Saudi Arabia's Prince has put his political weight behind reforming the country's economy, but can he pull it off?
With oil prices still slumped and unemployment levels high, Saudi Arabia's Prince Mohammed bin Salman is pursuing neoliberal reforms in a make-or-break programme
![Saudi Arabia Deputy Crown Prince Mohammed bin Salman](https://static.independent.co.uk/s3fs-public/thumbnails/image/2017/01/27/16/mohammed-bin-salman.jpg)
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Louise Thomas
Editor
The first real signs that Saudi Arabia’s ambitious five-year National Transformation Programme (NTP) is moving ahead came this January when the government narrowed down its renewable energy programme to 10 gigawatts over the next six years, all provided by the private sector. Since Mohammed bin Salman unveiled his transformation plan in June 2016, ministries, authorities and utility companies have scrambled to work out how to implement the new NTP.
The neoliberal blueprint aims to boost the role of private sector investment in Saudi Arabia and attract foreign direct investment. The ultimate goal is to diversify the Saudi economy, reduce its dependence on oil, and bring unemployment down from above 12 per cent. Mohammed bin Salman, the up-and-coming Deputy Crown Prince son of King Salman, is the architect of the reforms, outlined in Vision 2030. And he has staked his future on their success. “This is crucial for him,” says Dr Marc Valeri, a senior lecturer in Middle East political economy at the University of Exeter. “Mohammed bin Salman is already weakened by the problems in Yemen, the way the Saudi intervention there is developing… he is putting all his cards on the economy.”
But the short-term result of the comprehensive shakeup was that for most of 2016, Riyadh’s spending and decision-making ground to a halt. “There is nothing happening, nothing is really being built,” says one Saudi banker. “The government is saying they aren’t going to award any contracts except public-private partnerships (PPPs).”
New initiatives
Foreign consultants in the Arabian Gulf have been promoting PPPs for decades as a way to increase private sector investment. Last year, Saudi Arabia, followed by neighbours Oman and Qatar, decided that PPP was the best solution to invest their way out of the oil price slump. But as the UK has learned, with its private finance initiatives, it is very hard to get right, and very unpopular and expensive when it goes wrong.
PPP involves private developers offering a public service on behalf of the government, and making a solid profit for themselves and their financial backers. It also means government departments have to change their relationships with the private sector; from being the clients calling the shots, to long-term partners. There are doubts over whether the Saudi civil service has the expertise to manage these complicated deals, or can learn how fast enough.
Despite Saudi Arabia spending 45 per cent of its budget on public sector wages to employ the majority of the local workforce, the civil service simply may not be able to cope with this sea-change in how they operate. The privatisations and PPP plans coincide with public sector hiring freezes, bonus cuts and a huge government restructuring that created a super-ministry for all energy issues, including oil, gas and electricity, and merged a number of other ministries.
Low oil prices have halved Saudi Arabia’s government revenue since 2013 and ministries are having to adapt to much lower budgets, while the demand for electricity, water, schools and housing keeps on rising. The government has calculated it needs to build 1.5 million homes, double its power plant capacity and create jobs for millions of young people, but there is no longer a budget to simply build roads, schools and hospitals as Saudi Arabia did in the past. All spending must be approved by Mohammed bin Salman, and government bodies have been told to become essentially self-funding, several industry sources have indicated.
Ministers who used to have a certain level of budget autonomy have found themselves restricted. “There has been a process of hyper-centralisation, where Mohammed bin Salman relies on a small number of people, and everybody else is considered unreliable,” says Dr Valeri. “The circle of people making all the decisions is unaccountable to the cabinet or Consultative Council, or even the rest of the ruling family.”
Delays and confusion
The urgent needs of the population have pushed the government to try to attract private sector investment for every capital spending project, large or small. Consultants have advised a few pilot projects in simpler sectors, but so many different government bodies are planning projects with little coordination that confusion has reigned. A plan by the General Authority of Civil Aviation, for example, to privatise every single airport across the kingdom, is expected to struggle. Many regional airports with a few thousand passengers a year are simply not profitable enough to attract the private sector.
A PPP hospital programme is also delayed as the Ministry of Health decides whether the private sector should provide just buildings, or medical services too. The Ministry of Housing has also put their affordable housing PPP on hold while its plans are reconsidered. The inertia and lack of institutional capacity in the Saudi public sector is a challenge, but there could also be resistance to difficult reforms, especially from business families doing well under the current system, and senior government figures marginalised by the changes.
By late 2016, civil servants were grumbling about foreign consultants. The NTP essentially repackages neoliberal reform programmes followed across the Middle East with little success. But the complaints could also be interpreted as criticism of Mohammed Bin Salman’s plans within the kingdom. “I am sceptical about the impact,” says Dr Valeri. “These neoliberal recipes have been promoted and implemented in a number of countries such as Bahrain, Egypt and Jordan, and I don’t see why the results would be any better.”
But the population is unlikely to be able to have their say on the reforms, even if cuts cause a decline in their standard of living. “The reforms are already creating discontent as normal people are unhappy with subsidy cuts, but it is very difficult to be more vocal,” says Dr Valeri. “The political control is so tough I can’t see it translating into wider resistance.”
The question of whether the neoliberal policies of privatisation and foreign direct investment will solve Saudi Arabia’s chronic unemployment problem and lack of diversification remains open. For the deputy crown prince, positive results are needed in the next few years or his credibility will be seriously damaged.
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