Mohammed bin Salman billed himself as the young strongman who could transform Saudi Arabia. Two years later, he has little to show for it.
Click here to read the Alaco article in Business Insider.
Prince Mohammed bin Salman, the brash Saudi Crown Prince who strode confidently onto the world stage less than two years ago, now cuts a much-diminished, if not humbled, figure, with his regional strongman reputation blunted and much-vaunted economic plans failing to move the needle.
Pressured into an apparent acceptance of responsibility for the murder of the Saudi dissident journalist Jamal Khashoggi and humiliated by an alleged Iranian strike that temporarily knocked out 50 per of the country’s oil production capacity, Prince Mohammad, or MbS as he is widely known, struggles to command respect internationally and is regarded as weak by his principal regional rival.
Having alienated many foreign investors over his thinly-disguised shakedown of the country’s rich and powerful and alleged involvement in the Khashoggi affair, the heir apparent’s sense of isolation would be close to complete if it were not for the continuing support of much of the Saudi population, particularly the young, who have embraced his social reforms. These, ironically for someone so authoritarian, seek to turn the kingdom into a more liberal, outward-looking country.
MbS’ recent trials and setbacks are a far cry from his stunning rise to power in the summer of 2017. He shook the foundations of the kingdom in a palace coup that confirmed him as next in line to the throne. More surprises were to follow: an equally unprecedented purge of potential opponents, the extraordinary detention of the Lebanese premier, Saad Hariri, on a visit to the kingdom and a highly controversial “anti-corruption campaign“. Then, as if to give his power-grab substance, his ambitious Vision 2030 economic transformation plan, launched the year before his ascent, was presented with great fanfare to western audiences.
In high profile visits to Washington and London, the Crown Prince drummed up financial backing for his blueprint to wean Saudi Arabia off its dependence on oil by vastly expanding the anaemic private sector. Notwithstanding his ruthlessness, an image of a dynamic young ruler, determined to drag his country into the 21st century, began to take shape in some quarters. Others, though, had their doubts.
As well as his recklessness coming under scrutiny, questions began to be raised over his willingness to carry out a tough austerity programme after he sought to soften the economic pain with billions of dollars’ worth of handouts at the first sign of public opposition to his plans. This, at a time when the state finances were being increasingly drained by a long-running, ruinous war in Yemen.
In order to help pay for his reforms, he opted for a dubious anti-corruption campaign, culminating in the detention and interrogation of royals and businessmen at the Ritz-Carlton hotel in Riyadh. It turned out to be little more than an attempt to extort funds from the wealthy. And the resulting haul, it transpired, was significantly less than anticipated. Worse still, the episode scared off many of the western investors he had courted. Those who chose to remain engaged would have been concerned by the political risks, but perhaps calculated that in the long run they were worth taking. The Khashoggi killing tested their nerve to the extreme.
MbS also pressed ahead with another risky economic policy. Saudisation – replacing foreign workers with locals – had already been in place before he came to the fore, but he accelerated the process to the detriment of the Saudi private and public sector which have struggled to fill the jobs vacated by hundreds of thousands of expats pressured into leaving the country. There were even reports of some business unease over the merits of the move with the authorities closing many non-compliant firms.
Expats have not been the only departures. Rich Saudis, fearful of falling victim to another shakedown, are trying to move their money out of the country. Alaco understands on good authority they are transferring relatively small sums so as not to attract the attention of the authorities. Many prominent Saudis based abroad have no idea whether they will be detained if they were to return and are not prepared to take the risk. Alaco has been told that Saudi businessmen, royals and their advisers are overstaying their UK visas – the British government seemingly turning a blind eye.
They have good grounds for their concerns. A number of the Ritz detainees who agreed to settlements in return for their freedom are still subject to travel bans, the most prominent being Prince al-Waleed bin Talal. His apparent equanimity in interviews left some observers jesting that he may be suffering from the Saudi equivalent of Stockholm Syndrome.
And the movements of these former detainees may be restricted for some time as they could have difficulty paying the sums demanded by the state. Their local assets are understood to be significantly overvalued while their liquid assets are often tied up abroad under the control of trustees, some of whom will not release funds unless they know the beneficiaries are not under duress. The Financial Times has reported that some wealthy Saudis have also been pressured into becoming foundation investors in the delayed Saudi Aramco IPO.
But MbS has bigger, more immediate concerns. In the wake of the recent Iranian attack, President Trump seems in no mood to drag the US into a conflict with Tehran. And with the Crown Prince reluctant to take on Iran on his own, Saudi Arabia’s vulnerability is evident.
Eyebrows were raised in the kingdom when the government, which relocates to Jeddah over the summer, failed to return to Riyadh following the Iranian attack. Even MbS’ ally the UAE seems to be giving way to Tehran, having withdrawn its troops from Yemen and now cooperating with Iranians on maritime security.
The Crown Prince has warned about the dangers of disruption to Saudi oil production, and while the international community is listening there is not much it can do, save escorting ships through the Strait of Hormuz or beefing up the kingdom’s air defences. As MbS takes stock of his limited options vis a vis Iran, he is likely to be little comforted by the situation at home.
Official unemployment is more than 12 per cent, while the IMF’s growth forecast for this year is just 1.9 per cent, and that’s despite the 2019 budget being the biggest ever. Low oil prices and turmoil in the Gulf have not helped. Nonetheless, more than three years after launching his Vision 2030 plans, the Crown Prince has little to show for his efforts. Foreign direct investment last year was about a twelfth of what it was a decade ago. Big multi-nationals are delaying planned investments because of what they see as Saudi Arabia’s and MbS’ instability.
The economic gloom has seen a collapse in property values and empty shopping malls as the galloping cost of living takes its toll on consumer spending. The introduction of VAT has been a big contributor to the squeeze, curbing Saudi business investment. At least one large retail group suspended expansion plans because of the sales tax.
Moreover, the centrepiece of MbS’ Vision 2030 plan, the new futuristic city of Neom, looks increasingly like it is going the way of similar developments pursued by the Crown Prince’s uncle and former king, Abdullah. He planned six so-called economic cities, one of which, the King Abdullah Economic City, is little more than an expensive white elephant.
Fortunately for MbS, the Saudi public by and large remain supportive, although gauging such sentiment in such a tightly controlled country is never easy. Social media sometimes betrays grumblings of discontent over his economic policies, particularly the austerity measures, but people seem to welcome his social reforms, even the victims of his anti-corruption purges.
MbS is widely regarded as a moderniser in Saudi Arabia and many there share his desire to overhaul the kingdom’s stultifying conservatism. It leaves him with substantial political capital as he looks to overhaul the economy. But this goodwill will have its limits. Heavy government spending will insulate people for a while longer, but with little FDI, ineffectual economic reforms and the continuing decline in oil revenues, MbS financial comfort blanket will surely start to fray.