Opinion |

Why Saudi Prince's Sale of the Century Won't Sell

David Rosenberg
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Saudi Deputy Crown Prince Mohammed bin Salman in Riyadh, Saudi Arabia, April 11, 2017.
Saudi Deputy Crown Prince Mohammed bin SalmanCredit: Reuters
David Rosenberg

You have to give the Saudi crown prince Mohammad bin-Salman credit: He knows that the kingdom can’t run on oil profits any longer and he isn’t hesitating to impose a substitute economic regime of private enterprise and free markets. Yet his Vision 2030, which aggregates all his advanced ideas for the economy into a single plan including a grand privatization program, suffers from a serious astigmatism.

MBS’s ideas for the economy are focused on the real problems that Saudi Arabia faces. He wants to encourage a dynamic business sector that generates productive employment and contributes to the economy, rather than feeding off oil profits. His social reforms, most famously by letting women drive come next June, are a step in the right direction, although much more timid than the economic overhaul he is planning.

But Vision 2030 is blind to the need for political change. MBS, 32, seems to think he can impose far-reaching changes in Saudi society without budging an inch on the Al-Saud family’s right to rule absolutely, without even a modicum of constitutional restraints, rule of law or open government, much less democracy. The kingdom offers investors lavish conferences and slick websites but it remains as opaque as ever.

On sale, in theory

Take privatization, which is a key element of Vision 2030. MBS in embarking on a sell-off of state owned entities on a scale that dwarfs anything Margaret Thatcher did in the1980s or that occurred after break-up of the old Soviet Union a decade later. No less than $200 billion of entities doing everything from making flour to providing services to Islamic pilgrims are on the auction block. Plans to sell a 5% in the oil giant Saudi Aramco via the biggest IPO ever aims to raise another $100 billion.

But a rundown by Reuters this week shows how little has actually happened since the plans were first unveiled more than a year-and-a-half ago.

Bankers were invited last February to make pitches for an advisory on the sale of the Saudi Postal Corporation, but since then nothing has happened. Meanwhile, officials promised that the Saudi Electricity Company would be split into four and the first sold off by the end of the year. But with just three weeks to go, there’s no sign anything is happening. In February a local bank was named to supervise the sale of up to five sports teams, but again nothing has happened.

Saudi Aramco is slated to go public in the second half of 2018, but as far as anyone knows officials haven’t  even decided on which stock exchange it should trade.

The most generous interpretation is that the Saudi government simply doesn’t like to keep the public informed of its progress. If so, that points to the first problem for MBS, who can’t construct the foundations of an open economy by operating in secret.

More likely, though, it’s not just secrecy but foot-dragging, incompetence and opposition from the Saudi bureaucracy, which has a tradition of acting at a glacial pace even when it truly wants to get something done.

Then there’s the problem of the legal system, which is a pastiche of Sharia law, royal decrees and local rules, none of it organized into a single legal code. It’s no surprise that investors weighing putting money into the country are wary.

Suddenly, arrested

MBS is leading a drive to update things like bankruptcy law, but at the same time, he is showing a marked personal tendency towards lawlessness. Thus Saudis learned that some 200 rich and powerful figures, including 12 princes, were suddenly arrested and jailed in a luxury hotel a month ago. Officially they were accused of corruption, but no formal charges have been filed, and now it seems that many will be released in exchange for handing over assets that could reach as much as $100 billion. It looks more like a government-sanctioned shakedown than like a criminal investigation.

Strangely enough the arrests came just two weeks after MBS enticed some of the biggest names on the global business scene to Saudi Arabia to talk about investment opportunities. But the arrests have since given them cold feet. Self-dealing is the Saudi way of business, so how is the innocent investor supposed to know when he’s crossed the red line of illegality? You certainly won’t hear the answer from MBS, or find it in the legal court or judicial precedent.

There was a time when we in Israel could look on with indifference to what was happening in Saudi Arabia. But today we have a vital interest in not seeing the kingdom screw up. With America abandoning the Middle East to its own devices, Israel has to find other allies to resist Iranian ambitions for the region. The kingdom is the most promising and willing of the lot.

What with the isolation of Qatar, fighting a losing war in Yemen and unsuccessfully meddling in Lebanese politics, MBS has not demonstrated great wisdom in foreign policy. But the problem is even worse than that: MBS is no longer a prince in the traditional sense of the word. He has become just another Arab strongman, and we know what that spells – a government that rules by repression, presiding over a dysfunctional economy, and one day, maybe revolution.