May 4, 2016
(Love and Blessings to the Common People of Saudi)
Photo Credit: Fedor Selivanov / Shutterstock.com
Saudi Arabia is in serious trouble. The Binladin Group,
the kingdom’s largest construction company, has terminated the
employment of fifty thousand foreign workers. They have been issued exit
visas, which they have refused to honor. These workers will not leave
without being paid back wages. Angry with their employer, some of the
workers set fire to seven of the company’s buses.
Unrest
is on the cards in the Kingdom. In April, King Salman fired the water
and electricity minister Abdullah al-Hasin, who had come under criticism
for high water rates, new rules over the digging of wells and cuts in
energy subsidies. The restructured ministry was to save the Kingdom $30
billion—precious money for an exchequer that is spluttering from low oil
prices. Eighty-six percent of Saudis say that they want the water and
electricity subsidies to continue. They are not prepared to let these
disappear. They see this as their right. Why, they say, should an energy
rich country not provide almost free energy for its subjects?
When
King Salman took over last year, he inherited a kingdom in dire
straits. Saudi Arabia’s Treasury relies upon oil sales for over ninety
percent of its revenue. The population does not pay tax, so the only way
to raise funds is from oil sales. As oil prices fell from $100/ barrel
to $30/barrel, oil revenues for the Kingdom collapsed. Saudi Arabia lost
$390 billion in anticipated oil profits last year. Its budget deficit
came to $100 billion—much higher than it has been in memory. For the
first time since 1991, Saudi Arabia turned to the world of private
finance to raise $10 billion for a five-year loan. That this country,
with a vast sovereign wealth fund, needs to borrow money to cover its
bills is an indication of its fragile fundamentals.
What
does a country do when it enters a period of crisis? It calls the
consulting firm McKinsey. That is precisely what Saudi Arabia did.
McKinsey sent its crack analysts to the Kingdom. They returned—in
December 2015—with Saudi Arabia Without Oil: The Investment and
Productivity Transformation. This report could have been written without
a site visit. It carries all the clichés of neo-liberalism: transform
the economy from a government-led to a market-led one, cut subsidies and
transfer payments, and sell government assets to finance the
transition. There is not one hint of the peculiar political economy and
cultural context of Saudi Arabia. The report calls for a cut in Saudi
Arabia’s public-sector employment and a cut in its three million
low-wage foreign workers. But the entire political economy of Saudi
Arabia and the culture of its Saudi subjects are reliant upon state
employment for the subjects and low-wage subservience from the guest
workers. To change these two pillars calls into question the survival of
the monarchy. A Saudi Arabia without oil, McKinsey should have honestly
said, is a Saudi Arabia without a monarchy.
What would
the McKinsey transformation produce? “A productivity-led
transformation,” wrote the eager analysts, “could enable Saudi Arabia to
again double its [Gross Domestic Product] and create as many as six
million new Saudi jobs by 2030.”
The King’s son,
Mohammed Bin Salman (MbS), took McKinsey at its word. He then copied and
pasted the report in his own Saudi Vision 2030. Little of Prince MbS’s
statement differs from the McKinsey proposal. The eagerness of the
Prince shows his lack of experience. It is unlikely that he has read
Naomi Klein’s The Shock Doctrine, a full-scale assault on the idea of
economic transformation. Even more unlikely that he has read Duff
McDonald’s The Firm, an evisceration of McKinsey’s smoke and mirrors
model. To base an entire country’s future on a McKinsey report seems
reckless. But then Prince MbS has a streak of recklessness in him. He
led the Saudi war on Yemen – and that has not turned out well at all.
The peace talks over that war being held in Kuwait remain stalled. Saudi
Arabia made almost no gains in Yemen. Should the man who led Saudi
Arabia into humiliating failure in Yemen now be in charge of its
economic transformation?
Saudi Arabia is a monarchy.
Prince MbS has the King’s favor. His talents are measured by the King
and not by the people. They will have to tolerate his shenanigans with
the economy just as they have had to tolerate his failed war on Yemen.
What
is Prince MbS’s Saudi Vision 2030? Despite the attempts to create some
stability in the oil market, there is no indication that oil prices
would be raised to safe levels anytime soon. If oil remains below
$50/barrel, Saudi Arabia has to revise its own economic project. That
means that Saudi Arabia will have to find new ways to create revenues.
To shift from an oil-dependent economy to an industrial-tourism-finance
economy will require a massive dose of investment. To secure that
investment, Saudi Arabia plans to sell a small stake of its state-owned
oil firm—ARAMCO. The plan is to raise at least $2 trillion from that
sale and from the sale of other state assets. This money will bolster
the depleted Sovereign Wealth Fund, which might otherwise run dry by
2017-2020.
The enhanced Sovereign Wealth Fund will be
used to develop new industrial sectors such as petrochemicals,
manufacturing at the medium scale and finance as well as tourism.
Foreigners will be allowed to own property in the Kingdom and
entrepreneurial activity will be encouraged by the state. How does all
this happen by 2020 – the date proposed by Prince MbS—or even by
2030—the name of the Prince’s plan? Will Saudi Arabia be able to rapidly
transform its population from being satisfied with receipts of oil
revenues to being workers in an insecure market environment? History
suggests a long period of dissatisfaction amongst the public during this
kind of enormous transition. Can the Saudi royal family manage the
level of anger and humiliation that this change will evoke?
The
IMF’s director of Middle East and Central Asia—Masood Ahmed—is sure
that the transition will work just fine. In fact, Ahmed believes that
the McKinsey plan is perhaps a little too modest. What the Saudis need
to do, said Ahmed, is to attract more private investment to help the
diversification plan. Where will this private investment come from?
Perhaps from China, which has already signed a large ($2.48 billion)
nuclear deal with Saudi Arabia. The kingdom is China’s largest oil
supplier. China’s Sinopec, PetroChina and Yunnan Yuntianhua work closely
with ARAMCO to build oil refineries in the kingdom and on the Chinese
coastline. Chinese construction companies are building the Haramain
railroad that will eventually link Mecca and Madina. China is the
largest trading partner of Saudi Arabia. The Binladin group will
mothball some of its cranes, but that does not mean that cranes will
hang over the skyline of the kingdom. Chinese construction firms are
prepared to build the new infrastructural base in Saudi Arabia.
Washington, if it is paying attention, must see the drift of its old
ally—either into social chaos or into the Chinese orbit. No other
alternative exists.
0 comments:
Post a Comment