David Cowan

Deconstructing the Saudi Economy

To understand the scale of the difficulties Saudi faces, there are six structural areas where policy and approaches need to change in order to solve the problems. As noted, the need to balance oil wealth and the need for diversification are not new ideas for Saudi Arabia, they have been policy issues for a long time and long understood as weaknesses in the kingdom’s socioeconomic model. However, the Saudi economic infrastructure has not made sufficient progress to date to counter the dominance of oil, the challenges of a unique business environment and a bulging welfare provision. Saudi faces internal and external threats, and there is little time or room for complacency this time round. Falling global demand and the rise of alternative energy, especially shale gas, are elements beyond Saudi control. The International Energy Agency released a report in November 2012 which predicted the United States would overtake Saudi and Russia as the largest oil producer by 2017, a prediction made more solid by a 4 July 2016 report that stated the United States now has the largest oil reserves. This puts a somewhat different complexion on the “America” and “big oil” argument as the basis for US-Saudi relations, as well as arguments about US oil independence. In conversations I have had with focus groups since 2014, I have witnessed complaisance turn to real concern over the economic changes occurring in Saudi.

Revolution or Obituary

The economic problems facing Saudi Arabia, which started in 2014 with a drastic oil price drop of 44% in the latter half of the year (https://www.eia.gov/todayinenergy/detail.php?id=19451 http://www.bbc.com/news/business-30223721. The average annual price fell from 99.29 in 2014 to 49.49 in 2015. https://www.statista.com/statistics/262858/change-in-opec-crude-oil-prices-since-1960/), led The Economist to suggest to the then Deputy Crown Prince Mohammed bin Salman in an interview (http://www.economist.com/saudi_interview) the need for a Thatcherite revolution in Saudi. The prince agreed, but such a revolution would be unprecedented for Saudi and would be socially disruptive not just economic, which is why I suggest that when the Crown Prince appeared to agree with the notion he did not fully grasp the resonance, as a British person might. MbS was talking to The Economist in his first on-the-record interview in January 2016, and the notion Saudi needed a “Thatcherite revolution” was perhaps a case of putting words into the interviewee’s mouth. The question and answer recorded in the transcript between The Economist and MbS reads: Q: This is a Thatcher revolution for Saudi Arabia? A: Most certainly. We have many great, unutilised assets. And we have also special sectors that can grow very quickly. I’ll give you one example. We are one of the poorest countries when it comes to water. There’s one Saudi company that’s an example among many companies, like Almarai dairy company, their share in the Omani market is 80%. Their share in the Kuwaiti market is more than 20%. Their share in the Emirati market than 40%. In Egypt, where there is the Nile, their share is 10%. One Saudi company. We have other dairy, agricultural companies, and you can also do the same with the banking sector. The mining sector. The oil and petrochemical sector. There are many enormous opportunities to expand and develop. (Ibid.)

Theocracy and Secularization

Saudi is not a secular society, but it is partly capitalist. The spirit of modern capitalism is secular, and indeed secularization has gone hand-in-hand with capitalism. Secularization theory (A Conversation with Peter L. Berger “How My Views Have Changed” Gregor Thuswaldner. http://thecresset.org/2014/Lent/Thuswaldner_L14.html) is a term that was used in the 1950s and 1960s by a number of social scientists and historians to describe social and economic change, and diagnosed that modernity inevitably produces a decline of religion. If we take this point seriously, then we can perhaps understand the resistance from within Islam and Saudi toward aspects of modern capitalism. If the product is secularization, then the inevitability is social change, and for many believers the damaging of Islam and the Saudi way of life. As discussed in the previous chapter, Islam is not anti-economic or anti-capitalism as such, but there is much in the modern form of capitalism that is of concern and is also the basis of much anti-Americanism. When some Christians express fear that Islam is a threat to their faith, they might want to reflect on the argument that in some respects Christianity has been much more “damaged” by American capitalism and secularization than it has by Islam. In the secular west, capitalism has generated a consumer culture which holds up a mirror to society. The easy availability and disposability of goods has impacted values, while social media and communications have distracted society. There is a greater materialist culture, though no shortage of spiritual ideas and pursuits, many produced by the materialist state of affairs. It seems that the richer a society gets the more spiritually impoverished it is; but this need not be the case. It is hard to see how western society can reverse this trend, if indeed it should, but Saudi as an Islamic country has the potential to show how a society can evolve in a spiritual way and at the same time be economically successful. The question is one of whether economic development and success is necessarily secular and needs a secular spirit. To understand this, we need to look at what we mean by the term secular.

