The abuse of political power by any government official anywhere in favor of personal enrichment is no breaking news, but when it comes to the Arab world, 90 per cent of Arab countries score below 50 on Transparency International’s Corruption Index.
If you’re thinking that corruption is the reason why the Saudi government decided overnight to arrest 15 former ministers and current princes, there are facts that might change your mind.
Since the Arab Spring, an oil crisis has emerged.
That is what actually triggered an avalanche of events that were crowned by Saudi Vision 2030, a revolutionary endeavor for the kingdom that was welcomed internationally and regionally, but potentially clashed with some more conservative ideas in Saudi Arabia itself.
So did anyone see this coming?
Oil price led avalanche
How can we forget the great oil crash of 2014, when from mid-June to early December crude prices crashed by roughly 40 per cent, from $115 a barrel to approximately $70 a barrel. The IMF predicted then that GCC budgets would go in deficit, which they did. Saudi has announced gaps in budget spending capacity ranging from $56bn to $100bn yearly.
This prompted delays in spending on mega projects in Saudi and the GCC, with the Kingdom tightening its belt on contractors, delaying payments and forcing some big names out like Saudi Oger. Even the once mighty Saudi Bin Laden group was on the edge of bankruptcy, which was made worse by the Mecca Crane incident in 2016.
At the end of 2016, Reuters said that Saudi Arabia’s government made payments of $10.7 billion that it owed to private sector companies or 25 per cent of the total sum owed on mega projects that were on hold back then, many of which still are today.
With oil revenues down, the government aimed to reduce a budget deficit by potentially cancelling transportation, housing, health, and education projects, valued at more than $20 billion.
In 2016, the estimated size of projects was approximately $23bn against $65bn to $70bn in 2012.
One of the ways Saudi tried to reduce the budget deficit was by potentially reducing the inefficiencies and that led to cost and project management consultancies advising the Kingdom to establish a Project Management Office (PMO), which would audit existing projects, processes and standards, before new projects are likely to be progressed.
The Saudi government valiantly met funding challenges with more local and international bond issues. Just last September, Saudi Arabia made a $12.5bn international offer, in April a $9 billion Islamic bond and in October 2016 it raised $17.5bn in conventional bonds, its first international sale ever, and biggest.
The Saudi Vision 2030 snowball
On April 25, 2016, the Saudi Vision 2030 was introduced, and it was quickly understood that a good portion of its aims were to reduce the Kingdom’s dependence on oil and diversify its revenue sources.
In fact, the embedded National Transformation Plan 2020 (NTP2020) was Saudi’s plan to balance the budget by that year and eventually lead the drive to a non-oil economic diversification strategy on which Saudi Vision 2030 is keen to achieve at any cost.
IPO-ing oil company Aramco was initiated by transferring the oil company’s assets to the Kingdom’s Public Investment Fund, with the plan being to sell in 2018 five per cent of the oil company’s $2trn shares, for $100bn.
The PIF plans to sell other types of assets, including stakes in the stock exchange, football clubs and others.
That could only make conservatives jittery, as their perception is of a Saudi losing control of its assets. However, the situation for them gets more worrisome from here on after.
Soon enough, reforms were gradually forthcoming for softer visa issuances and foreign ownership rights on Saudi soil in 2016, immediate removal of Voice Over IP ban late September 2017. In that same month, Saudi ban on women drivers was also removed, entering into effect as of June 2018, and talks of movie going began arising with a PIF $2.7bn investment in an entertainment company building malls with room for movie theatres.
Saudi signaled its intent to attract investments and business interests, even if that meant easing or doing away with traditional past practices.
Now the latest seaside developments that take their cue from Dubai for their style of development, prompting observers to say that Saudi is planning to be the next Dubai, only 20 years later.
The PIF will lead investment in a project to redevelop Jeddah’s Waterfront Corniche into a mixed-use area at a price tag of $4.8bn, and then came the announcement of NEOM, another Red Sea city development valued at $500bn adn which add to offshore island developments there, all projects that would seek foreign investors to partner with the PIF, such as Virgin Group founder Richard Branson.
How should we read the news that the very recently formed Saudi anti-corruption committee detained 11 Saudi princes, four ministers and ‘tens’ of former ministers in an anti-corruption probe?
Well, of course, it may be just so. Perhaps years of behind-the-scene investigations have now yielded the results that warranted these actions.
Or it’s possible that a massive move like this, at times when positive vibes engulf Saudi and the international community with it, is to place any anti-sentiment for Saudi 2030 plans on notice: ‘Get with it, it’s happening’.