Let’s compare Adam Neumann and Saudi Crown Prince Mohammed bin Salman.
In less than nine years Neumann built WeWork into a shared office space giant and virtually created a new industry by dint of a charismatic personality and business vision. But when it came time for WeWork’s initial public offering, everything fell apart. It turns out that vision and the ability to inspire isn’t enough when the numbers don’t add up and your company’s business’ prospects are uncertain.
The crown prince has a degree of charisma and a vision outlined in exquisite Power Point detail called “Vision 2030,” just in case readers were to mistake it for Pipedream Whenever. But when it comes to making sure that floating Aramco, the kingdom’s giant oil company, will be a success, he also has the help of the state security services.
As part of the IPO now getting underway, according to the Financial Times, the crown prince is forcing the country’s wealthiest families to buy into it, to ensure its success. The FT uses terms like “strong-arm,” “coerce” and “bully” to describe the tactics. Remember that many of these same families know pressure from the crown price very well. Two years ago, some 300 of them were forcibly detained in Riyadh’s Ritz Carlton Hotel until they ponied up what Saudi authorities say was $100 billion in ill-gotten gains.
The IPO pressure isn’t quite so dire, but it is shaping up into the offering you can’t refuse. Does the prince see any irony in this?
Saudi Arabia 2.0
The Aramco offering is supposed to raise tens of billions of dollars in capital that the kingdom will use to transform itself from a petro-state to a diverse economy of high-tech and tourism. The key to this is building a free market and a dynamic business sector, but it’s not getting off to a good start if the government employs techniques out of The Godfather to do it.
Prince Mohammed is not only reiterating the big and ugly message he sent during the Ritz Carlton affair, that business must bow to royal priorities at all costs. He is also conveying a silent but important message that the Aramco IPO isn’t a good investment, certainly not at the stunning $2 trillion valuation the crown is reportedly aiming for.
The crown prince's vision thing isn’t working. The Aramco IPO, if you recall, was originally supposed to be a monster sale of 5% of the company’s shares in a major overseas market. It would have raised $100 billion and dwarfed the biggest IPO to date ($25 billion by China’s Alibaba in 2014). It was called off in August 2018 because investors thought Aramco wasn’t worth that and because of their doubts about its independence from the Saudi government, among others.
Since then, Aramco’s facilities have come under repeated attacks, the worst being the drone strikes earlier this month that knocked out half of its production.
That alone should have been enough to push IPO plans into the distant future, but the crown price began dusting them off this summer and shortly after the latest attack - named the banks that will manage it.
This time around it’s a much smaller affair: The plan is to sell just a 1% stake this year and another 1% in 2020 for trading on the local stock exchange (Tadawul). More may come later, but for now Aramco won’t be trading in New York or London and it may raise a mere $15 billion-$30 billion.
The failure isn’t confined to Aramco. Transformations like the kind the crown prince is trying to engineer in Saudi Arabia take time, but there’s little evidence he’s making much progress. The latest estimates from the International Monetary Fund show that the kingdom’s non-oil economy -- the one that is supposed to take off under Vision 2030 -- growing by a not particularly impressive 2.9% this year.
More Saudis are entering the workforce, but the pace is not commensurate with the rate at which the kingdom is forcing out the guest workers who keep the economy going. The jobless rate for Saudis has if anything been rising since Vision 2030 kicked off, and passed 12% in the second quarter. The percentage of Saudis holding down jobs is still low, especially for women.
Vision 2030 is too ambitious, even if Prince Mohammed could raise the capital to finance it.
Saudis don’t have the skills to build a Startup Nation economy. Also, the prince may aspire to a capitalist economy but if anything, government has gotten bigger under his stewardship, with a widening role for its sovereign wealth fund. New-business formation is stagnant and older small businesses are closing, in part because lower-cost guest workers are leaving and hiring Saudis is too expensive.
The crown price’s goal of making Saudi Arabia one of the Top 5 world tourism destinations inside a decade is crazy. He would have to build a $100 billion industry from scratch in that time - in a country that doesn’t even issue tourist visas yet, bans alcohol and bikinis, and is unbearably hot a good part of the year. (And will get even more unbearably hot, according to climate change forecasts - but it denies such reports anyway.)
The crown prince is right that Saudi Arabia has no future as a petro-state, but he’s wrong in thinking he can buy himself the economy he wants.
Money isn’t the obstacle. The problem is the absence of the rule of law, basic freedoms, transparency and a modicum of democracy. The Aramco IPO should serve as a case study in Economics 101 about how not to do it.
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