The Islamic Welfare State

Saudi Arabia has an Islamic welfare state, this needs to be stated simply and in some respects it works in ways similar to other welfare systems. Like people in other economies, Saudis are increasingly worried about job security and the cost of living. In the past, the labor market and welfare state largely insulated them from any long-term economic impacts, as the state threw money at the people and allowed extended families to afford to support their relatives comfortably without jobs. In December 2015, there was a rude awakening for the citizens of Saudi when the government announced a tight budget, raised electricity rates for the largest consumers and ordered higher fuel, gas and water prices for everyone (https://www.kapsarc.org/wp-content/uploads/2017/08/KS-2017-DP018-Reforming-Industrial-Fuel-and-Residential-Electricity-Prices-in-Saudi-Arabia.pdf. The objective is to move closer toward parity with international standards, see https://www.bloomberg.com/news/articles/2017-09-18/saudis-said-to-weigh-raising-gasoline-prices-by-end-of-november). The following year, in September, austerity went deeper when the government cut public sector pay (https://www.reuters.com/article/us-saudi-economy/saudi-arabia-slashes-ministers-pay-cuts-public-sector-bonuses-idUSKCN11W1VS). However, in a popular move in April 2017, King Salman rescinded the public sector pay cuts by royal decree and backdated pay to October 2016, thus restoring the cuts made in the first place. This was the first reversal in two years of such austerity measures. To date it appears austerity measures have been accepted, especially with the added sweetener of reversals, but Saudis I have spoken to about the changes remain deeply worried about the future impact of these recent policies and what changes may lie ahead. As one Saudi executive told me it is more than just the money it is also the social fabric, which he explained in terms of family relationships. When inviting extended family to visit, it is customary to lay on quite a spread, including sacrificing a goat for all the family to share. This can be expensive but is now becoming more demanding on the household budget with less family gatherings likely to become the norm; to which he added, if it gets even worse, they might be lucky to buy a KFC chicken family bucket to share! He may have put it amusingly, but there is obvious concern about these types of budget changes, though one should put this into the context that such worries are commonplace in most economies, so it is perhaps more of a case that Saudis simply need to learn to deal with the plethora of bills and charges that people are used to in other economies. The concern is not, however, just the increased cost but the changes in welfare provision and the sense of security the welfare system allowed which is now undermined.

A Changing Political Theology

In the year 2000, diary documents were found in Afghanistan that either belonged to Osama bin Laden or to someone very close to him (Haykel et al., Saudi Arabia in transition: insights on social, political, economic and religious change. Cambridge University Press, Cambridge 2015, p. 138). Included are a number of questions addressed to bin Laden, which focus on oil and the “Jewish-Crusader invasion of the Muslim countries” seeking to control the oil. The questions were posed in the context of there being enough oil to create greater equality in the Muslim world. The maths was made simple. If the Muslim world produces 30 million barrels a day at

A Theocracy Under Threat

150 a barrel, that would create revenue totaling

An Islamic Behavioral Perspective

4.5 billion per day, which when divided among the 1.2 billion estimated number of Muslims globally would lead to giving

No Democracy Please, We’re Saudis

3.75 per day to every Muslim and the average Muslim family, averaging 8 in number, an income of

Oil Dependency and Cold War Politics

30 daily. This is how the issue was framed in a simple economic calculus between the oil revenue and the social output, and the resentment has been the feeding ground for Muslims around the world. This social disconnect, and the intrusion of hard economic realities drew supporters who felt alienated and lost in the declining welfare theocracy of Saudi and elsewhere. One reporter recorded an assessment on the 9/11 hijackers offered by a Saudi official: “The hijackers were a direct product of our social failures—a generation with no sense of what work entails, raised in a system that operated as a welfare state,” a high-ranking government official told me. “We allowed them to grow up in pampered emptiness, until they turned to the bin Laden extremists in an effort to find themselves.” Saudis claim that al Qaeda deliberately fills its ranks with the kingdom’s alienated young. Bin Laden’s goal, they believe, is to topple the Saudi royal family, partly by convincing the West that its principal source of oil is fatally infected with extremism. (http://ngm.nationalgeographic.com/features/world/asia/saudi-arabia/saudi-arabia-text/2)

Knight contra mundum

In the 1970s, oil became the new gold and oil pricing replaced the gold standard in our carbon economy. This power, and the oil economy that facilitated it, is weakening. For Saudi this suggests a very different future and raises the specter of implosion of the kingdom and its oil-dependent economy if it does not diversify in time. There are many nations that could fail and cause little more than a ripple in geopolitical terms, but Saudi has for so long been pivotal in the Middle East that even a severe weakening, let alone failing, is a problem for all. Already Saudi is in the early stages of changing from being a Cold War partner against godless communism into a less-than-trusted partner. This is a mistake and will not help in dealing with the global political presence of Islamic radicalism. It is also a mistake to demand a reformation in Islam or in Saudi, for the reasons stated earlier. If we are to have a global peace in Islam then the solution for the world may be to have a strong Saudi Arabia and one that is not less Islamic, but more Islamic. Saudi is pivotal in Islam due to its role of custodian, and it should use this as a basis to foster more positive diplomatic relations with all nations, not just by being the “American Islam.” What has truly destabilized Saudi’s status in international relations is the tipping toward Iran, which is leading to increasing uncertainty in the kingdom and destabilizing effects. Iran is part of minority Islam, but that doesn’t stop it from seeking to promote itself as the true home of Islam in opposition to Saudi. A major external pressure in recent years has been the nature of the American relationship, which deteriorated under both President George W. Bush and President Barack Obama. Pressure has been mounting on the United States to forsake its long relationship in part to force Saudi to change its attitude on human rights violations and gender issues, and in part because it is felt the relationship is losing its benefits. The notions that working together would promote internal change and help in regional affairs have been discredited in many quarters. In remarks at the American University in Cairo made on 20 June 2005, the US Secretary of State Condoleezza Rice noted that “for 60 years, my country, the United States, pursued stability at the expense of democracy in this region here in the Middle East – and we achieved neither” (https://2001-2009.state.gov/secretary/rm/2005/48328.htm).