Understanding Mohammed bin Salman’s Saudi Arabia
“Uneasy lies the head that wears the crown.” Would that be true of Saudi Arabia’s Crown Prince Mohammed bin Salman?
History Or Tragedy In The Making?
“Uneasy lies the head that wears a crown.” This line, from Act III, Scene 1, of Shakespeare’s Henry IV, Part II, aptly characterises the ‘head’ of 32-year old Mohammed bin Salman, on which the ‘crown’ of the Kingdom of Saudi Arabia may be placed. Since his elevation to Crown Prince in June 2017, Mohammed bin Salman, or MBS as he is known, has made several heady moves that have heads spinning from the Kingdom to Kolkata and Kansas. How to understand what is happening without getting a headache?
Let’s first spot the issue.
MBS is the scriptwriter, producer, director, and protagonist of a play still unfolding. In these roles, his choice is between transparent transformation and regressive restoration. The play is on three linked stages: economic, legal and military. Will Saudi Arabia be historically transformed transparently? Or, will Saudi Arabia fall back tragically to what it always has been?
Simply put, is this play a history or tragedy? That’s the issue.
The Economic Stage
The Kingdom of Saudi Arabia suffers the ‘resource curse,’ an excess supply of fossil fuels and minerals. A country cursed suffers from lower per capita economic growth, poorer human development metrics, and less democratic liberties relative to one without a super-abundance of natural resources. The curse is paradoxical but explicable.
Excess resources engender a rentier economy. Citizens are happy with seemingly endless rents from oil revenues, so why struggle to be an entrepreneur in search of new sources of wealth?
Saudi Arabia’s curse is oil.
Its petroleum sector accounts for roughly 87 percent of budget revenues, 90 percent of export earnings, and 42 percent of the gross domestic product.
Israel, a highly successful economy in the region, has no such resource curse. That difference is a challenge for MBS. From 1950-2006, Saudi per capita GDP increased by only about half that of Israel. The Saudi illiteracy rate fell by about 10 percent less than that of Israel. The Kingdom remains an absolute monarchy while Israel is a multi-party democracy.
Enter MBS With Vision 2030.
MBS laid out in April 2016 his script to end the curse. If Saudi Arabia follows the script, then in the next 12 years, it will not depend on hydrocarbons. Its economy will be diversified, with robust public sectors, especially education, health, and tourism, a solid infrastructure, and a manufacturing base boasting military equipment. The script contains bold lines, such as increasing
(1) annual government non-oil revenues from $163 billion to $1 trillion
(2) the ratio of non-oil exports to non-oil GDP from 16 to 50 percent
(3) FDI percentage of GDP from 3.8 percent to the global average of 5.7 percent and
(4) the share of private sector contribution to GDP from 40 to 65 percent.
Saudi Arabia’s actors need to be paid to perform. There are roughly 80 different projects totalling between $296 million and $1.6 billion. The government itself cannot pay all of them. Its fiscal deficit equals 17.3 percent of GDP. It risks social unrest when it cuts subsidies, whether perks for royals or fuel for commoners.
Enter A Lead Actor, Dhahran-Based Aramco.
MBS’s script calls for privatising 5 percent of the world’s largest oil and natural gas company. Surely that initial public offering will bring $100 billion to pay actors for Vision 2030 projects, and help fund a $2 trillion Public Investment Fund, Saudi Arabia’s Sovereign Wealth Fund.
Ah, but the plot thickens here.
What are its proven versus speculative energy reserves? What are the difficulties and costs of extraction? Into what accounts are Aramco revenues wired, who controls those accounts, and to what ends are the funds put? Investors also worry about corporate governance. What voice will they have in Aramco operations? If the House of Saud holds 95 percent of the equity, then how can they influence output and pricing decisions?
And, investors know their children have no interest in a future with climate-change-causing fossil fuels. Is equity in Aramco an asset doomed to diminish in value, not worthy to bequeath, because peak demand for hydrocarbons will occur before peak supply? That’s an outcome to which Ali Al-Naimi, Saudi Oil Minister from 1996-2005, and his Senior Advisor, Ibrahim Al-Muhanna, confessed as far back as April 2010.
Suppose these doubts are resolved to satisfy foreign mutual, pension, and hedge fund managers. Where ought the IPO to occur? The New York Stock Exchange! But, NYSE is on 11 Wall Street, Wall Street is in America, and America has a 2016 law called ‘Justice Against Sponsors of Terrorism Act.’ JASTA strips Saudi-held Aramco of sovereign immunity, and that means legal risk.
If $100 billion IPO funds flow into an account for Aramco, then creditors – survivors and families of victims of the September 11, 2001, attacks – may freeze those funds to satisfy a JASTA-based judgement in a United States court.
Enter MBS, Again.
MBS can supplement Vision 2030 by recruiting additional cast, namely, women and Israelis.
It’s a fool’s errand to try modernising an economy with half the labour force, especially when the excluded half (women) are among the best educated, most diligent, and highest integrity workers.
So, MBS has authorised driver’s licenses for Saudi women in June 2018.
The next step is to ensure they do not drive their cars out of Saudi Arabia, in search of more stimulating, higher-paying jobs overseas. The announcement in October 2017 by MBS of a $500 billion futuristic Mega-City city, 33 times larger than New York City, connecting Jordan and Egypt, and powered by renewables, helps. In ‘Neom’, women and men, outnumbered by robots, can mix.
But, Neom will not be enough. Between 1990 and 2016, the average female labour force participation rate in Saudi Arabia was 16.9 percent. By 2016, out of 188 countries, Saudi Arabia was number 174, with a female participation rate of 20.1 percent. The world’s average is 52.6 percent.
