By: Simone Bak, Columnist
Photo by: Saudi Vision 2030
Saudi Arabia’s Mohammed bin Salman (known colloquially as “MBS”) recently made his first trip abroad since he became crowned prince last year, visiting Egypt and the UK. He is currently on a multicity tour of the United States. These trips’ primary purpose is to tout the Kingdom of Saudi Arabia’s (KSA’s) vaunted Vision 2030 plan.[i] The plan outlines a series of ambitious, yet much needed, reforms designed to tackle KSA’s economic troubles, bureaucratic inefficiencies, and growing social discontent. MBS’s Vision 2030 threatens to marginalize KSA’s elites (conservative clerics, tribal leaders, etc.) by replacing an old system of nepotism and rentierism with one that benefits Saudi youth and women, as well as international investors. The implementation of Vision 2030 is likely to face several challenges, including pushback from disenfranchised elites and the faulty fiscal logic underlying some of the plan’s policy proposals. If left unaddressed, these challenges could ultimately lead to Vision 2030’s undoing.
Saudi Arabia avoided the full force of the Arab Spring, largely because factors such as oil rents and conservative domestic institutions pacified Saudi citizens. Yet these same dynamics also threaten to upend KSA’s ruling coalition. Like many of its neighboring countries, KSA has a burgeoning youth population, which serves as a central source of social discontent. KSA’s youth are less culturally and religiously conservative than previous generations. Furthermore, KSA’s young women and men are concerned about their standard of living, liberalizing society, and solving their demographic’s endemic unemployment crisis. They are less likely to be swayed by the conservative clerics and tribal leaders that mollified their forbears,[ii] making oil revenue one of the last existing means KSA’s royal family can leverage to secure the allegiance of Saudi youth. [iii]
KSA’s dependence on oil is a problem, because rentierism will soon no longer be an option KSA’s rulers have to maintain power. KSA’s oil exports comprise between 77-88% of its national income. Domestic consumption of oil is on the rise, such that KSA is expected to run out of oil rents by 2032.[iv] A massive $75 billion budget deficit, which is over 10% of KSA’s GDP, exacerbates the country’s financial woes.[v] Without major adjustments to the Saudi economy, some analysts argue that KSA risks bankruptcy as early as 2020 – a crisis that would fuel popular discontent, and possibly spur a public revolt.[vi]
MBS thus introduced Vision 2030 in 2016 as an attempt to solve the looming economic crisis and gain support from KSA’s youth through means other than its dwindling oil supply. The plan’s social reforms include permitting women to drive, allowing formerly banned entertainment (e.g. cinemas and public concerts), and introducing a more moderate form of Islam as an alternative to KSA’s strict Wahhabi jurisprudence.[vii] Political reforms aim to make the government more effective by streamlining the bureaucratic process[viii] and eliminating nepotism and corruption.[ix] Financial reforms promise to eliminate the KSA economy’s addiction to oil by transforming the kingdom into a “global investment powerhouse.”[x] This includes KSA’s proposed 5% float of Saudi Aramco, the national oil company, which accounts for over 10% of the world’s oil supply.[xi] KSA hopes that private investment in Saudi hydrocarbons will provide much needed financial capital – money that can be used to ween the country off of oil and subsidize the development of other industries. [xii] If successful, KSA’s financial reforms will not only benefit its own population, but international investors, who through the 5% Aramco float look to profit from potentially one of the largest Initial Public Offerings (IPOs) of all time.[xiii]
Despite the immense benefits that Vision 2030 offers to Saudi youth and international investors, it also creates a new set of losers that could attempt to obstruct the plan’s implementation. In November 2017, MBS initiated a sweeping anti-corruption campaign under the auspices of Vision 2030. MBS arrested prominent KSA royalty, business tycoons, and military leaders who previously profited from the Saudi government’s opaque system of nepotism and financial kick-backs that have drained the KSA economy and deprived others of social and political freedoms.[xiv] These arrests followed the October 2017 apprehensions of clerics who had denounced MBS’s reforms. The arrests are popular with Saudi youth, who see them as a clear message to KSA’s former elites that their hold on power has come to an end. [xv] However, old elites are resentful of MBS’s strict enforcement of reforms. They also view Vision 2030 as part of MBS’s broader plans to consolidate power. As such, old elites may mobilize against MBS’s accession to the throne, and try to reverse Vision 2030’s reforms, after King Salman’s death.[xvi]
The $2 trillion IPO valuation of Saudi Aramco is another significant roadblock to Vision 2030, and it is a problem of MBS’s own making. Despite the lack of public knowledge about KSA’s opaque management of Aramco, financial analysts believe that the oil company’s valuation is actually closer to $1 trillion. MBS continues to postpone the IPO until the 5% float’s corresponding sovereign wealth fund reaches the $2 trillion valuation. Yet it is unclear where the remaining $1 trillion will come from, if not derived from oil revenues. Due to the IPO’s delay and contested valuation, foreign investors doubt how they will profit, if at all, from the 5% float.[xvii] Investors are also concerned with KSA’s tough treatment of business tycoons, as demonstrated by their arrest during MBS’s anti-corruption campaign, and worry that they too risk prosecution were they to fall out of favor with MBS.[xviii] Financiers’ nervousness about the lack of transparency in KSA asset management, along with fears of future reprisals, will dissuade private sector actors from investing in KSA markets, thereby thwarting Vision 2030’s economic reforms.
