Last month, reports circulated confirming that Saudi Arabia has successfully escaped recession for the second time since 2008. The national economy has been growing at a steady pace due to multimillion dollar stimulus packages, increasing foreign investor access, and high-level social reforms driven by Crown Prince Mohammed Bin Salman. Despite this optimistic reporting, Riyadh’s outlook remains questionable. In this piece, we examine Salman’s reforms in the context of the current geopolitical status of the Kingdom, and whether they are combining to provide the economic impact that the ambitious Crown Prince had hoped for.


For an in-depth, bespoke briefing on this or any other geopolitical topic, consider Encylopedia Geopolitica’s intelligence consulting services.


Reports of renewed economic growth has encouraged a spurt of confidence in the Kingdom in recent months, which is particularly promising ahead of the critical sale of 5% of the state oil firm Saudi Aramco. In a balm to hard-hit public sector salaries still reeling from last year’s austerity cutbacks, fresh civil service bonuses have also injected cash into the middle classes of the Kingdom’s tightened-belt economy. The oil sector, of which the national economy is highly dependent, has also benefited from price recovery, although this may not be entirely dependable given recent reports of an agreement with Washington to increase production to make up shortfalls expected from the Iran situation. Concurrently, the non-oil sector has seen fresh growth driven by a liberalisation of the entertainment sector, plans for the construction of a new economic Dubai-rivalling mega-city on the Red Sea coast, and reports of a general easing of business bureaucracy across the country.

Despite what seems – in part thanks to a highly supportive Gulf media narrative – an endless stream of good news, the Kingdom and its ambitious Crown Prince helmsman still face major challenges. While the Saudi stock market has seen some growth since 2016, recovery to previous highs remains illusive given the still-depressed oil price. The stalled-but-brutal conflict in Yemen, the Kingdom’s potentially deadly rivalry with Iran, and the entanglement of the Gulf powers in the Syrian conflict also mean that Saudi Arabia’s economic security will remain vulnerable to regional tensions. Additionally, domestic terrorism and lingering extremist sentiment among the nation’s less wealthy continue to threaten the Crown Prince’s dreams of a socially liberalised nation reversing the impact of four decades of Wahhabi influence. These are all set to be enduring problems facing Riyadh in the long term, with economic and security risks entwining and continuing to threaten the business environment, dissuading foreign investors. Local investors also appear to be hesitant, with relatively flat employment figures suggesting that Saudi firms are waiting for more concrete evidence of a safe economic operating environment before hiring new staff.

Saudi growth rates 2015-2018

Fig 1.0 – Saudi Arabian GDP growth 2015-2018

The ongoing rift in the Saudi-led Gulf Cooperation Council is also likely to continue to prove a thorn in the Crown Prince’s side, with Qatar having weathered the embargo far better than anticipated. Recent reports that Riyadh and Abu Dhabi plan to dig a 60km canal along the Qatari border in order to turn the peninsula into an island, followed by suggestions that the canal would be used as a nuclear waste repository, suggest that the GCC is growing increasingly frustrated by Qatar’s surprising resistance to neighbourly pressure. With Qatar moving closer into Iran and Turkey’s orbits in order to maintain imports throughout the crisis, the risk of another Iranian foothold on the Arabian peninsula also represents an uncomfortable threat to potential investors in the Crown Prince’s economic plans.

While Riyadh has gained an increased level of international goodwill from some of the early-stage reforms, most notably in dismantling the once all-powerful Mutaween (religious police), issuing driving licences to women and allowing the first cinemas to open across the nation in almost half a century, many commentators have questioned whether the Crown Prince is simply using these relatively inexpensive social reforms as a smoke-screen for continuing abuses in other sectors. The conflict in Yemen continues to prove disastrous from both a military and humanitarian point of view, while last year’s “anti-corruption” purge has been accused of being little more than a round-up of bin Salman’s political opponents. While the first women drivers have taken to the streets, women’s rights activists have been imprisoned, suggesting that the promised liberalisation is only skin deep.

Saudi stock market performance 2013-2018

Fig 2.0 – Saudi Arabian Stock Market Performance 2013-2018

Meanwhile, although the social reforms may be cash-cheap, they are costing the Crown Prince political capital amongst the deeply conservative religious establishment. While the young, urban and liberal population appear relatively satisfied by the reforms, resentment is likely building among the nation’s pious. This is the segment of society that has failed to benefit from Saudi oil wealth and is most susceptible to extremist recruitment, and present a dangerous source of anti-monarchy sentiment for any factions keen to oppose the Crown Prince. The threat posed by the Wahhabi camp was well demonstrated in the 1979 Siege of Mecca, when extremist militants calling for the overthrow of the House of Saud took control of the Grand Mosque for two weeks. The resulting battle to retake the holy site left hundreds dead and changed Saudi Arabia’s social trajectory for decades.

For investors – until concrete evidence of real change emerges – Saudi Arabia is likely to remain a risky bet and despite the ongoing reform programme, any foreign hands dipping into Saudi Arabia will be wary of being stained by the controversies of Yemen, domestic activist imprisonment, and other human rights complaints. For the Western world, Crown Prince Salman is worth observing with an attitude attuned to his seductive attempts at image management; it is worth remembering that Saddam Hussein won international praise for Ba’athist led liberalisation reforms in the early years of his reign in Iraq, and yet history is unlikely to look favourably on his regime.

Suggested books for in-depth reading on this topic:

Purchases made using the links in this article earn referrals for Encyclopedia Geopolitica. As an independent publication, our writers are volunteers from within the professional geopolitical intelligence community, and referrals like this support future articles.

Encyclopedia Geopolitica readers can also benefit from a free trial of Kindle Unlimited, which offers unlimited reading from over 1 million ebooks and thousands of audiobooks.


Lewis Tallon is a former British Army Intelligence Officer with several years experience working and living in the Middle East and North Africa region and Asia Pacific in geopolitical, armed conflict risk and threat intelligence roles. Lewis currently specialises in providing MENA-region geopolitical intelligence support to the oil & gas industry, and the financial sector.

For an in-depth, bespoke briefing on this or any other geopolitical topic, consider Encylopedia Geopolitica’s intelligence consulting services.


Photo credit: Cover image – U.S. Navy Mass Communication Specialist 1st Class Kathryn E. Holm // Saudi GDP Growth chart – Tradingeconomics/OECD // Saudi stock market chart – Tradingeconomics/Saudi stock exchange

 

Advertisements