The Legal Stage
On November 4, 2017, MBS ordered an anti-corruption drive that has netted dozens of senior officials, including royals, and seen around 208 people questioned. Reportedly, the Ritz Carlton Riyadh is host to detainees awaiting charges on looting Saudi Arabia of at least $100 billion.
The economic and legal stages are connected. That handsome sum could finance Vision 2030 and beyond if it’s ever recovered.
Moreover, as Chinese President Xi Jinping, Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan, and Indian Prime Minister Narendra Modi know, corruption tops the list of factors that deter foreign direct investment and divert trade. High ratings from NGOs like Transparency International and Transparency Task Force attract business.
But as they also know, if foreign merchants sense a crackdown on crony capitalism is a veil on a purge of political enemies, then they will take their deals elsewhere.
Merchants fear they may be next, with a devil’s choice of paying a bribe to curry political favour in their host country, but risk anti-bribery prosecution in their home country. So, these three heads of different political systems appreciate the adversity of arbitrary, capricious prosecutions.
Saudi Arabia’s script contains a question about prosecution.
Is the anti-corruption drive:
- (A) An assertion of the rule of law to pave the way for Vision 2030,
- (B) A prelude to a rerun of the five-year bloody aftermath of the 1917 Bolshevik Revolution when Lenin’s ‘Reds’ mercilessly rid the Soviet Union of ‘Whites’,
- (C) Akin to Mao’s 1966-76 Cultural Revolution that convulsed China, or
- (D) A combination of (A) and any one or more of (B), (C), or (D)?
Only answer (A) is transparently transformative. To support this answer, clarity and precision as to the charges against each suspect, and genuine due process for all suspects, are needed.
Fortunately, MBS has plenty of law to write an (A) answer. International laws, and domestic ones that apply extraterritorially exist against corruption, tax evasion, and customs fraud. Human rights standards define proper criminal procedures. And, NGOs can monitor the substance and process of anti-corruption cases.
The Sharī‘a also helps. Depending on the facts, stealing may be prosecuted as theft (sariḳa), or undermining public order (hirabah). Both are ḥaqq Allāh offences (claims of God), the most serious category in Islamic Criminal Law. Convicts may face a ḥadd (limit) punishment, because they have transgressed limits set by God. To be sure, Islamic Evidence Law limits the application of harsh sanctions, which would cause human rights concerns. The point is, charges could not be trumped up, because they are grounded in centuries of Islamic jurisprudence.
The Military Stage
The first two stages are connected to the third one.
Violence on the military stage threatens to ruin the economic and military stages. Putting aside who is to blame, it is on the head of the youngest Defence Minister in the world – MBS – to assume the role of blessed peacemaker. That means he must avoid the rash action of Macbeth.
The starting point is to realise Saudi Arabia cannot win a three-front, and probably not a two-front, war.
The Israelis thrice won two-front wars, the 1948 Israeli-Arab War, 1967 Six Day War, and 1973 Yom Kippur War. Currently, Saudi Arabia operates on two fronts, and may soon be on a third one.
Yemen is a quagmire. Saudi Arabia will not defeat the Iran-backed, Shī‘a-led Houthis on the battlefield, at least not without catalysing further humanitarian tragedies. The conflict dates to a failed Yemeni presidential transition in November 2011, from Ali Abdullah Saleh – who was forced from office, to his deputy Abdrabbuh Mansour Hadi – whom Saudi Arabia and the international community recognise. In September 2014, the Houthis took the capital city, Sanaa, and in February 2015 forced President Hadi to the port city of Aden, and the next month, overseas. Saudi Arabia’s intervention got Hadi and his government-in-exile back to Aden.
That’s about all it got, other than a barrage of missiles and mortars fired by the Houthis into Saudi Arabia, and chaos into which Al Qaeda and ISIS now play prominent roles.
On November 4, Saudi Arabia intercepted over northeast Riyadh a Burqan 2H long-range ballistic missile aimed at King Khalid International Airport. Fortunately, the Patriot missile defence system worked, with no casualties, but the audience – Saudis and expatriates – witnessed the extension of the military stage into the heart of the Kingdom.
In Syria, President Bashar al-Assad has the staying power of Falstaff, one of the most memorable Shakespearean characters, appearing in three plays and mentioned in five. Except, Assad is not funny. Here again, Saudi Arabia squares off against Iran in a proxy conflict called the ‘Second Arab Cold War’. It has dragged on since 2011. Unfortunately, peace talks in Vienna in 2015 between Saudi Arabia and Iran, brokered by America and Russia, collapsed. Israel declared on November 13 that it has a ‘free hand’ in Syria, which ironically might mean holding hands with Saudi Arabia to punch Iran.
As for Lebanon, its Prime Minister, Saad Hariri, mysteriously resigned the day after his November 3 arrival in Riyadh. One narrative is he did so for fear of assassination, the fate of his father – Lebanon’s longest-serving prime minister – in 2005. The alternative narrative is that Saudi Arabia held him against his will and pressured him to quit, because he’s too nice to Iran’s buddy in Lebanon, Hezbollah.
Which means they are unhappy with the stage narrative they perceive from Saudi Arabia. Saudi Arabia told its citizens to evacuate Lebanon and accused Lebanon of declaring war on it. ‘Right back at you’ Hezbollah’s leader Hassan Nasrallah retorted. Any war in Lebanon risks (another) military engagement with Israel, adding to unhappy adventures in 1978