The Kingdom of Saudi Arabia is grappling with COVID-19, an unresolved war in Yemen and collapsed oil prices. At the same time, recurrent purges of opponents of Crown Prince Mohammed bin Salman (MBS) are harming the country’s foreign investment climate. Within this context, the ambitious Vision 2030 initiative to transform Saudi economy and society is confronted with numerous challenges, which means that the young ruler faces major threats to his legitimacy amid an incredibly sensitive time for his kingdom.
Since the Saudis announced Vision 2030 in April 2016, this plan for economic diversification has been MBS’ flagship initiative. The crown prince has gained a significant amount of popularity among Saudi youth who have welcomed the social changes that Vision 2030 has ushered in, from the reopening of cinemas, pop concerts, football matches and car shows. Some of the social changes that have granted some limited personal freedoms to the kingdom’s male and female subjects, highlighted by the curbing of the authority of the religious police, have been significant by Saudi standards.
In fact, only 10 years ago experts on Saudi Arabia would have been shocked to learn that in 2018 there would be female drivers on the streets of Riyadh or a partial revision of the internationally controversial guardianship system.
New Future
The social transformation carried out by the ruling elite has been functional in shaping a new lifestyle model consistent with the innovative vision of the urban citizenry conceived by MBS and exemplified by NEOM, a mega project for a smart city announced during the Future Investment Initiative conference held in October 2017. In this regard, by combining the two words “neo” and “mostaqbal,” meaning “new” and “future,” NEOM’s name explains the plan. As a matter of fact, the initiative’s purpose is to define a new future for Saudi Arabia by designing a cutting-edge city, extended for more than 10,000 square miles in Tabuk province on Saudi Arabia’s Red Sea shore.
NEOM is a $500-billion project aiming not only at developing a pioneering regional hub for the hi-tech sector, hosting next-generation technology startups, wealthy investors and fintech, but also at creating from the scratch a new kind of urban center entirely powered by renewable energy. NEOM is branded as “the futuristic city,” where the transport system is based on automated vehicles, robots are devoted to accomplishing a wide array of everyday functions and tasks, and people’s daily lives are supported by digitalization and 5G technologies.
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Secondly, the urban environment design and the offered facilities represent a key element in attracting creative and innovative individuals who will find in this city the perfect place to define, implement and optimize their cutting-edge projects. In addition, thanks to its own laws, tax system and regulations, NEOM will be an independent economic zone able to stimulate a consistent inflow of capital and investor funds.
As a matter of fact, it is important to highlight that several high-profile international donors — such as Masayoshi Son, chairman and CEO of the SoftBank Group Corp. of Japan; Stephen A. Schwartzman, chairman and co-founder of the Blackstone Group; Marc Raibert, CEO of Boston Dynamics; and Klaus Kleinfeld, former chairman and CEO of Arconic Alcoa Inc., and Siemens AG — have conspicuously financed NEOM’s plan. The crown prince himself has staked a considerable amount of his chips, in terms of legitimacy and international credibility, on this multibillion-dollar project that represents one of the most significant economic diversification initiatives implemented by the Saudi government and is the keystone of Vision 2030.
The Fourth Industrial Revolution
A consistent part of MBS’ diversification plan relies on the progress achieved by the Fourth Industrial Revolution (4IR), which has been described by Klaus Schwab, the founder and CEO of the World Economic Forum, as a new phenomenon where technological advancements influence and integrate themselves with the physical, digital and biological spheres. In this context, cutting-edge emerging technologies are bound to have a significant effect on both the economic output and people’s daily lives.
Saudi Arabia decided to bolster its commitment to the 4IR by establishing, in November 2019, the Centre for the Fourth Industrial Revolution (C4IR), which is the fifth research facility in the world focused on these issues. Schwab and Mohammed al-Tuwajri, the Saudi minister of economy and planning, established the C4IR with the aim to create a hub for developing pilot projects on artificial intelligence (AI), the internet of things, robots, smart cities, automated mobility, future airspace, unmanned aerial vehicles and blockchain technology.
