Saudi Arabia has problems. From its geopolitical rivalry with Iran to the threat posed to the country by extremist groups such as the Islamic State, the kingdom is facing pressure from a variety of angles. Even its long-standing relationship with the United States is on the rocks, with renewed public scrutiny of alleged links between Saudi officials and the 9/11 plotters just the tip of the iceberg.
These problems are substantial, but beyond them all lies a less exciting but just as important issue for the Saudis: how to fix their country's illogical economy.
On Monday, the world will learn a lot more about that plan. The kingdom is set to release the widely anticipated “Vision for the Kingdom of Saudi Arabia,” a blueprint to diversify its economy away from a reliance on the country's gargantuan oil industry and to stop wasting billions of dollars each year. How many billions have been wasted exactly? Well, we know that Saudi Arabia ran a deficit of $98 billion last year. In a lengthy new profile from Bloomberg Businessweek, Mohammed al-Sheik, a financial adviser to the Saudi state, reluctantly estimates that over the past few years, there had been "80 to 100 billion dollars of inefficient spending.”
The inefficient spending wasn't exactly new, of course — Saudi Arabia has long been known for its generous state benefits and its sprawling bureaucracy — but it had become a big problem as the price of oil dropped from more than $100 a barrel in 2014 to less than half that amount in 2015, taking the kingdom's revenue with it. Saudi Arabia's oil had long been the country's only viable export, accounting for 90 percent of the state budget. In the new reality of cheap oil, things needed to change: The Saudi government has already begun slashing some of the more generous subsidies it gives its citizens — raising the price of gasoline within the country by 50 percent in December (though it still costs less than a dollar for a gallon).
The man in charge of all this is Prince Mohammed bin Salman, the 30-year-old son of King Salman and third in line to the throne, after a somewhat controversial shake-up. Saudi Arabia Bloomberg's Peter Waldman got to spend eight hours with the powerful young prince recently, who explained what his country would do now that oil prices are plummeting.
Mohammed said the “Vision for the Kingdom of Saudi Arabia” will see the creation of the world's largest sovereign wealth fund, designed to eventually hold $2 trillion in assets, while there are plans for an IPO to sell off less than 5 percent of Saudi Aramco, the enormous state-owned oil company. A variety of other moves also are rumored to be under consideration: further cuts to state benefits and subsidies, the introduction of a value-added tax on luxury goods and sugary drinks, attempts to tap into new mining resources and a new tourism push.
In an earlier interview with the Economist, Mohammed had suggested that what Saudi Arabia was planning bore some similarities to the privatization of state industries in Britain in the 1980s. "Most certainly," the prince had responded when asked whether "this was a Thatcher revolution for Saudi Arabia."
Bloomberg's story also offers some insight into the mind-set of the millennial now setting the course for Saudi Arabia's future. While Mohammed's main target seems to be his country's bureaucracy, he also raises questions about its cultural values. He believes women should be allowed to drive but is waiting for the right time to raise the issue with Saudi Arabia's powerful religious authorities. The kingdom's notorious religious police also are being reined in under his watch. And, personally, he doesn't think his generation has much interest in the polygamy of previous generations. “It’s tough [enough] living with one family," Mohammed says.
The calm, rational, Western-friendly Mohammed you see in recent media appearances seems designed to bolster international confidence in Saudi Arabia's future. That's probably something the kingdom needs right now if it wants help with the trillions in investment that some outside experts say it needs to create a diversified economy.
However, part of the problem here is that Mohammed's sudden rise has caused alarm in some quarters. The prince may be portraying himself as a modernizer with a plan for action, but he also appears to be behind some of Salman's most aggressive and controversial foreign policy moves — spearheading an "Islamic military alliance" against terrorism that has left many analysts baffled and championing the Saudi-led military intervention in Yemen. And while the prince may be pointing toward a new, thriftier future for Saudi Arabia, the financial cost of these actions is huge — and the humanitarian cost probably far worse.
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