Saudi Arabia to scrub off the “resource curse”
Watching with carefully hidden uneasiness the controversial mid-term result of depressed global oil prices, that the Kingdom of Saudi Arabia has heavy-handedly imposed on OPEC, leaders of the desert monarchy have proclaimed an unrivalled ambitious plan, named Vision 2030, to reform itself from within, restructure oil-dependent economy and emerge as a beacon of the ‘brave new Arab world’ (whatever it might mean in this case) in a matter of just 15 years.
The brains or at least the driving force of the reformist wing under the roof of the House of Saud is indisputably Deputy Crown Prince Mohammed bin Salman. The Prince promised “urbi et orbi”, in other words to King Salman’s loyal subjects and the outer world that by 2020 Saudi Arabia will no longer be hostage to the volatility on the oil markets because oil production will be dethroned from its present dominant position as the main revenues-generator and, as such, the bread-earner for the local elites and wider population.
Basically, it is not only about oil abundance that is both a blessing and a scourge. Vision 2030 is placed squarely on three elephants nicknamed ‘vibrant society’, ‘ambitious nation’ and ‘thriving economy’ with each of these notions requiring to be deciphered.
The first pillar is ‘vibrant society’ defined as unique social and cultural values of Saudi Arabia with its King as the Custodian of the Two Holy Mosques. The authors of Vision 2030, reportedly Western consultants hired by Prince Mohammed, emphasized the deep-rooted national identity. Most probably this notion has primarily religious overtones and is addressed specifically at Ummah, the worldwide community of Muslims, with all infidels excluded.
The second element of the Vision 2030 is ‘ambitious nation’ understood as reshaping the central authorities to adjust them to the modern times by making them accountable to the public, as well as tearing part the red tape and upgrading its efficiency.
The content of the third component is easier to classify and digest. ‘Thriving economy’ entails improvement of business environment, in particular, investment climate to attract foreign capital. It lists as a priority diversification of the economy in order to scrub off the “energy scourge”, better known as the “resource curse”, and create new sources of revenues. The Kingdom plans to surge the share of non-oil private sector GDP from 40 percent to 65 percent.
For the purpose of invigorating and reshaping the economy the royal reformers plan to mobilise ”local talents” and lure to KSA gifted high-quality labour force but on a selective basis.
Just like in any teleological ambitious plan the main challenges are either ignored or deliberately played down. In the case of Vision 2030, there is no answer to the question how to counter the depressed oil prices’ environment that pushes up debt and lowers gross domestic product. The KSA government has been maintaining growth through spending and subsidies from the budget that for the last 5 years has been filled by 87 percent through oil revenues.
Shifting the balance within the economy in favour of non-oil sectors would require not only the establishment of a sovereign wealth fund to finance the structural reforms but a tedious long-term program of educating a new generation of home-grown entrepreneurs and managers. It requires a lot of effort and, most importantly, time.
At present, most locals are employed in the public sector enjoying a high standard of living not necessarily reflecting their exceptional educational and training skills. On the contrary, in the private sector the workforce is mostly expatriates (80%). Diplomas, expertise, and experience substantiate their credentials.
The tight labour market is characterised by a delicate demographic situation. With unemployment among the Saudis under the age of 30 reaching 29%, creating new jobs for young people, who are not only willing but also capable of doing a job that demands special skills, would be top priority for the KSA government. How exactly this economic and social issue will be tackled, remains a mystery.
Moreover, genuine structural reforms and even palliative reformatting of the oil-addicted Saudi economy would require a liberalized business environment. Liberalism even applied in homeopathic dozes changes the fabrics of the society. Is it feasible in the case of the desert kingdom?
Prince Mohammed made it clear that any additional influx of non-Saudis would be subject to strict control and limitations. The more so, the society that swears allegiance to the stringent guidelines of Wahhabism will be protected from those who do not share these life principles. To quote Prince Mohammed, Saudi Arabia “will be open for tourism again on a selected basis” meaning that tourists would be allowed to visit KSA “in accordance with our values and beliefs.”
Whether or not it is prejudice haunting our West-centred mindset, the doubt regarding the compatibility of Muslim states, still heavily leaning on religious dogmas, with ‘modernity’ is still appropriate.
“How can we believe in the massive planned changes in the social structures of Saudi Arabia, its emergence as a global investment power, when its monarchy is locked into eternal marriage with the same crude Wahhabi faith practiced by the Taliban, al-Qaeda and Isis?” Robert Fisk, the most insightful analyst with The Independent of London commented on Vision 2030.
It should not be forgotten that for the moment KSA is a country at war. Riyadh is involved in the conflict with the tribes of Houthis in Yemen, although the Saudi military operation has been suspended given its unconvincing effects, and is still supporting some rebel groups in Syria who are fighting to topple the regime of al-Assad.
Two unfinished conflicts with an open-end post war settlement pose a challenge for the House of Saud. It is in danger of overstretching resources and involuntarily destabilising its Shiite-dominated oil-rich Eastern province. With two unfriendly neighbouring countries, which will hardly warm up to Saudi Arabia in the foreseeable future, the reformists in Riyadh cannot count on foreign investors simply neglecting the risk of hostilities being renewed at any time.
Nevertheless, the overall rationale of Vision 2030 is indisputable. Scrubbing off the “resource curse” is a must for Saudi Arabia, and it is exactly what the Kingdom intends to do. (see. “Oil and turmoil: back to basics? Not yet”,Volume 4, Issue 5, May 2016).
There is another nagging suspicion: Vision 2030 might be an argument to support the allegations made back in 2004 by oil analysts Matthew Simmons that KSA is nearing its “peak oil” and that some of its oil fields were “already damaged by using salt water to maintain pressure”, as Robert Fisk noted in his article.
Moreover, last year WikiLeaks disclosed a dispatch from the US Embassy in Riyadh warning that the actual volume of recoverable oil reserves in the Saudi desert could be 40 percent less than estimated.
If this is true, KSA has truly no alternative but to switch from oil-derived revenues to other sources of income. The goal is selected correctly albeit no detailed roadmap has been unveiled so far.
George is Editor of the "Energy International Risk Assessment" (EIRA) independent monthly newsletter, a specialised on-line publication, originally launched in May 2103 as a digital edition to a wide audience of readers. Together with the eiranews.com website, they focus on risk assessment and the geopolitics of energy in South East Europe, the Middle East, North Africa, and adjacent regions. A retired diplomat, he has worked for 35 years as a Press Counsellor at the Greek Embassies in Washington DC, London, Moscow, Prague, and the UN Greek Mission in New York City.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of ESCP Europe Business School.