How did the House of #Saud respond to revolutionary spirit sweeping the Arab world? by AlastairSloan

How did the House of Saud respond to the revolutionary spirit sweeping the Arab world in 2011? Just like their playboy sons dancing in the nightclubs of London, who would be otherwise stultified by life in the kingdom wherein Islam’s two holiest sites are situated, they threw money at the problem.

Economic hand-outs worth $120 billion calmed the restive Saudi people immediately, with new health, educational and economic benefits lavished upon them. More employment opportunities were opened up, all in the ballooning public sector; university graduates went into the religious bureaucracy, and the less educated filled new roles offered by the police and military. There were some slightly more sophisticated political machinations to run alongside the macro-bribe but, in essence, the House of Saud bought its way to safety.

This is the Saudi Arabian deal: you lose freedoms, the right to drive or organise a rally, protest against injustice or watch a film, but you pay no taxes and you grow fat on state largesse. Your state education will be mediocre, but for two-thirds of the population the public sector provides a cushy job that doesn’t demand too much in terms of intellectual ability.

The deal of course relies on money flowing into the public purse, which luckily for King Abdullah Incorporated it does, in oil-soaked torrents most nations in the global south could only dream of. In 2011, Saudi Arabia produced 12 per cent of the world’s oil, netting the government over $300 billion. Even so, bribing the public that year to avoid a revolution cost over a third of that revenue.

Then the bribes increased. According to figures released by the Saudi Arabian Monetary Agency, spending as a proportion of GDP more than doubled in 2012, and increased by a further 20 per cent for 2013, before falling moderately in 2014. Moving into this year spending has remained flat, but oil prices have plummeted, thanks to retarded economic growth across much of the world, shale oil flowing into the market from the United States and Riyadh refusing to cut production.

There are several theories why the Saudis have chosen not to close the taps, but perhaps it was a geopolitical move designed to reign in Iran and punish Russia for their support of Syria’s President Bashar Al-Assad. The nascent US shale industry is also a threat to Saudi Arabia’s market share, and with expensive extraction costs, easy to bring to heel if barrel prices are forced low. In any case, the dominance of Saudi Arabia in the global oil markets has been asserted.

To be clear, though, Saudi Arabia can afford this. It has large foreign currency cash reserves which will cushion the level of government spending that must be sustained if the Al-Saud family is to stay in power. By comparison, Riyadh can afford to cut oil revenues much more than Russia can; the rouble has almost crashed, precipitating an economic crisis that may last several years.

Saudi Arabia’s deficit for 2015, however, will run at nearly $40 billion. The government has said that it will be cutting public sector salaries, which account for half of its expenditure. As an energy researcher at the esteemed foreign policy think tank Chatham House put it, public sector salaries are “really the thing that keeps the lid on the bottle.” To put it to more accurately, although the House of Saud can afford this, it cannot do so for too long, and not without risking unrest.

The Saudis have two opportunities to save themselves: diversify the economy away from oil or build-up the private sector. Both present challenges.

Saudi pupils can recite the Prophet’s sayings but can’t use a spreadsheet. Thinking critically, a crucial skill for an innovation-hungry private sector, is not encouraged by a curriculum controlled strictly by Wahhabist dogma. As one journalist put it, “Saudi Arabians are taught to shop and pray, but not think.” Since 2005, the government has been paying for thousands of students to study abroad. However, when the take up becomes too great, as it was judged recently for student emigration to the UK, the government bans it.

Like Russia, where the government also relies on oil revenues, economic diversification has been on the agenda for years, with few achievements and many setbacks. Black gold still accounts for four-fifths of government spending and 90 per cent of export earnings. When oil was still above $100 per barrel, Prince Al-Waleed bin Talal, a billionaire businessman and nephew of King Abdullah, warned: “We are still a nation on oil and this is wrong and dangerous. We’ve been talking about diversifying Saudi Arabia’s revenue… for almost 30 years.” Since then the barrel price has halved, and the outspoken royal has rebuked Riyadh again, in an open letter published on his website. This time, he predicted that over-reliance on oil will ultimately be “catastrophic.”

Four new “Economic Cities” represent the pinnacle of private sector growth plans. The ambitious development, announced in 2005, catered originally for six new cities, but two were scrapped within a couple of years. One of the survivors, the King Abdullah Economic City, is no more than 10 per cent built after 10 years of delays. Despite the promised millions of jobs, just 12,000 people are employed there. By 2020, the four cities encompassed by the wider development plan are forecast to contribute $150 billion to Saudi Arabia’s GDP and house between 4 and 5 million people. Tactful critics have pointed out that “there would have to be rapid progress” to meet these targets. Businesses and the senior management of the cities have complained about amateurish and multi-layered government bureaucracy killing what impetus there is.

While the Saudi monarchy has recently offered private sector employers incentives to take on Saudi nationals, the education system and generally poor work ethic means that they are loathe to do so. They rely instead on sizeable influxes of more skilled and motivated foreign workers.

The House of Saud can afford to play chicken with the oil markets now, but it cannot for any lengthy period. Every dollar taken from its cash reserves will most likely be a dollar that will not be there when the oil runs out. In short, unless radical changes are made to the way the Saudis rule or the way that the country earns its daily bread, the road ahead is getting shorter
How did the House of Saud respond to revolutionary spirit sweeping the Arab world?.


About angelajoya

Assistant Professor, Middle East Political Economy, at the University of Oregon. Currently writing on the Egyptian revolution and the Syrian crisis.
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