The technological achievements aim at boosting industrial productivity, cutting unnecessary costs and reducing risks in dangerous working environments such as pipelines or natural gas and oil processing plants. In this regard, the Uthmaniyah gas plant represents the Saudi crown jewel in terms of manufacturing facilities that integrate and adapt their production to pioneering 4IR technologies. Moreover, according to estimates made by the consulting firm AT Kearney, a growth of $266.6 billion in output is expected as result of investments made on the 4IR between 2017 and 2030.
More precisely, the inflow of funds financing AI solutions is predicted to add 12.4% to GDP in this time frame. Therefore, the initiatives represent the first significant steps taken by Saudi Arabia to diversify its economy from oil-based revenues and to overhaul its economic and production systems.
Besides a climate of moderate social relaxation and an innovative urban environment marked by artificial intelligence and autonomous vehicles, the third pillar of Vision 2030 relies on a comprehensive revision of the Saudi public sector. The reforms are focused on the partial privatization of public services and state-run firms, the introduction of a more pervasive taxation system and the reduction of public sector employment. Indeed, between 2016 and 2018, Mohammed bin Salman implemented a pronouncedly neoliberal economic agenda aimed at cutting salaries for public sector employees, slashing subsidies for energy and water utilities, and introducing a 5% value-added tax on several essential staples, goods and services.
The appealing rhetoric perpetuating a narrative that depicts Saudi Arabia as a modern, tolerant and open-minded country is not only functional to winning the hearts and the minds of the Saudis youth, but it also serves to persuade international investors that Vision 2030 is reliable, promising and worthy of their funds.
In a country where 60% of the population is under the age of 35, many young people are eager to escape the restrictions imposed by the conservative elites and ready to play a new role in Saudi Arabia’s dynamics. As a matter of fact, by strengthening nationalistic rhetoric based on a renewed patriotism, by sidelining the previously dominant role of the religious establishment and by promising that a prosperous future is coming, MBS has promoted a new Saudi generational identity. This fashionable narrative is not only likely to overthrow the two key pillars of the Saudi Arabian Kingdom, Wahhabism and the Al Saud family, but to substitute them with a new one, consisting of the cult of personality of the crown prince who presents himself as the only person able to fulfill the expectations of the Saudi youth.
No One Is Immune
However, even though Vision 2030 constitutes a crucial pillar of MBS’ strategy to secure his stance, recurrent purges seem to represent the crown prince’s favorite tool to secure the reins of political power in the kingdom, and the last wave of arrests that occurred earlier in March is the latest example of it. Under the threat of an attempted coup, high-ranking members of the royal family like Prince Ahmed bin Abdul Aziz, the younger brother of King Salman and the last member of the “Sudari Seven,” Prince Mohammed bin Nayef, the former crown prince, and his brother Nawaf bin Nayef have been arrested. Indeed, this purge could be seen as only another one of the numerous actions undertaken to consolidate MBS’ hold on power.
First, King Salman amended the 1990 Basic Law of Governance by substituting the horizontal line of royal succession with a vertical one, from father to son. Second, the first wave of arrests, which occurred in the Fall of 2017, silenced the dissenting voices of several religious scholars, intellectuals, economists, entrepreneurs and roughly 300 members of the royal family, including Prince Miteb bin Abdullah, at the time the head of the Saudi Arabian National Guard.
The periodic purges are the result of a deliberate strategy that aims to replace the old royal establishment that stands accused of being corrupt with a new array of institutional figures loyal to MBS, such as Prince Abdulaziz bin Salman, the minister of energy, Ahmad al-Khatib, the minister of tourism, Prince Abdullah bin Bandar bin Abdulaziz Al Saud, the minister of the National Guard, and Prince Khalid bin Salman, the Saudi ambassador to the US and deputy minister of the Defense Department.
