The extraordinary project to get Saudi Arabia's economy off oil.
Early last year, at a royal encampment in the oasis of Rawdat Khuraim, Prince Mohammed bin Salman of Saudi Arabia visited his uncle, King Abdullah, in the monarch’s final days before entering a hospital. Unbeknown to anyone outside the House of Saud, the two men, separated in age by 59 years, had a rocky history together. King Abdullah once banned his brash nephew, all of 26 at the time, from setting foot in the Ministry of Defense after rumors reached the royal court that the prince was disruptive and power-hungry. Later, the pair grew close, bound by a shared belief that Saudi Arabia must fundamentally change, or else face ruin in a world that is trying to leave oil behind.
For two years, encouraged by the king, the prince had been quietly planning a major restructuring of Saudi Arabia’s government and economy, aiming to fulfill what he calls his generation’s “different dreams” for a postcarbon future. King Abdullah died shortly after his visit, in January 2015. Prince Mohammed’s father, Salman, assumed the throne, named his son the deputy crown prince—second in line—and gave him unprecedented control over the state oil monopoly, the national investment fund, economic policy, and the Ministry of Defense. That’s a larger portfolio than that of the crown prince, the only man ahead of him on the succession chart. Effectively, Prince Mohammed is today the power behind the world’s most powerful throne. Western diplomats in Riyadh call him Mr. Everything. He’s 31 years old.
“From the first 12 hours, decisions were issued,” says Prince Mohammed. “In the first 10 days, the entire government was restructured.” He spoke for eight hours over two interviews in Riyadh that provide a rare glimpse of the thinking of a new kind of Middle East potentate—one who tries to emulate Steve Jobs, credits video games with sparking ingenuity, and works 16-hour days in a land with no shortage of sinecures.
Last year there was near-panic among the prince’s advisers as they discovered Saudi Arabia was burning through its foreign reserves faster than anyone knew, with insolvency only two years away. Plummeting oil revenue had resulted in an almost $200 billion budget shortfall— a preview of a future in which the Saudis’ only viable export can no longer pay the bills, whether because of shale oil flooding the market or climate change policies. Historically, the kingdom has relied on the petroleum sector for 90 percent of the state budget, almost all its export earnings, and more than half its gross domestic product.
On April 25 the prince is scheduled to unveil his “Vision for the Kingdom of Saudi Arabia,” an historic plan encompassing broad economic and social changes. It includes the creation of the world’s largest sovereign wealth fund, which will eventually hold more than $2 trillion in assets—enough to buy all of Apple, Google, Microsoft, and Berkshire Hathaway, the world’s four largest public companies. The prince plans an IPO that could sell off “less than 5 percent” of Saudi Aramco, the national oil producer, which will be turned into the world’s biggest industrial conglomerate. The fund will diversify into non petroleum assets, hedging the kingdom’s nearly total dependence on oil for revenue. The tectonic moves “will technically make investments the source of Saudi government revenue, not oil,” the prince says. “So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”
For 80 years oil has underwritten the social compact on which Saudi Arabia operates: absolute rule for the Al Saud family, in exchange for generous spending on its 21 million subjects. Now, Prince Mohammed is dictating a new bargain. He’s already reduced massive subsidies for gasoline, electricity, and water. He may impose a value-added tax and levies on luxury goods and sugary drinks. These and other measures are intended to generate $100 billion a year in additional non oil revenue by 2020. That’s not to say the days of Saudi government handouts are over—there are no plans to institute an income tax, and to cushion the blow for those with lower incomes, the prince plans to pay out direct cash subsidies. “We don’t want to exert any pressure on them,” he says. “We want to exert pressure on wealthy people.”
Saudi Arabia can’t thrive while curbing the rights of half its population, and the prince has signaled he would support more freedom for women, who can’t drive or travel without permission from a male relative. “We believe women have rights in Islam that they’ve yet to obtain,” the prince says. One former senior U.S. military officer who recently met with the prince says the royal told him he’s ready to let women drive but is waiting for the right moment to confront the conservative religious establishment, which dominates social and religious life. “He said, ‘If women were allowed to ride camels [in the time of the Prophet Muhammad], perhaps we should let them drive cars, the modern day camels,’ ” the former officer says. Separately, Saudi Arabia’s religious police have been banned from making random arrests without assistance from other authorities. Attempts to liberalize could jeopardize the deal that the Al Saud family struck with Wahhabi fundamentalists two generations ago, but the sort of industries Prince Mohammed wants to lure to Saudi Arabia are unlikely to come to a country with major strictures on women.
Today, no matter how much money there is in Riyadh, bankers and their families would rather stay in Dubai.
Many Saudis, accustomed to watching the levers of power operated carefully by the geriatric descendants of the kingdom’s founding monarch, were stunned by Prince Mohammed’s lightning consolidation of power last year. The ascendance of a third- generation prince—he’s the founder’s grandson—was of acute interest to the half of the population that’s under 25, particularly among the growing number of urbane, well-educated Saudis who find the restrictions on women an embarrassment. Youth unemployment is about 30 percent.
But supporting reform is one thing, and living it another. Public reaction to the economic reboot has been wary, sometimes angry. This winter, many Saudis took to Twitter, their favored means of uncensored discourse, to vent about a jump of as much as 1,000 percent in water bills and to complain about the prospect of Saudi Aramco, the nation’s patrimony, being sold off to finance the investment fantasies of a royal neophyte.
“We’ve been screaming for alternatives to oil for 46 years, but nothing happened,” says Barjas Albarjas, an economic commentator who’s critical of selling Aramco shares. “Why are we putting our main source of livelihood at risk? It’s as if we’re getting a loan from the buyer that we’ll have to pay back for the rest of our lives.”
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