Published on Alternet (http://www.alternet.org)
Home > Why Saudi Arabia Is Suddenly in Serious Trouble
________________________________________
Why Saudi Arabia Is Suddenly in Serious Trouble
By Vijay Prashad [1] / AlterNet [2]
May 4, 2016
Saudi Arabia is in serious trouble. The Binladin Group, the kingdoms
largest construction company, has terminated the employment of fifty
thousand foreign workers. They have been issued exit visas, which they have
refused to honor. These workers will not leave without being paid back
wages. Angry with their employer, some of the workers set fire to seven of
the companys buses.
Unrest is on the cards in the Kingdom. In April, King Salman fired the water
and electricity minister Abdullah al-Hasin, who had come under criticism for
high water rates, new rules over the digging of wells and cuts in energy
subsidies. The restructured ministry was to save the Kingdom $30
billionprecious money for an exchequer that is spluttering from low oil
prices. Eighty-six percent of Saudis say that they want the water and
electricity subsidies to continue. They are not prepared to let these
disappear. They see this as their right. Why, they say, should an energy
rich country not provide almost free energy for its subjects?
When King Salman took over last year, he inherited a kingdom in dire
straits. Saudi Arabias Treasury relies upon oil sales for over ninety
percent of its revenue. The population does not pay tax, so the only way to
raise funds is from oil sales. As oil prices fell from $100/ barrel to
$30/barrel, oil revenues for the Kingdom collapsed. Saudi Arabia lost $390
billion in anticipated oil profits last year. Its budget deficit came to
$100 billionmuch higher than it has been in memory. For the first time
since 1991, Saudi Arabia turned to the world of private finance to raise $10
billion for a five-year loan. That this country, with a vast sovereign
wealth fund, needs to borrow money to cover its bills is an indication of
its fragile fundamentals.
What does a country do when it enters a period of crisis? It calls the
consulting firm McKinsey. That is precisely what Saudi Arabia did. McKinsey
sent its crack analysts to the Kingdom. They returnedin December 2015with
Saudi Arabia Without Oil: The Investment and Productivity Transformation.
This report could have been written without a site visit. It carries all the
clichés of neo-liberalism: transform the economy from a government-led to a
market-led one, cut subsidies and transfer payments, and sell government
assets to finance the transition. There is not one hint of the peculiar
political economy and cultural context of Saudi Arabia. The report calls for
a cut in Saudi Arabias public-sector employment and a cut in its three
million low-wage foreign workers. But the entire political economy of Saudi
Arabia and the culture of its Saudi subjects are reliant upon state
employment for the subjects and low-wage subservience from the guest
workers. To change these two pillars calls into question the survival of the
monarchy. A Saudi Arabia without oil, McKinsey should have honestly said, is
a Saudi Arabia without a monarchy.
What would the McKinsey transformation produce? A productivity-led
transformation, wrote the eager analysts, could enable Saudi Arabia to
again double its [Gross Domestic Product] and create as many as six million
new Saudi jobs by 2030.
The Kings son, Mohammed Bin Salman (MbS), took McKinsey at its word. He
then copied and pasted the report in his own Saudi Vision 2030. Little of
Prince MbSs statement differs from the McKinsey proposal. The eagerness of
the Prince shows his lack of experience. It is unlikely that he has read
Naomi Kleins The Shock Doctrine, a full-scale assault on the idea of
economic transformation. Even more unlikely that he has read Duff McDonalds
The Firm, an evisceration of McKinseys smoke and mirrors model. To base an
entire countrys future on a McKinsey report seems reckless. But then Prince
MbS has a streak of recklessness in him. He led the Saudi war on Yemen and
that has not turned out well at all. The peace talks over that war being
held in Kuwait remain stalled. Saudi Arabia made almost no gains in Yemen.
Should the man who led Saudi Arabia into humiliating failure in Yemen now be
in charge of its economic transformation?
Saudi Arabia is a monarchy. Prince MbS has the Kings favor. His talents are
measured by the King and not by the people. They will have to tolerate his
shenanigans with the economy just as they have had to tolerate his failed
war on Yemen.
What is Prince MbSs Saudi Vision 2030? Despite the attempts to create some
stability in the oil market, there is no indication that oil prices would be
raised to safe levels anytime soon. If oil remains below $50/barrel, Saudi
Arabia has to revise its own economic project. That means that Saudi Arabia
will have to find new ways to create revenues. To shift from an
oil-dependent economy to an industrial-tourism-finance economy will require
a massive dose of investment. To secure that investment, Saudi Arabia plans
to sell a small stake of its state-owned oil firmARAMCO. The plan is to
raise at least $2 trillion from that sale and from the sale of other state
assets. This money will bolster the depleted Sovereign Wealth Fund, which
might otherwise run dry by 2017-2020.