In addition, the campaigns of mass arrests have been functional to strengthening the crown prince’s personal control over the essential branches of the state apparatus like the Ministry of Defense, the Higher Council for Saudi Aramco and the boards of the Military Industries Corporation and the Public Investment Fund (PIF). In this way, the latest arrests confirm MBS’ commitment to perpetuating his grip on the backbone of the Saudi state.
Between the Coronavirus and an Oil War
With the free fall of oil prices due both to the price war between Russian President Vladimir Putin and Mohammed bin Salman and to the plummeting demand for oil on the global market, the ability of Saudi Arabia to raise the revenues necessary to implement Vision 2030’s economic measures has come under scrutiny by several financial institutions. Even though the pandemic and the initial Russian opposition to cut oil production could be blamed for having caused considerable disarray in Saudi finances, it is essential to highlight that the kingdom’s downward path dates back to several years ago.
As a matter of fact, the country’s GDP per capita decreased from $25,243 in 2012 to $23,338 in 2018, and since the proclamation of Salman bin Abdelaziz Al Saud as king in January 2015, the fiscal reserves held by the central bank in foreign exchange reserves declined from $732 billion to roughly $500 billion at the end of last year. What emerges is that foreign direct investments (FDIs) dramatically dried up since 2010, when they stood at around $29 billion, to just above $3 billion two years ago.
Nonetheless, under the conditions hammered out by OPEC+, the meeting which gathers 24 OPEC member states plus several other leading producers of crude, Saudi Arabia is bound to experience a consistent shortage in its state revenues. With an imposed reduction of oil production amounting to approximatively 10% of the global supply — equivalent to nearly 9.7 million barrels a day between May and June — the kingdom may lose up to $40 billion in earnings by the end of 2020, lowering the predicted oil revenues for the year from $136.4 billion to $91 billion. Economic losses will probably increase as a result of the voluntary production cut of 1 million barrels per day in June, recently announced by the energy minister.
In order to address the potential problem of a cash crunch, MBS and his advisers have already taken some fiscal measures by raising the country’s debt ceiling from 30% to 50% of the GDP by cutting five percentage points from the government budget for 2020 and by requiring ministers with a portfolio to draft spending review plans for additional contractions that may achieve a 20% reduction of the total budget. Nevertheless, at this moment, it is difficult to predict whether these measures will be sufficient or if further actions will be required. Besides, it is important to point out that several conditions give Saudi Arabia some room for maneuver in the attempt to shore up its financial outlook.
Undoubtedly, the almost finalized $10-billion loan granted by a bank consortium led by HSBC and the Sumitomo Mitsui Banking Corporation is one of them. It should provide Saudi Arabia with the necessary financial backing to secure its acquisition of the vast majority of stakes in Saudi Basic Industries Corporation, which represents a crucial step in the crown prince’s agenda toward economic diversification.
Secondly, the long-awaited and hyped initial public offering of Saudi Aramco that took place last December enabled Saudi Arabia to raise a revenue of $29.4 billion, which would allow the crown prince not only to channel funds towards the PIF — the Saudi sovereign wealth fund devoted to economically sustain the Vision 2030’s initiative — but also to provide fresh liquidity necessarily to address immediate needs.
Despite the ongoing uncertainties due to the coronavirus outbreak and the state of the global crude market, there is a consensus that oil demand could optimistically level off and recover by the end of the year. If a similar situation does materialize, Saudi Arabia would certainly benefit from it. However, even though several scenarios should be considered, for a country like Saudi Arabia, where 80% of revenue comes from crude, such predictions are not an option but a necessity, especially if one thinks about the vast amount of investment and funds required for the functioning of Vision 2030. In this regard, the new political, economic and social contract shaped by MBS is firmly based on a massive influx of capital without which the regime will be neither able to sustain its legitimacy nor gain popular support.
