Julie Frisch
In the last quarter of 2021, Saudi Arabia’s Gross Domestic Product had risen by 6.8 % compared to the last quarter of 2020; High oil prices allowed for a recovery from the shock of the pandemic. In fact, it proved to be the fastest annual pace of growth for the Kingdom in eight years. The GDP growth was due to a rise in global demand for crude oil and the ensuing Saudi production that provoked a 10.9% increase in oil activities. Non-oil activities simultaneously rose by 5.1%, the most significant increase recorded in the social, community and personal services sector. The total expansion of the economy in 2021 amounted to 3.2%, which proved to be a 4.1% contradiction to 2020.
Stark variations in economic growth rates are common in Saudi Arabia due to their dependency on the oil market. Oil prices are determined by supply and global regulatory mechanisms, global demand as well as geopolitical, environmental and labour issues. They are the motor of the Saudi economy, which is why their rates directly impact its course; When the prices are high, the economy booms and when they are low, it suffers. The consequent volatility creates a highly unstable environment that suffers from a lack of economic diversification. Regional projects are not supported because investors cannot be certain that they will receive benefits, which again reinforces the Kingdom’s need to rely on their oil production and sales.
Economic planning is therefore very difficult in oil-producing and oil-dependent states. Since their revenues are largely based on their exports there is no stability from within, which makes their economies susceptible to inflation and austerity whenever the balance shifts. Up until now, the ruling family has been able to make up for any damages caused by the lack of structure, done through the sale of the natural riches and the consequent redistribution of revenue. This proves that Saudi Arabia is a ‘rentier state’; Male Saudi citizens enjoy wealth, general well-being and a very high quality of life not through job- revenues and taxes but because of the state’s regular distribution of oil-revenues.
How does this system influence Saudi politics and the regime? Well, considering that the state’s wealth does not come from taxpayers but from the sale of its natural riches, the Monarchy does not feel the need to represent the population. The citizens are given their share of oil revenues without having to work in return, and the royal family assumes this to be enough for citizens to feel satisfied. This social contract, however, costs the latter a representative government and political rights, and young people seem to no longer be satisfied with this. Because of rising education levels and new communication techniques, citizens have started to ask for a more inclusive and responsive government.
Another demand of theirs is the liberalisation of the economy. However, to open up the financial sector requires incentive from the population, and to expect incentive without a return of political representation has proven difficult in the Middle East. Furthermore, corruption has persistently been hindering change as the people that were employed for bureaucratic means were employed for a lifetime and mostly through connections as well as proof of loyalty to the royal family.7 ‘ (…) The predominant exchange pattern is one of material benefits and access to the state and its networks in return for loyalty or, in the less personalised cases of large-scale bureaucratic distribution, little more than passive quiescence. This exchange happens on a scale that would be inconceivable without the availability of large rents.’
So, seeing as they will not be able to keep relying on their rents and the social contract, how does the Saudi Monarchy plan to manage their state? In 2016, King Salman bin Abdulaziz Al Saud and his son Mohammad bin Salman AL Saud, the current crown prince, made public their plan to reform Saudi Arabia’s economic and social sector by strengthening its private sector. It set out to tackle the fiscal issues and structural flaws that had been covered up by high oil prices. The plan, known as the ‘2030 vision’, aligns with many of the suggestions made in the McKinsey report, namely a stark increase in workforce productivity and a decrease as well as revision of government spending. The vision sees tourism and investment as the main opportunities to help the economy change its course. New luxury resorts at the Red Sea and new communities for foreign house ownership are among the biggest aims to increase the number of visitors. By privatising government entities such as healthcare, construction, transportation, renewable energy, tourism, wastewater and desalination, as well as education, Saudi Arabia seeks to attract powerful foreign investors whose capital may improve and diversify school systems and the work force efficiency. The Prince even showed initiative to privatise a minority stake in the national oil company, proving that an increase of market competitiveness is at the forefront of his aims. He removed and arrested key royal to show dedication and effort towards making the Saudi bureaucracy more effective. He also created a new Council of Economic and Development Affairs as well as a Strategic Management Office to transform the vision into concrete government programmes and a National Centre for Performance Management to monitor the progress.
