Business seems slow, though visitors look in vain for any serious sign of Saudi Arabia’s gathering economic crisis, born of the lowest oil revenues in decades and subsidy cuts to reduce a $98bn budget deficit – 15% of the country’s GDP. The price of petrol has just gone up by 60%, though it is still dirt cheap, and VAT and other taxes are planned – significant novelties in a country where most people have not known such things in their lifetimes.
“There isn’t much economic pressure here because we deal with rich people,” laughs Tamer, an affable Egyptian who lost h...s clerical job with a Saudi construction company and now sells timeshares in Dubai. Beyond the Faisaliyah’s marbled halls, however, many government projects have stopped, expenditure has been slashed and rents have risen sharply. The housing shortage is a major preoccupation.
Facebook Twitter Pinterest Khaled, a taxi driver touting for custom at Riyadh’s international airport, manages to keep his family comfortable with the help of an army pension, but he worries what will happen when all subsidies end in five years. Mohammed, a fifty-something from Medina who has 10 children, moonlights on top of his undemanding government job, and his wife also works in an effort make ends meet. “Look,” he says. “There’s a war in Yemen. Of course it causes economic problems, but it’s not so bad.”
For some, however, it is. Just a few miles from the city centre, near walled royal estates, mothers and children huddle outside over makeshift fires to save electricity and take the chill off a winter’s evening. Poor Saudis, badly educated and ill-equipped to compete with foreign workers, are not a contradiction in terms. An estimated 2 to 4 million of King Salman’s 21 million subjects live beneath the poverty line – a challenge to every cliché about the oil-rich kingdom, and to prospects for future reform.
Salman’s first year on the throne saw oil prices drop to below $35 a barrel, and even if they recover longterm, demand is shifting. The growing scale of shale oil production in the US is a major factor. Iran’s re-entry into the market after the lifting of sanctions related to its suspected nuclear weapons programme will also boost an existing supply glut. Mohammed is right. The conflict in Yemen is reportedly costing $6bn a month and shows no sign of ending any time soon. By any reasonable assessment, leaner times lie ahead.
will also boost an existing supply glut. “It was OK when you could throw money at a problem,” muses Hisham Alhegelan, the CEO of a solar energy company. “But when you have to start counting the pennies, the pennies matter.” Austerity, Saudi-style, means the wealthy are talking about emptying their swimming pools, swapping gas-guzzling SUVs for something greener and even turning off the air conditioning when they travel abroad.
Facebook Twitter Pinterest Change is being driven by the king’s ambitious and powerful son, the deputy crown prince and defence minister, Mohammed bin Salman. The idea is to raise non-oil revenue without hindering competitiveness and causing unrest. “Everyone used to say subsidies were a political taboo and that if you increased the price of water, gasoline and electricity there would be revolution,” says John Sfakianakis, a Greek economist who has advised the Saudi government. “Well, people are not out in the streets, but that doesn’t mean the government will be complacent and forget about the average citizen.”
After years of over-spending, the 2016 budget bears the stamp of Bin Salman’s quest for innovation. There is also rare transparency, including the revelation that military and security expenditure makes up 25% of the total. Talk is rife of improved governance and the use of key performance indicators to monitor a multi-year strategy of the kind employed by Dubai and Abu Dhabi. Ministers have come and gone with unusual speed, generating wry jokes about brisker management style.
News that even the state oil behemoth Saudi Aramco may be sold off has underlined the scale of an effort that will include an increase in the private provision of healthcare and education. The word khaskhasa, Arabic for privatisation, is being bandied around. Vast tracts of land could be up for grabs, along with lucrative untapped mineral resources. Tackling corruption and job creation are also being highlighted.
Saudi Aramco None of these ideas are new. Subsidy reform has been discussed for years and VAT came up in 2012, but Salman’s predecessor, King Abdullah, then still raking in healthy oil revenues, vetoed it. Now a sales tax is on the way, by agreement with the other five members of the Gulf Cooperation Council. So are “sin” taxes on fizzy drinks, which may help to tackle the country’s obesity problem. Further subsidy cuts seem certain. Key details are expected with the publication of a heavily flagged “national transformation plan”, drawn up with the help of McKinsey and other blue-chip consultants.
McKinsey “With some tweaking they can do a lot to raise revenue from non-oil sources and use it to invest and pay salaries,” says Sfakianakis. “They can’t let themselves believe that one day oil prices will rise again and the Saudi economy will recuperate. They don’t want to let luck or Allah decide their future.”
Saudis recognise the universal truth that economic reform will have political consequences. “People will expect something in return,” says the historian Mohammed Al Zulfa, a veteran of the appointed Majlis al-Shura or consultative council. “The government takes all the oil revenue, and there is huge government expenditure. But if Aramco does go to the private sector and you introduce taxes, people will ask ‘what’s in it for me?’
Facebook Twitter Pinterest “If the king says the Majlis al-Shura has the authority to question ministers or check the budget, then maybe things will be different. But unfortunately our society is not ready for that. Saudi education does not promote the right to participate. We need more time.”
The view that change needs to be slow and cautious appears to be widely shared. “No one talks about income tax so the representation-taxation equation is inapplicable in the Saudi case,” argues Saud al-Tamamy, a political scientist at King Saud University. “And the word representation has a different meaning here.”
If there is to be greater public participation in decision-making it is likely to be incremental, agrees Haifa al-Hababi, a Riyadh architect who stood in the recent municipal elections – the first time Saudi women were allowed to vote. Failure to win a seat has not deterred her, and she is already demanding more accountability from her local council.
“In Saudi Arabia and the Gulf we are selfish,” she said. “It’s all about what people get from the government. We treat the government as a father who must look after us. Prince Mohammed is doing what Thatcher did in Britain. That is a part of the solution, though it is not just an economic problem but a political one too.”
Saudi Arabia Saudi dissidents, some of them Muslim Brotherhood sympathisers who call for constitutional monarchy, are behind bars, intimidated into silence or in exile, so it is hard to gauge the level of support for far-reaching change. Democracy is not discussed on the street, and the elite appear to have no interest in it.
Inside Saudi Arabia
Middle East and North Africa
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