Cosmetic Reforms
However, as far as Mohammed bin Salman’s reforms seemed to usher in effective transformation of the Saudi social and economic environment, four years since their implementation, they have revealed to be nothing more than a mere exercise in superficiality that has left the political, social and economic structures almost unaltered. Indeed, even though some restrictions on women’s freedoms have been lifted, the overall condition of women’s rights is far from acceptable.
Not only do several female activists like Aziza al-Yousef, Loujain al-Hathloul and Nouf Abdulaziz remain incarcerated and accused of “undermining the security and stability” of the nation, but also the male guardianship system continues to substantially prevent women from a full enjoyment of human rights and fundamental freedoms.
When it comes to the hyped economic reforms, these have been almost entirely halted due to the widespread discontent they have provoked among the Saudi middle and lower classes. It is fundamental to highlight that the implementation of such a political and economic framework in the Saudi context, which is almost unprepared to deal with an non-paternalistic free economic market, will likely result in anything but a worsening of the employees’ conditions. Indeed, not only is the perception confirmed by the fact that at least 20% of the Saudi population is believed to be living in chronic poverty but also by the absence of adequate labor protections for workers in the private sector that is likely to leave the workforce in unsafe conditions, condemning workers to a vicious cycle.
The Saudi youth needs an economic policy aimed firstly at tackling the structural poverty affecting the country; secondly, at providing them with the tools necessary to deal with an even more competitive private sector; and, finally, at training Saudi employees to a gradual and prepared transition from a labor market dominated by the state to a liberal one.
The Fourth Saudi State
Undoubtedly, MBS’ economic and political agenda has begun to erode the pillars of the Saudi Arabian identity that Joseph Nevo identifies as the “strict observance of the Islamic faith and, of course, the loyalty to the House of Saud.” In this regard, Mohammed bin Salman is walking a tightrope because, by refusing the two traditional tools used by the Al Saud family to build up its political support and by replacing them with a promise of modernity and economic growth, he has anchored his legitimacy directly to the success of Vision 2030.
Therefore, in a time where Saudi Arabia’s capacity to attract investment is highly questioned, and an oil-based economy seems to be a less reliable source of revenue, what it is at stake is certainly Saudi economic growth, but also the capacity of the crown prince to secure the funds necessary to maintain endorsement of the middle class and to stop his rivals from attempting to loosen his grip on power.
Mohammed bin Salman, nicknamed the “prince of chaos,” has introduced a consistent degree of unpredictability and insecurity to the Saudi Kingdom previously marked by domestic political stability and a smooth transition to the throne. However, it is difficult to assess if the crown prince’s latest conduct has strengthened or weakened his position. Nevertheless, what is certain is the fact that MBS has alienated several members of the house of Al Saud.
Moreover, the economic policies undertaken by MBS are not likely to achieve the promised results. In fact, hazardous investments, such as those in Uber, Lyft, Snap, Tesla, Lucid and Masayoshi Son’s Softbank Vision Fund made by the PIF, struggle to drive the Saudi economy toward a reliable, well-run and efficient diversification path. Besides, the death of Abdulrahim al-Huwaiti, a civil activist protesting the government’s decision to relocate the 20,000 inhabitants of Tabuk province in order to make place for NEOM, has put the project under close international scrutiny.
In conclusion, the crown prince’s strategy is based on a radical revision of the Saudi political, social and economic structure, but his vision is highly dependent on a constant and substantial influx of foreign investment and revenue. On one side, MBS challenges the traditional rentier state apparatus and its unwritten social contract, but on the other, he refuses to seriously tackle the unaddressed structural challenges of Saudi Arabia.
In addition, a $26-billion cut in the state budget recently announced by the Saudi Finance Minister Mohammed al-Jadaan and the introduction of an austerity package based on the suspension of the living allowance by June, the increase of VAT from 5% to 15% by July, and the slashing of $7.9 billion from the NEOM project seem to add a further burden on Saudi households. However, whether the house of Salman will be successful in replacing the house of Al Saud is something that remains to be seen.
*[Gulf State Analytics is a partner institution of Fair Observer.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
