Can This Kingdom Modernize?

Up to now, Saudi Arabia has survived on oil. Half its GDP and 80% of its exports are from hydrocarbons. But Saudi Arabia is no Norway. Rather than build for the future, it has used oil wealth to fund cushy public sector jobs and generous cradle-to-grave welfare. That’s resulted in a frail private sector that contributes only 40% to GDP and a relatively idle population. Eighty percent of its 8.4 million work force are foreigners.

Now that oil prices have sunk to half the level needed for the government to balance its books, and foreign exchange reserves are dwindling, the Kingdom knows it must change. But how do you peacefully empower a population? It’s awfully hard to take benefits away from people, especially when those benefits are in exchange for political support. Half the population is under the age of 25, but 40% of 20 -24 year olds are unemployed, while almost half of 15-19 year olds are. Combine that with extremist elements in the country and open conflict with Iran – and the potential for disruption is not insignificant.

And yet, there is hope and opportunity. A lot has happened since reform-minded King Salman bin Abdulaziz al Saud assumed the throne in January 2015 and then made his son Mohammed bin Salman deputy crown prince and a prominent policy maker. In the last year, the new leadership has announced a partial privatization of the state oil company Aramco, opened the stock market to foreign investment, and reshuffled the oil ministry. And last month, Mohammed bin Salman released a sweeping “Vision 2030” outlining how Saudi Arabia could become “a vibrant society, a thriving economy, and an ambitious nation.”

Beyond its main thrusts of reducing dependence on oil, privatizing industry, attracting foreign investment, getting more women to work, and reforming education, Vision 2030 covers everything under the sun – from improving the visa process to building the world’s largest Islamic museum, and treating non-Saudi workers better.

We even learn that only 13% of the population exercise once a week (the 2030 goal is to bring that to 40%), and that there are only 11,000 people who volunteer for charities (the 2030 goal is to bring that to one million). We also learn that small and medium enterprises contribute only 20% to GDP, versus 70% in more developed economies.

Among the more interesting themes are those under the headings of “An Ambitious Nation, Responsibly Enabled” and “Being Responsible For Our Lives.”  Vision 2030 wants individuals to become more independent, active members of society. There is also a need to “deepen communication channels between government agencies on one hand and citizens and the private sector on the other.”

The big question, of course, is whether such comprehensive reform will work.  Geopolitical expert Ian Bremmer for one, is pessimistic.  He thinks marginal change is possible, but society won’t accept dramatic change.  “Vision 2030 isn’t designed to restore the economic and cultural dynamism the kingdom has lost,” he writes.  “It’s a plan to create it from scratch, which is why it’s likely too little too late.”

But others applaud Vision 2030’s radical ambition, saying that you need to know where you want to go before you try getting there.

 

Where You Stand Depends On Where You Sit.... Literally

This is a bit of a different page for us. The International New York Times (formerly the International Herald Tribune) had two stories, three pages apart on February 20, 2015. They couldn’t deal with more different worlds.

The first story is about King Salman, the newly installed king of Saudi Arabia. The ruling families in Saudi Arabia have always been worried about dissent and uprisings and making sure that calm prevails. So Salman immediately instituted a post coronation giveaway valued at $32 billion - about the size of the budget of Africa’s largest economy, Nigeria.

The largesse came in the form of a two-month salary bonus for all government employees, soldiers, pensioners and students on government stipends. Saudi Arabia is a virtual welfare state so bonuses in the public sector are a big deal. Of course this is all on top of free higher education and 45 cent a gallon gas. The savage breast has been soothed so to speak and no one is complaining in Saudi Arabia right now.

The second story, three pages later in the same edition is about North Korea and how for many years they have shipped guest workers abroad to earn hard currency. In 2012 the number was 60,000 and now it is estimated to be over 100,000. North Korea is starving - literally - and for hard currency too due to Western sanctions. The guest workers toil away in Myanmar, Africa, the Middle East (including Kuwait), Fiji, and at Siberian logging camps, among other places. Maybe even in Saudi Arabia!

In any case the government has gotten ever more draconian in their demands on laborers. Workers might earn $5 a day in spendable money. Everything else is shipped back to the Mother Church.

So on the one hand you have Saudi Arabia apparently awash in cash and coddling their citizens and on the other you have North Koreans living in a dysfunctional economy, forced to work at starvation wages abroad.

Which brings me back to the U.S. which has just 3% of the world’s population but produces 20% to 25% of the world’s goods. No matter how you slice our problems, this is still a nice place to call home.