Ultimately, Vision 2030 is a double-edged sword. The plan offers solutions to KSA’s social, political, and financial problems. Nevertheless, the reaction of disenfranchised elites to MBS’s authoritarian implementation of reforms, combined with KSA’s lack of financial transparency, threaten Vision 2030’s bold goals. If the plan’s pitfalls remain unaddressed, Vision 2030, along with its main proponent, could find themselves ousted before bringing real reform to Saudi Arabia.
[i] Martin Chulov, “Saudi Crown Prince Embarks on Foreign Tour to Woo Leaders,” The Guardian, Mar 5, 2018, https://www.theguardian.com/world/2018/mar/05/saudi-crown-prince-embarks-on-foreign-tour-to-woo-leaders. See also Deborah Amos, “Why Saudi Arabia is Suddenly Shaking Up its Military,” National Public Radio, February 27, 2018, https://www.npr.org/sections/parallels/2018/02/27/588326061/why-saudi-arabia-is-suddenly-shaking-up-its-military.
[ii] Madawi Al-Rasheed, “Saudi Regime Resilience after the 2011 Arab popular uprisings,” Contemporary Arab Affairs, Vol. 9, No. 1 (2016): 13-26.
[iii] Luay Al-Khatteeb, “Saudi Arabia’s Economic Time Bomb.” Brookings Institution, December 30, 2015, https://www.brookings.edu/opinions/saudi-arabias-economic-time-bomb/.
[iv] Ibid.
[v] For instance, the IMF predicted in 2015 that KSA’s current spending levels will leave it bereft of assets by 2020. See Madawi Al-Rasheed, “Saudi Arabia and its Troubled Path to Reform,” Singapore Middle East Papers (Oct 1, 2016).
[vi] Ibid.
[vii] Bruce Riedel, “What’s Behind the Sudden Ouster of Top Saudi Military Commanders,” March 1, 2018, https://www.brookings.edu/blog/order-from-chaos/2018/03/01/whats-behind-the-sudden-ouster-of-top-saudi-military-commanders/. See also Bernard Haykel, “The Rise of Saudi Arabia’s Crown Prince Reveals a Harsh Truth,” The Washington Post, January 22, 2018, https://www.washingtonpost.com/news/global-opinions/wp/2018/01/22/the-rise-of-saudi-arabias-crown-prince-reveals-a-harsh-truth/?utm_term=.75710ee71093.
[viii]Mohammad bin Salman bin Abdulaziz Al-Saud, “Kingdom of Saudi Arabia Vision 2030: Forward,” http://vision2030.gov.sa/en/foreword.
[ix] Adel A. Ghafar, “Muhammed Bin Salman and the Push to Establish a New Saudi Political Order,” Brookings Institution, November 9, 2017, https://www.brookings.edu/blog/markaz/2017/11/09/muhammed-bin-salman-and-the-push-to-establish-a-new-saudi-political-order/.
[x] Mohammad bin Salman bin Abdulaziz Al-Saud, “Kingdom of Saudi Arabia Vision 2030: Forward”
[xi] Madawi Al-Rasheed, “Saudi Arabia and its Troubled Path to Reform,” Singapore Middle East Papers (Oct 1, 2016).
[xii] Simon Henderson, “Saudi Arabia’s Vision 2030, One Year On,” April 24, 2017.
http://www.washingtoninstitute.org/policy-analysis/view/saudi-arabias-vision-2030-one-year-on.
[xiii]Bloomberg, “Aramco Gets Cool Response on IPO from US Investors,” March 16, 2018. https://www.energyvoice.com/oilandgas/166379/aramco-gets-cool-response-on-ipo-from-us-investors/.
[xiv] Adel A. Ghafar, “Muhammed Bin Salman and the Push to Establish a New Saudi Political Order.”
[xv] Ibid.
[xvi] Bruce Riedel, “What’s Behind the Sudden Ouster of Top Saudi Military Commanders.”
[xvii] Bloomberg, “Aramco Gets Cool Response on IPO from US Investors.”
[xviii] Adel A. Ghafar, “Muhammed Bin Salman and the Push to Establish a New Saudi Political Order.”