Challenge of reform and Muhamad bin Salman


In Saudi Arabia, the kingdom of conservatism, one man wants to change everything and move the country out of the oil economy, challenging the power of religious authority. His name is Muhammad bin Salman. A guest post by Anas Abdoun.

Muhamad bin Salman is a prince of the kingdom, the son of the current king as well as the current defense minister and head of the Council of Economic and Developmental Affairs (CEDA). He became the direct advisor to King Salman, and the man who has the most direct influence on the monarchy in the region. The prince surprised the entire economic world with the announcement of his huge plan to move Saudi Arabia out of the oil economy, named Ro’ya 2030, which is Arabic for “Vision 2030”.

The plan is simple: sell 5% of the national oil company Saudi Aramco to create a national fund with a goal to invest in all sectors of economy that have any relation with the oil industry. The eventual 5% sale of Saudi Aramco will give the Kingdom a major financial boost and the ability to invest and create a new economy; a modern national Marshall plan. The announcement surprised the entire financial world, for whom it is no secret that 5% of Saudi Aramco represents more than 2 trillion dollars — more than double Norway and Abu Dhabi’s investment fund. Muhammad Bin Salman’s plan is not only based on the sale of Saudi Aramco shares, but also on over 100 billion USD in tax revenue. This in a region where taxation is far from the usual practice of economy.

Will the prince be able to achieve this reform?

The prince has the potential to trigger a huge transformation of the Saudi economy for three reasons: his experience, his influence and his popularity. Muhamad bin Salman is the current minister of defence, a prestigious and important ministry overseeing the vital military engagement of Saudi forces in Yemen. When he took charge of the Saudi Army, the prince saw that his country was among the top 5 of the World’s arms importers; but the new military equipment that the kingdom bought was inefficient in the field, as this hardware was not relevant to the geographical and strategical situation of Saudi Arabia. The prince quickly understood that there was no mechanism in the ministry to control the rationality involved in the purchase of military equipment, nor was there a structure to control military decisions. The prince then decided to reform the process of weapon acquisition and gave the task of creating a new structure of control in the defence ministry to two of the most prominent consulting groups —the Boston Consulting Group and Booz Allen Hamilton. Today, this newly set structure and reform has helped save millions for the country.

The second aspect of the prince’s leadership is his influence on the monarchic system of Saudi Arabia. The young prince is the most influential man in the kingdom because he is the son of the current king. His close relationship with the king gives him an important political leeway and the ability to use the King’s power to spread his reforms in the country. Finally, Muhammad Bin Salman’s large popularity and the support he enjoys from young people in his kingdom is also a major asset for the prince’s reformist views. Their support matters in an absolute monarchy because youth is at the heart of the challenge of this reform.

Saudi Arabia’s youth represent half the population of the kingdom and are part an economic system that currently does not create jobs for them. In the next decade, there will be 1.9 million Saudis who will enter the workforce. Unemployment among Saudi Arabia’s youth is becoming the norm and the frustrations of being unable to work and support their families in a very conservative region is growing. In addition, globalisation has shown to all Saudi youth through social media that the youth in neighbouring countries are more deeply involved in the economic dynamic of their society. Youth in the small emirates have more facilities integrating the public sector or earning significant sums of money, owing to the laws on local sponsoring of foreign investors. In the past, the normal social ascension path in the kingdom was to get a job in the public sector, but today, the state cannot afford to create more positions. Meanwhile, the ruling class has learned one tremendously valuable lesson from the Arab spring: the unemployed youth constitutes a political time bomb.

As such, the major youth support for Salman’s reform policies is an important political gain, since they have become key to the stability of the country and the regime.

What are the political risks of this economic reform?

With this ambitious plan to rebuild a new economy, the prince is forging his political future and his political credibility. In fact, in addition to being the son of the present king, the prince is number two in the succession rank, behind his cousin Muhammad bin Nayef, prime minister and Minister of Interior. These two players represent both the conservative and the reformist streams in Saudi society. Prince Nayef is in charge of Security, which gives him a deep knowledge of the state; Prince Salman, with his Vision 2030 plan, has become very popular and has gained visibility. The success or the failure of Vision 2030 will play a large role in a potential power play to become the first crown prince.

The second political risk, which is the most important, is the revolution that leads this reform. There is one implicit agreement between the population and rulers in all oil monarchies of the region: the legitimacy of power comes from the latter’s ability to buy social peace with oil revenues. In fact, all social services are free with no taxation, and in return, the people demand no political interest or political right. This agreement was a tacit rule during the last decades.

The vision 2030 plans to create 100 billion dollars in taxes at a time when 4000 princes have a luxurious and ostentatious lifestyle at the expense of the state. This is precisely the political challenge of the regime in Saudi Arabia. Economic reform is not an option but an absolute necessity for the country and the regime; at the same time, the reform that can save the regime will push it to relinquish a few privileges. There has been worldwide attention paid to the fate of the blogger who criticized the kingdom, and many youths have come to be more and more critical of the regime and the society.

The recipe of stability in the Kingdom is evaporating in Saudi, and the regime is condemned to change — all members of the Al Saud family know this. A simple news item that was published a few months ago in Saudi Arabia has proved that times have changed. A prince of the Kingdom was judged for murder and received the death penalty.It was the second time in the history of the country that a prince was executed – the first time a prince had murdered his father. The message that was spread by the religious and media apparatus in the days following the execution was that there isn’t a two-tier justice system in the country. In short, the Saudi government started a political campaign to win over the population, something in essence normal in any democracy, but for an absolute monarchy, potentially sounds like a death knell.

Finally, an economy cannot be built based on the private sector while at the same time pushing companies to be disconnected and discouraging investors from coming into the country. In the reform to promote self-initiative and private investment, the country will have to be attractive to foreign investors, through financial support and laws favourable to expats, for instance. The paradigm of this economic revolution that Mohamad bin Salman is trying to implement will push entrepreneurs to open the Saudi market and Saudi society to the world, and will affect the oldest agreement between the royal family and the religious leaders.

At the creation of the state, the royal family let Saudi society run under religious supervision. That is why, for example, Saudi Arabia is the only country in the world where women can’t drive. To open up Saudi society to a different way of life will destroy the agreement with the religious leaders, which is one of pillars of stability for the country. The religious leaders who are the second power in Saudi Arabia do not like Vision 2030 and its philosophy, as they foresee the future consequences. They have already lost a great deal of power; today, the legislation that allowed the religious police to arrest women for failure to cover their hair or mixing with men has been banned.

Vision 2030 is a financially credible plan to save Saudi Arabia from its oil addiction, but to succeed it must navigate between economic necessity, regime survival, and religious conservatism.

Source: globalriskinsights.com

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