The enhanced Sovereign Wealth Fund will be used to develop new industrial
sectors such as petrochemicals, manufacturing at the medium scale and
finance as well as tourism. Foreigners will be allowed to own property in
the Kingdom and entrepreneurial activity will be encouraged by the state.
How does all this happen by 2020 the date proposed by Prince MbSor even
by 2030the name of the Princes plan? Will Saudi Arabia be able to rapidly
transform its population from being satisfied with receipts of oil revenues
to being workers in an insecure market environment? History suggests a long
period of dissatisfaction amongst the public during this kind of enormous
transition. Can the Saudi royal family manage the level of anger and
humiliation that this change will evoke?
The IMFs director of Middle East and Central AsiaMasood Ahmedis sure that
the transition will work just fine. In fact, Ahmed believes that the
McKinsey plan is perhaps a little too modest. What the Saudis need to do,
said Ahmed, is to attract more private investment to help the
diversification plan. Where will this private investment come from? Perhaps
from China, which has already signed a large ($2.48 billion) nuclear deal
with Saudi Arabia. The kingdom is Chinas largest oil supplier. Chinas
Sinopec, PetroChina and Yunnan Yuntianhua work closely with ARAMCO to build
oil refineries in the kingdom and on the Chinese coastline. Chinese
construction companies are building the Haramain railroad that will
eventually link Mecca and Madina. China is the largest trading partner of
Saudi Arabia. The Binladin group will mothball some of its cranes, but that
does not mean that cranes will hang over the skyline of the kingdom. Chinese
construction firms are prepared to build the new infrastructural base in
Saudi Arabia. Washington, if it is paying attention, must see the drift of
its old allyeither into social chaos or into the Chinese orbit. No other
alternative exists.
Vijay Prashad is professor of international studies at Trinity College in
Hartford, Connecticut. He is the author of 18 books, including Arab Spring,
Libyan Winter (AK Press, 2012), The Poorer Nations: A Possible History of
the Global South (Verso, 2013) and the forthcoming The Death of a Nation and
the Future of the Arab Revolution (University of California Press, 2016).
His columns appear at AlterNet every Wednesday.
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Suddenly in Serious Trouble
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Published on Alternet (http://www.alternet.org)
Home > Why Saudi Arabia Is Suddenly in Serious Trouble
Why Saudi Arabia Is Suddenly in Serious Trouble
By Vijay Prashad [1] / AlterNet [2]
May 4, 2016
Saudi Arabia is in serious trouble. The Binladin Group, the kingdoms
largest construction company, has terminated the employment of fifty
thousand foreign workers. They have been issued exit visas, which they have
refused to honor. These workers will not leave without being paid back
wages. Angry with their employer, some of the workers set fire to seven of
the companys buses.
Unrest is on the cards in the Kingdom. In April, King Salman fired the water
and electricity minister Abdullah al-Hasin, who had come under criticism for
high water rates, new rules over the digging of wells and cuts in energy
subsidies. The restructured ministry was to save the Kingdom $30
billionprecious money for an exchequer that is spluttering from low oil
prices. Eighty-six percent of Saudis say that they want the water and
electricity subsidies to continue. They are not prepared to let these
disappear. They see this as their right. Why, they say, should an energy
rich country not provide almost free energy for its subjects?
When King Salman took over last year, he inherited a kingdom in dire
straits. Saudi Arabias Treasury relies upon oil sales for over ninety
percent of its revenue. The population does not pay tax, so the only way to
raise funds is from oil sales. As oil prices fell from $100/ barrel to
$30/barrel, oil revenues for the Kingdom collapsed. Saudi Arabia lost $390
billion in anticipated oil profits last year. Its budget deficit came to
$100 billionmuch higher than it has been in memory. For the first time
since 1991, Saudi Arabia turned to the world of private finance to raise $10
billion for a five-year loan. That this country, with a vast sovereign
wealth fund, needs to borrow money to cover its bills is an indication of
its fragile fundamentals.
What does a country do when it enters a period of crisis? It calls the
consulting firm McKinsey. That is precisely what Saudi Arabia did. McKinsey
sent its crack analysts to the Kingdom. They returnedin December 2015with
Saudi Arabia Without Oil: The Investment and Productivity Transformation.