Important plans regarding the social sphere have already been implemented, especially concerning the lifting of women’s restrictions. The religious police have been stripped of their enforcement powers to regulate gender segregation in public spaces, and women are now allowed to drive cars, travel on their own, and obtain passports. These changes have been made in order to positively impact the labour force and attract more tourists. ‘Arguably, to date, Saudi Arabia’s social reforms have outpaced the economic ones’. This has come as a surprise because the social reforms need the consent of the religious establishment whereas economic reforms are alone for the royal family to navigate. But it makes sense once eventual political consequences are taken into consideration.
The royal family has been persistently hesitant to implement economic diversification plans due to the possible political repercussions. In order to minimise these, the government’s decision-making will continue to be highly centralised, even more so than before.15 ‘Prince Mohammed has taken steps to concentrate responsibility for economic policymaking in the hands of a small, trusted circle of economic ministers and close advisers. This centralization of decision-making has marked a departure from a dynastic monarchy system in which power has traditionally been distributed among a variety of
P senior princes and ministries. There are efforts such as the liability for ministers to be able to be sacked henceforth, but that will certainly not be enough to appease civil unrest once the patience of Saudi citizens is at an end.
Mohammad Bin Salman seems to be more aware of the desires and demands of the young generation than his predecessors, but his efforts to open up the economy and shake up their conservative rules are all ways to consolidate his position and power. Yes, the reforms are absolutely necessary, but they are mainly manoeuvres for the royal family to avoid serious defiance of their leadership from Saudi citizens. ‘Overall, MBS has greatly strengthened his position in the Kingdom, thus far avoiding internal unrest and removing large swaths of opposition in business and the government without violence. He has also managed to reduce the power of religious conservatives, removing religious police from the streets, and arresting several high-profile extremist religious leaders who were mainstays of Saudi television.’ He has shown willingness to bring about changes and sack people that are not part of his trusted inner- circle, but that is only because he wants to prevent any larger political reforms from being demanded, political demands that may criticize his personal authority and power. He wants to make citizens feel as they are not lacking anything, and a change of regime would be more harmful than beneficial. The ruling family does not want to renounce to any sort of power in the progress that they are making towards their ‘Vision 2030’- it seems to be just a question of time before the Saudi citizens speak up. The Prince knows political demands are brewing and is holding them off as long as possible by bending to other demands the citizens are making.
Countries that have been relying on oil need to change, and there is no doubt that drastic reforms are absolutely crucial for those nations to maintain their standard of living. Visions have proven popular across the Middle Eastern oil- producing states; Bahrain, Kuwait and Abu Dhabi have Visions 2030, and Oman is working on its vision 2040. These Visions guarantee the respective governments time to come up with feasible solutions and long-term ambitions. Since Saudi Arabia is globally the lowest cost producer of oil, it will be most likely the last producer to pump, which shows that oil will still play a major role in the transition to a less oil-dependent economy and society. An increase in opportunities for investment, tourism and employment models the Saudi plan into a set of capitalist attractions that for the moment do not seem to require any major political revisions in order to work. However, it is uncertain for how long that will be the case. The Prince will need to meet numerous expectations, and then still, will those really make up for a representative government?
Arabia, Kingdom of Saudi. n.d. Saudi Arabia Vision 2030. Accessed April 5, 2022. https://www.vision2030.gov.sa/. Grand, Stephen, and Katherine Wolff. 2020. Assessing Saudi Vision 2030: A 2020 Review. Review, Atlantic Council.
Hertog, Steffen. 2011. “Unpacking the Saudi State: Oil Fiefdoms and their Clients.” In Princes, Brokers and Bureaucrats, 9-35.
Kinninmont, Jake. 2017. “Vision 2030 and Saudi Arabia‘s Social Contract: Austerity and Transformation.” Middle East and North Africa Programme 1-44. KPMG. 2017. The Kingdom’s plan for life after Oil. Create.
Macqueen, Benjamin. 2018. “Oil, Economy and Development in the Middle East.” In Introduction to Middle East Politics, 169-195.
Nereim, Vivian. 2022. “Saudi Arabia’s Economic Growth Stays Near Decade-HIgh as Oil Powers Rebound.” Bloomberg.
Trading Economics. “Saudi Arabia Annual GDP Growth Rate”. Last modified July 2022. https://tradingeconomics.com/saudi-arabia/gdp-growth-annual Widdershoven, Cyril. 2018. “Saudi Crown Prince’s Power Consolidation Puts Vision 2030 Back on Track.” Atlantic Council.