With the world predicted to change in ways that were unimaginable only a few weeks ago due to the coronavirus outbreak, can Saudi Crown Prince Mohammed Bin Salman pull off a miracle and deliver his ambitious "Vision 2030" social and economic transformation programme?
The latest indications are that "Vision 2030" is likely to suffer a similar fate as its predecessor, King Abdullah Economic City. KAEC, as it was known, launched over a decade ago, as part of a $30 billion pledge to build six cities in an attempt to diversify the oil-dependent economy, to attract foreign investment, to create 1.3 million jobs and to add $150 billion to the GDP. To date, only one of the six cities made it off the ground with a population of just 7,000, out of the projected two million.
Saudi Arabia's decision to enter into an oil price-war with Russia following the coronavirus outbreak, would suggest that "Vision 2030" is no longer at the top of Riyadh's list of priorities. Though emerging victorious is the kingdom's number one concern at the moment, there is no guarantee that it will be able to do so. Just how long the Saudis will be able endure the kind of haemorrhage $20 a barrel inflicts on a major oil producer, is anyone's guess.
But indications are that the Saudis are likely to blink first. Unlike the Russian economy, the Saudis need oil prices to be $85.7 per barrel to balance their budget, while Russia needs less than half of that, roughly $40 a barrel. Both countries have been bullish. Moscow, according to a Reuters report, has claimed that it can withstand oil prices of $25-$30 per barrel for six to ten years, while Riyadh asserts that it can afford oil to be at $30 a barrel, but would have to sell more crude oil to soften the hit to its revenue.
Riyadh's staying power is further limited by its budgetary constraints. The Saudis need the price of oil to be much higher than $10 a barrel, which is how low prices could drop with storage capacity running out. But unlike the Saudis, Russia does not have similar burdens. Unless the Saudis find a way to resolve this crisis, all other priorities, including reaching key "Vision 2030" milestones, are likely to be put on hold.
But the problem for Bin Salman, known popularly as MBS, is that like a prized boxer who enters the ring starved – his failed policies over the past five years will mean that Riyadh will enter its toughest challenge in the coming years, deprived of the political and economic resources it needs to not only win the oil price war with Russia, but to also ensure it delivers on the "Vision 2030" promise.
MBS's past form would suggest that the de-facto ruler is far more likely to lead the kingdom into a cul-de-sac, than guide its 33 million people towards the three big visions promised in his programme aimed at reducing Saudi Arabia's dependency on oil: "a vibrant society", "a thriving economy" and "an ambitious nation".
Do the Saudi's really want a brash young prince, soon to be king, to lead them during this period of global uncertainty, given that he has been nothing but a disaster? Since his introduction onto the world stage back in 2015 as Defence Minister of Saudi Arabia, the young prince who was only 29 at the time, has lurched from one crisis to another.
Abu Rasasa, "the father of the bullet", as he was known in his youth, cemented his childhood reputation by earning the mantle of the "prince of chaos". His record spoke for itself. In Yemen, MBS embarked on a needless war where 13 million people were pushed to the brink of starvation. It was meant to be a swift campaign, but five years on, the campaign against the Houthi rebels has cost Riyadh upwards of $100 billion, eroded its international image, and is now looking more likely that the conflict will end with a humiliating defeat for Riyadh.
The 2017 blockade of Qatar has been equally humiliating for the crown prince, even though the human cost is nowhere near the devastating conflict in Yemen, which has claimed over 112,000 lives. Rounding up fellow princes and businessmen, and holding them on charges of corruption, and putting Lebanese Prime Minister Saad Hariri under house arrest in Riyadh at the same time, has reinforced MBS's image as a power-hungry megalomaniac.
Imprisoning women's rights campaigners and overreacting when Canada called for their release, by cancelling diplomatic relations with Ottawa and ordering 10,000 Saudi students to abandon their studies in Canada, reinforced the image of MBS as a walking disaster whose vision for the kingdom had no room for human rights.