This report could have been written without a site visit. It carries all the
clichés of neo-liberalism: transform the economy from a government-led to a
market-led one, cut subsidies and transfer payments, and sell government
assets to finance the transition. There is not one hint of the peculiar
political economy and cultural context of Saudi Arabia. The report calls for
a cut in Saudi Arabias public-sector employment and a cut in its three
million low-wage foreign workers. But the entire political economy of Saudi
Arabia and the culture of its Saudi subjects are reliant upon state
employment for the subjects and low-wage subservience from the guest
workers. To change these two pillars calls into question the survival of the
monarchy. A Saudi Arabia without oil, McKinsey should have honestly said, is
a Saudi Arabia without a monarchy.
What would the McKinsey transformation produce? A productivity-led
transformation, wrote the eager analysts, could enable Saudi Arabia to
again double its [Gross Domestic Product] and create as many as six million
new Saudi jobs by 2030.
The Kings son, Mohammed Bin Salman (MbS), took McKinsey at its word. He
then copied and pasted the report in his own Saudi Vision 2030. Little of
Prince MbSs statement differs from the McKinsey proposal. The eagerness of
the Prince shows his lack of experience. It is unlikely that he has read
Naomi Kleins The Shock Doctrine, a full-scale assault on the idea of
economic transformation. Even more unlikely that he has read Duff McDonalds
The Firm, an evisceration of McKinseys smoke and mirrors model. To base an
entire countrys future on a McKinsey report seems reckless. But then Prince
MbS has a streak of recklessness in him. He led the Saudi war on Yemen and
that has not turned out well at all. The peace talks over that war being
held in Kuwait remain stalled. Saudi Arabia made almost no gains in Yemen.
Should the man who led Saudi Arabia into humiliating failure in Yemen now be
in charge of its economic transformation?
Saudi Arabia is a monarchy. Prince MbS has the Kings favor. His talents are
measured by the King and not by the people. They will have to tolerate his
shenanigans with the economy just as they have had to tolerate his failed
war on Yemen.
What is Prince MbSs Saudi Vision 2030? Despite the attempts to create some
stability in the oil market, there is no indication that oil prices would be
raised to safe levels anytime soon. If oil remains below $50/barrel, Saudi
Arabia has to revise its own economic project. That means that Saudi Arabia
will have to find new ways to create revenues. To shift from an
oil-dependent economy to an industrial-tourism-finance economy will require
a massive dose of investment. To secure that investment, Saudi Arabia plans
to sell a small stake of its state-owned oil firmARAMCO. The plan is to
raise at least $2 trillion from that sale and from the sale of other state
assets. This money will bolster the depleted Sovereign Wealth Fund, which
might otherwise run dry by 2017-2020.
The enhanced Sovereign Wealth Fund will be used to develop new industrial
sectors such as petrochemicals, manufacturing at the medium scale and
finance as well as tourism. Foreigners will be allowed to own property in
the Kingdom and entrepreneurial activity will be encouraged by the state.
How does all this happen by 2020 the date proposed by Prince MbSor even
by 2030the name of the Princes plan? Will Saudi Arabia be able to rapidly
transform its population from being satisfied with receipts of oil revenues
to being workers in an insecure market environment? History suggests a long
period of dissatisfaction amongst the public during this kind of enormous
transition. Can the Saudi royal family manage the level of anger and
humiliation that this change will evoke?
The IMFs director of Middle East and Central AsiaMasood Ahmedis sure that
the transition will work just fine. In fact, Ahmed believes that the
McKinsey plan is perhaps a little too modest. What the Saudis need to do,
said Ahmed, is to attract more private investment to help the
diversification plan. Where will this private investment come from? Perhaps
from China, which has already signed a large ($2.48 billion) nuclear deal
with Saudi Arabia. The kingdom is Chinas largest oil supplier. Chinas
Sinopec, PetroChina and Yunnan Yuntianhua work closely with ARAMCO to build
oil refineries in the kingdom and on the Chinese coastline. Chinese
construction companies are building the Haramain railroad that will
eventually link Mecca and Madina. China is the largest trading partner of
Saudi Arabia. The Binladin group will mothball some of its cranes, but that
does not mean that cranes will hang over the skyline of the kingdom. Chinese
construction firms are prepared to build the new infrastructural base in
Saudi Arabia. Washington, if it is paying attention, must see the drift of
its old allyeither into social chaos or into the Chinese orbit. No other
alternative exists.
Vijay Prashad is professor of international studies at Trinity College in
Hartford, Connecticut. He is the author of 18 books, including Arab Spring,
Libyan Winter (AK Press, 2012), The Poorer Nations: A Possible History of
the Global South (Verso, 2013) and the forthcoming The Death of a Nation and
the Future of the Arab Revolution (University of California Press, 2016).
His columns appear at AlterNet every Wednesday.
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Suddenly in Serious Trouble
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