Tuesday, September 5, 2017

Modernizing Saudi Arabia

While the world’s gaze has been transfixed by the clown prince of the hermit kingdom, another world changing story has been occurring in Saudi Arabia. 

This blog has been following the reform movement in Saudi Arabia for years now. The Saudis know that oil is not forever, so they are trying to modernize and even to privatize their economy. 

They have been reaching out to form fledgling alliances with nations like Israel and will most likely (gradually) withdraw their support of the Palestinian (lost) cause. We recall the extraordinary meeting in Riyadh between Sunni leaders and President Donald Trump. The kingdom’s ceremonial opening to the West, and especially to America, was, in my view, momentous. Forming an alliance against terrorism was also of considerable importance.

One understands that the Muslim world is not going to modernize overnight. It will not reform overnight. But if Saudi Arabia—a leading financial support for terrorist incubating organizations around the world—changes its ways, the consequences will be extremely important.They are well worth our close attention.

Now, The Guardian is reporting, with no small quantity of amazement, that the Saudis are privatizing large swaths of its economy, beginning with its oil industry. The kingdom is selling off assets to investors from around the world. Individuals will be able to own stock in those corporate entities. Leading the charge is the crown prince, Mohammed bin Salman, who supposedly took on that role in a palace coup.

The Guardian compares it to Margaret Thatcher’s privatization, and seems so optimistic that you almost forget that the paper skews its coverage toward the left.

The Guardian tells the story:

Saudi Arabia is lining up a privatisation of state assets that dwarfs the Thatcher “revolution” of the 1980s, and rivals the 1990s dissolution of Soviet assets in scale and significance. It has hung a “for sale” sign on virtually every sector of Saudi economic life: oil, electricity, water, transport, retail, schools and healthcare. Even the kingdom’s football clubs are due to be auctioned off.

The sell-off programme is the central part of the economic transformation plan envisaged under the Vision 2030 strategy. With oil stuck around the $50 mark, Saudi budgets are creaking and deficits are widening. Around $75 is regarded as the break-even point for the national finances.

But in 13 years, if all goes to plan, the kingdom will be financially stable, with a more dynamic economy and society, less reliance on oil and government spending, and with a thriving private sector that releases the pent-up entrepreneurial spirit of Saudi men and (whisper it in the kingdom) Saudi women.

The paper correctly compares the process to what Deng Xiaoping effected in China, beginning in the late 1970s. Some people imagine that the future lies with liberal democracy, but the Chinese example seems to have induced other nations to reform through authoritarian capitalism. Until America can show that liberal democracy can continue to govern effectively and to produce social harmony, nations will be drawn to emulate the Chinese model.

The Guardian says:

Rather than the Thatcher and Soviet analogies, some analysts compare it to the capitalist revolution brought about by Chinese moderniser Deng Xiaoping, which changed the economic shape of the world within three decades.

The centrepiece of the privatisation is the planned initial public offering (IPO) of Saudi Aramco, the country’s oil company and the source of all its wealth. If it goes ahead at the $2 trillion valuation hung on it by Mohammed bin Salman – Saudi’s crown prince and architect of Vision 2030 – it will raise $100bn on global markets, with London and New York vying for the lucrative IPO, in addition to Riyadh’s own stock market, the Tadawul.

And, what about schools and hospitals. The Guardian considers the possibilities and leave us with a question mark:

Within that list, there are some obvious jewels in the crown. The Saudi banker says that, because of the kingdom’s youthful demographic, health and education are potentially lucrative investments. He singles out the King Faisal Specialist Hospital, the Riyadh complex that is probably the best medical facility in the kingdom, as one of the most eyecatching potential privatisations.

But, as many other privatisers have found, there are serious issues attached to selling off assets regarded as central to the nation’s social and cultural fabric. “Having private control of education, perhaps with foreign involvement, would be revolutionary in Saudi Arabia. Would the investors want to have control of [the] curriculum? It could go against the whole culture and tradition of the kingdom,” says Saidi.

It is an enormously ambitious program. It may well fall short. But surely, it is momentous:

Ellen Wald, an American Middle East expert and author of forthcoming book Saudi, Inc., says: “It’s an ambitious plan. Even if the Saudis fall short, they will have made positive and necessary progress in diversifying and privatising their economy.”

While an absurd group of Western dimwits is out calling for the overthrow of the capitalist order, Saudi Arabia has studied the situation and has decided to follow the path of Thatcherite or even Chinese economic reforms. It's a big story, though not a very dramatic one. It deserves more attention in the media.


Ares Olympus said...

Privatization might sometimes be another word for "divesting from assets before the depth of corruption is discovered", thinking of the royal princes as Enron executives.

I'll take the Norway model myself, but even their diversified sovereign wealth fund is dependent upon a crazy unsustainable global economy.

Sam L. said...

I knew a pharmacist who'd worked in Saudi in the '90s. He said the young men had no interest in working. Perhaps this has changed. And, perhaps not.

Ares Olympus said...

Sam L. said... He said the young men had no interest in working.

Perhaps this explains why 1/3 of residents are not citizens? Perhaps the way to get citizens to work is to tax noncitizens until they leave?
RIYADH - Saudi Arabia on Thursday said it had begun taxing foreigners working in the private sector as part of fiscal reforms aimed at coping with a drop in oil revenues.

Long a tax-free haven for expatriates, the Saudi economy was dealt a serious blow in 2014 when global crude prices plummeted.

The kingdom, the world's largest exporter of oil, has since launched an economic diversification plan and slashed state spending in an attempt to cope with a hefty deficit.

On July 1, foreigners working in the private sector began paying a family tax of 100 riyals ($26.60/23.40 euros) per month for every minor or unemployed relative living in the kingdom, the Saudi general directorate of passports said in a statement.

An estimated 11 million foreigners work in the Saudi private sector, with 2.3 million of their dependents based in the kingdom, according to the Public Authority for Statistics.

David Foster said...

Not sure why it wouldn't follow the Post-Soviet model of privatization, with similar levels of corruption.

Gringo said...

As others have pointed out, unless Saudi citizens develop a work ethic to replace their long-standing rentier ethic, "reform" is a sham.

I would not invest my money in oil properties in a country where nationalization can occur at the stroke of a pen.

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