Like everywhere and like everybody, Saudi Arabia is hurting a bit these days. An onslaught from US energy independence, oil market contretemps, and the global Covid-19 blow have meant a sharp decline in projected economic growth for the Kingdom. See chart below.
For the Saudi regime and for Saudi society, there is much to do now, and much homework to be done. According to the Financial Times, critical Saudi oil revenues declined by 45% during the second quarter of this year, pointing to a need for some economic diversification.
That kind of break in revenues would seem to argue for taking a pause that refreshes and making prudent adjustments to outlays – infrastructure, social and others. It would seem to be a time to consolidate and maybe to hold fast, you would think. At least until conditions and cash-flows ameliorate.
What’s interesting is that the Saudi leadership – in its concentrated and personalized way – is exercising very bold agency to do otherwise. Crown Prince Mohammed bin Salman is proving to be resolute toward implementing a transformative program for the Saudi economy. (See the 8/15/20 Financial Times article, “Saudi Prince Powers Ahead with Futuristic City and Sports Giga Projects”.)
The mega-project package, and the Crown Prince’s ambitious goals for it, highlight twin challenges that could – the emphasis is still on the conditional – exert stress on Saudi internal stability. One is more immediate, the second, more or less, longer term.
The drop off in hydrocarbon revenues has meant belt-tightening, including an increase on the national VAT to 15% and, as the FT puts it, “swingeing austerity measures”. The mega projects, though, have been spared the fiscal discipline, which is plain for everyone to see. Funds continue to flow toward the development of Neom – “the futuristic city”, the entertainment and sports complex Qiddiya, and various tourism development projects on the Red Sea.
As noted, the Crown Prince and his vision keep the momentum strong, as the FT elaborates: “The Prince has identified entertainment and tourism as vital parts of his reforms, from job creation to offering young Saudis more options and reshaping perceptions about the ultra-conservative Kingdom.”
This is interesting, since the very sectors Crown Prince Mohammed seeks to develop would be yet additional means toward loosening what social scientists Acemoglu and Robinson term “the Cage of Norms” – that is, the social practices, attitudes and expectations entrenched in a society. The House of Saud relies in part on the conservatism and traditionalism of Saudi society.
Full implementation of the development vision means even more liberalizing influences and more requirements to adjust. How the Saudi regime and society continue to navigate these new currents and demands bears watching. Lastly, the development effort is a concentrated wager predicated on an understanding of where globalization has been and where it is going – being right about it will be important.