riyadh’s planned $2 trillion sovereign wealth fund. He said the oil company could be valued as high as $2 trillion — though many industry experts believe Aramco will fetch a lower price — and said, in the official launch of the programme”.

The piece goes on to mention, “The plan comes at a delicate moment for Riyadh, which has seen its relationship with U.S. President Barack Obama’s administration steadily deteriorate amid deep Saudi concern that Washington is moving closer to Tehran at its expense. The kingdom is also being forced to revisit its connection to the 9/11 terrorist attacks, with U.S. lawmakers in Congress from both parties pressing the administration to release a long-classified portion of the 9/11 inquiry that could highlight greater Saudi participation in the attacks. Closer to home, meanwhile, the Saudi military is locked in a grinding conflict in Yemen that has resulted in significant civilian casualties without accomplishing its stated goal of dislodging the Iranian-backed Houthi regime now controlling most of the country. Prince Mohammed launched and has overseen that campaign, leading some observers to worry that the world’s youngest defense minister may have bitten off more than he can chew”.

It adds “Saudi Arabia has mulled plans to diversify its economy away from excessive reliance on oil for a quarter-century, though crude sales remain the lifeblood of the regime. But cheaper oil puts more pressure on Saudi authorities to make changes. Thanks to a glut of supply — due to continued production by Saudi Arabia, among other countries — oil prices today hover around $35 a barrel. That has cost oil-exporting nations in the region about $390 billion in the past year, the International Monetary Fund said, and helped knock a $120 billion hole in the Saudi budget. “Oil around $30 is a blessing for the kingdom, because it forces them to move from being a rentier state to a regular state,” said Jean-François Seznec of the Atlantic Council’s Global Energy Center, who has writtenextensively on the looming Saudi economic transformation. Even the public listing of Aramco, which will mean opening up its books to public scrutiny, is part and parcel of modernizing Saudi Arabia’s opaque ruling culture, which is still haunted by the specter of Arab Spring-style protests of the sort that brought down governments in Tunisia, Egypt, and Libya and sparked a five-year civil war in Syria”.

The report  notes “Some of the main drivers of the economic overhaul — such as a dysfunctional labour market, unskilled workers, and high unemployment — are also among the biggest obstacles to transformation. Saudi nationals make up less than 10 percent of the private sector workforce and less than half the workforce overall; foreign labour dominates many sectors, especially construction. Labour participation is especially low for women in Saudi Arabia, for religious and cultural reasons: Only about 20 percent of Saudi women work, roughly the same level as in Afghanistan or Pakistan. Those cultural and religious barriers — including prohibitions on alcohol and a strict crackdown on what clerics view as deviant behaviour — are some of the obstacles to Prince Mohammed’s planned opening, making it unlikely that Saudi Arabia will become the next Dubai, a glittering trading entrepôt open to expats and tourists alike. And the financial and banking systems are only now opening up to foreign investors. The Saudi stock exchange, where Aramco will be listed, only just allowed direct market access to foreign investors last summer. The retail sector is still largely closed off”.

The writer adds “there are some reasons for optimism. Saudi Arabia’s oil wealth birthed a vibrant petrochemicals industry, led by Saudi Basic Industries Corp., one of the sector’s global leaders. The country has plenty of potential in mining and has cheap and abundant reserves of bauxite used in aluminum production. It’s also strong in phosphates and fertilizers. The plan also calls for Saudi Arabia, the world’s third-biggest buyer of arms, to domestically manufacture half of its defense needs by 2030, potentially giving it both an industrial boost and geopolitical insurance for future defense procurement needs in an increasingly tense neighbourhood. Consultants at McKinsey & Co. have advised the Saudi government on its economic transformation. And the McKinsey Global Institute, which published a study last year on the Saudi economy, listed eight key sectors — including metals and mining, petrochemicals, manufacturing, and tourism — as vital to doubling Saudi GDP by 2030. Not coincidentally, most feature in the formal plan, and Prince Mohammed explicitly talked up the prospects of many of those sectors in Monday’s Al-Arabiya interview”.



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