Then there was the surrendering of the Palestinian cause, which prompted King Salman to intervene and undo the damage caused by MBS's brash approach to diplomacy.
None of these blunders, though serious and catastrophic in their own right, have been as disastrous for the kingdom's image as the killing of Jamal Khashoggi. The murder of the Washington Post journalist achieved the one thing MBS can ill afford if he is to deliver on the "Vision 2030" goals – to frighten Western investors from the country.
That though, is exactly what has happened according to Jason Tuvey, senior emerging markets economist at Capital Economics. "The clearest indirect evidence we've had that it could have deterred investors is that foreign direct investment into the kingdom has remained very low," Tuvey told CNBC, adding that: "The crown prince has pinned his hopes on attracting more foreign investment as part of his efforts to diversify the economy away from oil."
Tuvey believes that: "There had been signs of capital flight around the time of the [Khashoggi] murder but in the longer-term the main damage is likely to come via the hit to the kingdom's attractiveness for direct investment."
The failure to increase foreign direct investment (FDI) in the kingdom is a sign that MBS is not on target. In 2018, Riyadh saw $3.2 billion in FDI. Though it was only a billion higher than the previous year, it was way below the $29.2 billion the kingdom attracted in 2010, according to the United Nations Conference on Trade and Development. To add to its misery, growth in the kingdom's non-oil sector has also slowed down, despite showing some early promise in 2019.
Some of the many pledges made by MBS suggests that he is off course. During the launch of "Vision 2030" in 2016, he announced that by 2020, the kingdom "will be able to live without oil" as the principle generator of national income. This optimism stands in stark contrast to the current reality, where crude oil still accounts for roughly 80 per cent of Saudi Arabia's revenues. Given that the future, as many believe, is against oil, especially in a post-coronavirus global economy, Riyadh can expect to be deprived of the oil revenue it needs for its economic diversification plan.
Due mainly to his unpredictability, global investors have not been completely bowled over by the crown prince's vision. According to Laura James, senior Middle East analyst at Oxford Analytica: "Vision 2030 was already lagging on most of its interim targets for 2020." The much-hyped public offering (IPO) of Saudi state oil giant Aramco, a cornerstone for raising cash to reinvest into non-oil sectors, is an indication that investors had been spooked by the volatile prince. After an embarrassing delay, the IPO finally managed to raise $29.4 billion, at a $1.7 trillion valuation, well shy of the $2 trillion MBS had originally sought.
With global investors not willing to bet on MBS, further humiliation was to come. In a move that screamed desperation, the crown prince applied pressure on wealthy Saudis to buy a piece of Aramco, which was floated on Riyadh's Tadawul stock exchange, instead of the more prestigious London and New York.
These are worrying signs. Non-oil sector growth is projected to fall to 1.4 per cent in 2020, from 3 per cent in 2019, according to the Institute of International Finance (IIF). The Saudi entertainment sector had enjoyed a temporary boom during the short growth periods – a feat that is unlikely to be repeated anytime soon due to the coronavirus outbreak.
Riyad's introduction of tourist visas, along with its plans to build huge leisure complexes and a theme park that is expected to feature the world's fastest, tallest, longest rollercoaster, are unlikely to provide the necessary boost to the country's diversification plans. The latest indication is that some of these mega projects may not even get off the ground, with thanks to the coronavirus outbreak. According to Nasdaq, the US recreational company known as Six Flags Entertainment Corporation, which was awarded the contract for building the mega theme park, is in financial crises due to the pandemic.
While no country is unlikely to come out of this crises unscathed, Saudi Arabi stands to lose more than most, for the simple reason that a grand social and economic transformation of the kind envisaged by the crown prince will be harder, if not impossible, to achieve under a looming recession and shrinking global economy, not to mention under the leadership of an unstable and volatile prince, soon to be king.
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.