Saudi’s Vision 2030 Plans are Being Wrecked

Published May 6th, 2020 - 07:34 GMT
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Mohammed bin Salman (AFP/FILE)
Saudi Arabia picked a bad time to decimate the price of oil, its main export. 

As the global economy tumbles due to fallout from the COVID-19 pandemic, major nations are substantially increasing public spending in a bid to stave off the worst of the coming recession. 

Saudi on the other hand is cutting its ministries’ budgets at least 20% while plowing ahead with privatization measures. 

This has left the country struggling with the prospect that there may be no immediate recovery, since there is no public or private sector stimulus coming their way.

Saudi’s increasingly desperate financial straits have been extensively reported on since the onset of its oil price war, but the political implications of the price war plus COVID-19 has been missed by most major outlets. 

Saudi’s increasingly desperate financial straits have been extensively reported on since the onset of its oil price war, but the political implications of the price war plus COVID-19 has been missed by most major outlets. 

The inter-linked crisis of the oil price war and COVID-19 is creating a political storm that is threatening the viability of its massive reform effort, Saudi Vision 2030 personally led by crown prince Mohammed bin Salman (MbS). If his reform effort falters, so too will his grip on the Saudi throne.


Bin Salman’s Vision 2030


A brochure for Neom, part of Saudi Vision 2030 (Neom.com)


MbS unveiled Saudi Vision 2030 in April 2016. A massive reform effort, Vision 2030 was marketed as Saudi’s entrance into the modern global economy.

The basic tenets of Vision 2030 are to do three interlinked things: ween the country off its oil dependence by diversifying its sources of revenue, attract foreign investment by increasing the size of its private sector, and substantially shrink its public sector. 

Put simply, it is a nationwide attempt to transform the economy into a neoliberal mold.

A need for such a reform was catalyzed by the last time Saudi tried to win an oil price war in 2014-2016. The result was predictable: Saudi’s debt increased as the price of oil dwindled, while it drained its foreign exchange reserves to try and stabilize the loss of revenue. 

The country saw that it could not indefinitely depend on revenue from oil exports, especially if oil price fluctuations could have such an immediate impact on its economy. 

In comes Mohammed bin Salman, a young royal whose main claim to fame was overseeing the military intervention into Yemen as Minister of Defense in 2015, with a plan to revamp Saudi. 

The basic assumption of Saudi Vision 2030 is that reductions in public sector spending will be compensated many-fold by vast growth in the private sector. And since unveiling his Vision, MbS has tied his political mandate to his economic plan’s success.

He has used the Vision to leverage two key populations in Saudi: tribes and the under-30 demographic, which make up a majority of the country’s population. Both are foundational to his ability to rule. 

He has used the Vision to leverage two key populations in Saudi: tribes and the under-30 demographic, which make up a majority of the country’s population. Both are foundational to his ability to rule. 

For tribes, MbS has used a carrot-and-stick tactic: promising they gain in the private investment if they accept and reorient themselves around private developments in land they occupy, and threatening them if they decline.

 


In April of this year, Saudi forces reportedly killed a tribal leader who refused to give up his land to allow for the construction of Neom, bin Salman’s envisioned megacity. Abdul Rahim Al-Hwaiti of the Al-Hwaitat tribe was shot dead after documenting tribal members’ forced displacement to make way for Neom.

“People are being wiped out from their homes and people do not agree with what is happening at all,” he said in the video.

 “I would not be surprised if they come and kill me in my home now like they do in Egypt, throw weapons in your home and call you a terrorist… this is my home and I’ll protect it.”

For the country’s youth, MbS has made a point to publicly promise them a new wave of private sector jobs. They have yet to come.

Saudi Vision 2030 is simultaneously a sprawling economic reform project and a political tool to ensure MbS’ ascendency to the throne.

 

A Coming Recession with No Recovery Vehicle

Saudi struggles to cope with growing debt, lowering oil prices (AFP/FILE) 

 

Because of COVID-19 and its massive economic ramifications, foreign investment is likely to stall indefinitely. Tourism to Saudi, another crucial revenue source in Saudi Vision 2030, has also doubtlessly plummeted. 

This leaves a hole in the heart of Saudi’s economic prospects.

And the country’s continuing austerity measures means this hole will not be filled by public sector stimulus spending.

Because of the oil price war, Saudi is steadily going into debt while recording massive spending deficits. Oil, one of the state’s most important sources of revenue, is becoming a liability rather than a stable source of income.
 

Saudi stuck in an ever-deepening recession without the tools necessary to dig itself out.


In March, Saudi raised its debt ceiling from 30% to 50% of its GDP, and has cut the budgets of state ministries. 

At the same time, Saudi’s credit rating was downgraded by Moody’s. Reuters also reports that “an S&P Capital IQ model based on CDS [credit default swap] prices currently shows markets pricing Saudi Arabia as BBB-, just one notch above ‘junk,’ or sub-investment grade as it is formally known.” 

“The health of the private sector is our main concern, we will support it to get over this crisis,” Mohammed al-Jadaan, Saudi’s finance minister said in April.

Saudi is thus caught in an economic limbo: falling oil prices are prompting increased debt and borrowing while preventing the state from effectively funding a broad recovery program. Its austerity measures are closing opportunities for employment and welfare, while its privatization drive is failing to provide the much-needed recovery vehicles Saudi needs to pull itself out of the rut.

Saudi is thus caught in an economic limbo: falling oil prices are prompting increased debt and borrowing while preventing the state from effectively funding a broad recovery program.

Even if Saudi cuts back oil production, which it does not appear willing to do, oil prices will likely remain low due to the gargantuan stockpile of oil and depressed demand from coronavirus quarantine measures. 

The state’s only immediate source of revenue is yet more shaky borrowing and withdrawals from its shrinking foreign exchange reserve.  Saudi's foreign exchange reserves has shrunken to around $499 billion from a starting point of $732 billion in 2015.

In total, Saudi stuck in an ever-deepening recession without the tools necessary to dig itself out.

Mohammed bin Salman has steadily manipulated the Saudi state to orbit around him. From the notorious Ritz Carlton roundup in late 2017, consolidation of the military,  to the recurrent waves of arrests of dissidents and high-ranking officials, there is no obvious replacement to MbS. 

By the same token, there is no other obvious person to blame for the country’s difficult road ahead. He faces the distinct possibility of being blamed by disillusioned tribes and youth for whatever economically comes next.

That is a recipe for generating long-term discontent in Saudi’s countryside and cities against MbS’ political and economic regime.


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