Mohammed bin Salma, the thirty year old deputy crown prince of Saudi Arabia, has just announced his country’s transition to Utopia. He calls it, Saudi Vision 2030. The concept essentially envisages a day when the Saudis will learn living without oil, or rather the money earned from oil. To achieve this a sovereign wealth fund is on the anvil. When created it will have assets worth US$ 2 trillion (according to IMF estimates, India’s GDP for the year 2015-16 was US$ 2.4 trillion). Bin Salman, second in line to the throne, also hinted at social reforms in an ultra-conservative country. He touched upon sensitive matters like women’s rights. He wants the country to start living off oil, 2020 onward. This means reducing subsidies and introducing taxes. All This will happen in just about three and a three quarters of a year from now.
Such news makes extremely good global PR. You can read the coverage by Bloomberg, The Wall Street Journal, Reuters, The Economist, etc. But the PR apart, is the Kingdom ready for the bold steps the prince proposes? Indian Affair thinks it is not. Here is why –
The entire euphoria the prince is trying to generate is based on an assumption that 5% of Aramco (the state oil company and apparently the largest corporation in the world) will fund the Saudi Utopia. However the problem is that no one knows what the actual worth of Aramco really is. There are no records in public domain and given the oil prices plummeting to US$ 40 a barrel, the crude under Aramco’s control might be worth much less now. Another problem is the location of oil. Most of the oil in Saudi Arabia sits on its eastern coast. That is also the region with a restive Shia population (who are systematically persecuted by the Sunni majority). The most serious of the problems is transparency. In his prerecorded telecast the prince did not give details of how the wealth fund will be created or how the citizens will be impacted by subsidy cuts. The economic situation of the country is not pretty. Various reports suggest a huge budget deficit in the range of 13% - 15% for the year 2015. The country is expected to run high budget deficit in the next four years. The foundation of the dream is indeed shaky.
Saudi Arabia is the most populous of all the GCC countries. With a large population comes the responsibility of feeding it. The Saudi citizens get unimaginable subsidies like a tax free income (both personal and corporate), heavily subsidized food (the price of a three liter milk can, at SAR 10, has not changed since at least 2010), cheap petrol and no taxes like VAT, GST or sales/service tax. These subsidies however benefit even the resident expats. On top of these are subsidies for overseas education, a lavish unemployment allowance (estimated 30 – 40% youth unemployment), soft loans to purchase residential land, a free hand in importing cheap labour from Asia, protection from foreign competition by forced partnerships with local firms (HSBC is called SAAB in Saudi Arabia), etc.
|I shalt take back the subsidies from thee|
Photo courtesy - Bloomberg
The women in Saudi Arabia are a suppressed lot, mandatory covering up in the abayya, no driving, male consent for surgery and overseas travel, arbitrary divorce, no jobs and so on. While the prince has some bright ideas to emancipate women, slowly; certain sections of the society might not be ready for such reforms, that they might find “radical”.
Saudi Arabia was far more liberal in the 70s than it in the twenty first century. But things changed after the siege of Mecca in November 1979, the same year the Islamic Revolution in Iran overthrew the Pahlavi dynasty. Post the siege the monarchy was forced by the Wahhabis to impose an austere or rather a radicalized version of Islam on its people. Public beheadings are common and laws are not codified. Social changes proposed by the prince might face stiff resistance from the powerful Wahhabis and the citizens alike. Weaning off a population addicted to freebies and alienating the clergy can be an explosive mix in a conservative country like Saudi Arabia.
The target of 2020 to start living without oil money is not ambitious by foolhardy. The general population has long resented the lavish lifestyle of the royal family. The stories of the king and his entourage spending millions on shopping in Marbella have earned enough bad press. The people feel that the royal family is having a good time at the cost of its own citizens. Now when the prince finally promises them Utopia, he wants to make their lives more miserable by cutting down subsidies and imposing taxes. A double whammy.
There are far too many risks in implementing the plan 2030. The risk of the citizens turning against the monarchy, the expats not willing to come to the country because the social reforms are too slow for their comfort and cost of living too high post the economic reforms and finally the clergy denouncing the establishment of walking away from the religion.
The reforms apart, the monarchy will have to survive in the dynamic environment the world is functioning. It has to survive the drastic steps that are being taken around the world to minimize oil dependency. Commercial nuclear fusion energy is in sight in a few decades, countries are planning to ban oil run cars, bio fuels are tested for both cars and aircraft and solar is coming up in a big way. India plans to add 20,000 MW of grid connected solar power by 2020.
Given the global aversion of oil dependence and a reducing crude price, the US$ 2 trillion wealth fund looks a bit too far away. What looks scarily close is the Corniche in Jeddah, swarmed by the Saudis seeking elections to the presidential office.