When Mohammad bin Salman, first announced his ambitious, nationwide reform programme – bearing the rather theatrical title, Vision 2030– targets included diversifying the economy, improving public services such as health and education, and, front and centre, drastically reducing dependence on oil. Two years on – and now Crown Prince – bin Salman’s reforms continue apace.
It may seem surprising that such an oil-rich state – 16% of global oil reserves; 13% of global oil supply – should be trying to turn its back on the commodity that took it from poor desert kingdom to wealthy world player. But with 87% of state revenue coming from oil, reform has been in the pipeline for some time. In fact, in some ways Saudi Arabia is retreading very old ground. Five-year plans for diversifying the economy have been regularly trotted out since the 1970s – they just haven’t worked particularly well.
There have been improvements to economic infrastructure, and some development of a previously poor transport system – but no major movement on the kingdom’s oil addiction. Most members of the country’s ruling elite have been noncommittal on reform, and have refused to address structural problems in both the economy and the government.
So, when the young bin Salman – popularly known as “MbS”, and already strongly associated with reform – ascended from deputy to Crown Prince in June 2017, there was an expectation of real change. Vision 2030 contains a list of ambitious aims: entering the top 15 largest world economies; increasing the private sector share of GDP from 40% to 65%; manufacturing 50% of military equipment domestically; raising the export element of non-oil GDP from 16% to 50%; increasing non-oil state revenues five-fold; and many others. These ambitions seem far loftier than those of previous reform efforts, and are arguably more critical to the kingdom’s long-term prosperity than they have ever been before.
In order to meet these goals, bin Salman quickly introduced a liberalising agenda for both the economy and society. Perhaps his grandest project is NEOM, a planned megacity expected to cost US$500 billion dollars, take between 30 and 50 years to complete, and, it is hoped, attract vast sums of foreign investment. Located in Tabuk, a northern border region near Egypt, Jordan and Israel, the idea is to construct an ultra-modern, futuristic hub of international business, commerce, and digital tech. The government expects to fund the enterprise by privatising parts of state-run industrial programmes – including 5% of the world’s largest oil company, Saudi Aramco.
At the same time, bin Salman has made efforts to cut back the bureaucracy and restrictive legislation that has strangled the Saudi private sector. He has curtailed the power of the religious police, allowed women to drive and open their own businesses without the permission of a male guardian.
But why now? Why after so many half-hearted attempts, is diversifying the oil economy quite so important? It is partly because of the industry landscape. The last few years have seen a soaring renewable energy sector, while the shale oil revolution in the US has helped saturate an already contracting market. At one stage oil prices plummeted from US$140 to less than US$30 a barrel, leading to rising unemployment, an increasing budget deficit, and dwindling financial reserves. An IMF reporton the kingdom’s finances even floated the possibility of bankruptcy, should Saudi Arabia fail to urgently restructure its economy.
There is also a political angle. When bin Salman became Crown Prince he did so at the expense of incumbent Mohammad bin Nayef, his cousin, who was summarily stripped of all his official duties, angering sections of the public and the Saudi ruling elite. Bin Salman’s strident reforms are intended to help consolidate his position, build legitimacy, and send a message to those who would oppose him.
Bin Salman’s unyielding style of governance, however, mixed with Saudi Arabia’s unique political culture, may make for a rocky road ahead. First, tensions are rising with the conservative elements in the kingdom’s powerful religious and tribal establishments. It remains to be seen how obstructive they might be to the implementation of reforms.
Second, bin Salman’s aggressive, provocative stance towards Iran raises the possibility of war between the two states. Besides the obvious human cost, this would distract from reform and drain the Saudi coffers, abruptly halting costly projects such as NEOM.
Third, bin Salman has ordered a series of arrests, which include corruption charges against businessmen, government ministers and members of his own royal family. He was also alleged to be behind the detention of the Lebanese prime minister, Saad Hariri, in late 2017, who was reportedly forced to offer his resignation on Lebanese television – though four months later Hariri and Saudi King Salman were seemingly on good terms. These developments and claims not only make bin Salman very unpopular in parts of his own government, they also discredit his liberalisation programmes, and leave the country looking unstable to foreign investors and the private sector.
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There is no doubt that the current reform programme is a giant step forward for the kingdom’s future welfare, and will surely facilitate further integration with the West. But how these reforms are implemented is more important than the garish manner with which they have been announced. Given how provocative and aggressive bin Salman has been in his foreign and domestic policies, this “progressive” prince may soon face a whole new set of challenges.