Saudi Arabian Revolution

Published November 9, 2017 by Carl De Luna

The oil produced by Saudi Arabia became its ticket for economic growth and prosperity. For years, the citizens of Saudi Arabia experienced generous subsidies from the government. Infrastructure was abundant, but wealth had its pitfalls. Most of the jobs in the Kingdom were held by foreign workers from countries such as the Philippines and India. Progress was fueled by the work of other nations. The first quarter of 2017 showed an unemployment rate of 12.7%, a steady increase from the previous quarter. Saudi Arabia now faces the inevitable fallout of lower oil prices, and a daunting task of creating jobs for Saudi nationals.

Crown Prince Mohammed bin Salman has already taken action by announcing his much-ballyhooed Vision 2030 reform plan. The plan aims to diversify Saudi Arabia from its over-dependence on oil as the key driver of their economy. An important part of Vision 2030 would be to develop Saudi Arabia’s education, health and tourism sector. It also aims to lower the unemployment rate to 7% by 2030. These are ambitious goals, but how would he institute radical social and economic reforms?

Perhaps the most ambitious is its plans to utilize their unused islands for tourism investment. According to the Saudi Commission for Tourism and National Heritage, 286 islands from the coast of Jazan are now on the market for tourism investment. The islands would hopefully boost Saudi’s coffers. The Farasan islands are brimming with natural beauty with some of the uninhabited islands serving as breeding grounds for Arabian gazelles and many species of birds. Plans for luxury beach resorts have also been laid out. Fifty islands on the pristine Red Sea with a stretch of 180km of coastline have been earmarked to be developed as luxury hotels with additional infrastructure to be built in accordance with the law and up to par with international standards. Investment worth $20 million USD have also been set to invigorate Saudi’s tourism industry. More than 18 million tourists visited Saudi Arabia in 2016, although most of them were for the pilgrimage to Mecca. Saudi’s sovereign wealth fund, the Public Investment Fund, launched two companies, Rou’a Al Haram and Rou’a Al Madinah, interested in developing commercial and residential areas around the Grand Mosques in Makkah and Medina. The two new companies will help the Kingdom increase its pilgrimage capacity to 25 to 30 million yearly and create an additional 150,000 hotel rooms built in both cities near the religious sites. Both projects are also expected to produce 200,000 jobs and an annual gross domestic product contribution of SR7 billion ($1.865 billion USD). With these developments, the target of 352,000 Saudis working in the tourism sector by 2020 could be met as well as the almost $46 billion investment in tourism by the same time.

Perhaps the most important issue hampering the nation would be in its issuing of tourist visas. It is currently so restrictive, that any amount of reform here would increase the number of people visiting the Kingdom. It is also held back by conservative social norms and restrictive dress codes which may deter tourists from Western countries. But they still have their good points such as beautiful archaeological sites, excellent beaches and diving sites. The leadership should consider easing restrictive dress codes inside private beaches, or special tourist zones. In the meantime, they have taken steps to remove the stigma the nation receives for discrimination against women. However, it remains to be seen how much they are willing to give up as other forms of entertainment are still banned in the Kingdom.

The most important aspect of their push to get rid of their over dependence on oil is the floating of state owned oil firm Saudi Aramco. Saudi officials are hoping that selling 5% of the oil giant will raise $300 billion USD while some estimate that it could raise only $100 billion, any amount between the estimates would make it the world’s largest initial public offering. However, the amount is much lower than the $2 trillion amount claimed by Bin Salman. There are also fears that the IPO might be delayed or may never be listed at all. Some Saudis are also doubtful about the listing, fearing that the Aramco is being sold at a lower price due to lower oil prices.

However, the intense battle between stock exchanges have begun and may raise the stakes for Saudi Aramco’s IPO. Saudi officials have stated that they would list Saudi Aramco in Riyadh and in one or two more stock exchanges. Competition is rife with Hong Kong, London, New York, Tokyo leading the contenders for Saudi Aramco. Even US President Donald Trump showed his support for the New York Stock Exchange’s bid.

The Kingdom has been wary of corruption inside the country, but it came as a surprise that Crown Prince Mohammed bin Salman ordered a corruption probe without no prior warning. The anti-corruption drive spared no one as the Kingdom’s business and political elite, including princes were arrested. The anti-corruption committee chaired by Bin Salman also has the power to investigate the cases, freeze assets and issue travel restrictions and warrants. However, analysts are calling the anti-corruption drive as a purge against Bin Salman’s opponents. There are fears that the power consolidation move could effect the Kingdom’s investments. One of the charged, Prince Alwaleed was responsible for some key investments such as Twitter, Time Warner, Citigroup and Lyft. He is also an advocate of women’s employment while also pushing for the end of the ban towards women driving. It was just this year that King Salman announced the lifting of the ban for next year.

There is an unraveling of sorts in Saudi Arabia as the state faces the necessary transition from its addiction to oil revenues. However, they should be prepared if they do not reach their desired targets. They have to be realistic in regards to the proposed investment towards the tourism industry could yield less than optimal results, as it is uncharted ground for them. But the recent announcement that Sir Richard Branson will be interested in investing in the Red Sea project in exchange for Saudi investment in his space tourism project, show they are on the right track. Fundamental and structural reforms in the Kingdom might be its best bet to fast track the changes it needs to become competitive in the tourism sector.

The anti-corruption probe should be applauded as the Kingdom tries to clean house. The entire world could tell something was not right in the Kingdom, and now is the perfect time to think long and hard for its future. It cannot afford to make the wrong decisions .

The planned IPO of Saudi Aramco is still up for grabs. Saudi officials should choose carefully as it could determine the future of the stock. Putting it up in New York might be its best bet for better prices and the support of US President Donald Trump might sway the decision to the New York Stock Exchange.

It will be interesting to see the repercussions of the seismic changes undertaking in the Kingdom of Saudi Arabia. Will Crown Prince Bin Salman lead the Kingdom to a brighter tomorrow? Will the Saudis benefit from the ambitious Vision 2030 plan? These questions are to be answered in the future.

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