Offering shares in in Saudi Aramco wasn’t a critical part of the kingdom’s ambitious economic reform plans. But the ensuing muddle captured all its over-the-top zeitgeist.

Aramco is the world’s largest oil producer, and heir apparent Prince Mohammed Bin Salman, or MBS, the man leading the reform drive, was confident it was worth $2 trillion, twice Apple’s valuation. The IPO would be the biggest in history and the world’s leading stock exchanges were competing for the privilege of the listing.

Even U.S. President Donald Trump weighed in with a call for Aramco to choose to float stock in New York. Armies of foreign investment bankers and lawyers were put to work on the offering.

Update: Saudi Reforms to Boost Growth Despite Any Aramco IPO Delay, Reports IMF

Now, as Reuters reported on Wednesday, the IPO has been halted.

Well, not quite halted but delayed, according to an official government statement. But read between the lines: “The government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum.”

That’s “forget it,” as Sir Humphrey of “Yes, Minister” would say.

And with that, we have the other and more important part of the zeitgeist of MBS’s “Vision 2030” plan for transforming Saudi Arabia from the world’s gas pump into an economy on the cutting edge of technology and innovation, or at least one where the average Saudi has to work for a living rather than relying on government handouts and sinecures.

Secrets and cold calculations

The Aramco IPO had been put off repeatedly since it was first announced in 2016 for the same reasons that MBS’s big plans for the kingdom are doomed to failure.

The old guard at Aramco and in the government didn't want to disclose as much information about the secretive company as the New York and London exchanges were insisting on. MSB reportedly was fixed on the prestige of a $2 trillion valuation rather than thinking about cold calculations of the market.

What’s become evident is that Vision 2030 is not the daring and transformative process that MBS and the glitzy marketing campaign surrounding it have promised. Like beauty, it's skin-deep,

MBS is correct in seeing the need to get Saudi Arabia off its oil fix.

Trump is still convinced the 20th century isn’t over and that coal and oil will keep fueling us forever, but MBS understands the world is moving on. He is investing in solar power at home and in companies like Tesla (maybe) abroad. 

At home, the goal is to create a flourishing private sector independent of petroleum that can provide jobs and create wealth.

But MBS has two problems. The short-term one is that he is trying to finance this transition at a time when oil prices are low, which has left the country running huge budget deficits (this year something like 7% of GDP). The Aramco IPO was supposed to help pay some of Vision 2030’s bills. Running deficits would be okay as an investment in the future if Vision 2030 was going to work, but the odds are stacked against it.  

MBS’ vision of an economy of innovative, educated Saudis and the dynastic rule of the al-Saud family are a complete mismatch. MBS has shown not the slightest inkling of ceding any royal prerogatives -- least of all his own -- of absolute rule. Indeed, tolerance of dissent has diminished, as evidenced by the arrest of female activists and the threat of imposing the death sentence on one.

Better be grateful

Yes, MBS is letting women drive for the first time and has made some other gentle social reforms. But the modus operandi is that of the ruler bestowing gifts on his people, who'd better be grateful, rather than a process where Saudi society decides through an open process of debate.

MBS’ other problem is that Saudi Arabia doesn’t have the human capital to pull off an economic revolution. 

The angry reaction to Canada’s mild critique of the kingdom’s human rights record, detaining the Lebanese prime minister for two weeks, the campaign against Qatar and the nasty war in Yemen and the roundup of businessmen last year on corruption charges tells foreign and Saudi investors that little has really changed in the kingdom. They can’t assume there is any rule of law and that their capital is safe.

The World Economic Forum’s Human Capital Report ranks Saudi Arabia 87th in the world, a notch behind Egypt, which isn’t exactly Silicon Nile Valley. It’s not that the kingdom wants for money to educate its population, but Saudis have gotten too used to the idea that real work is performed by expatriates. The idea that they will be leading and founding innovative, transformative business is hard to imagine.

Despite some tentative moves to encourage free enterprise, like the kingdom’s first-ever bankruptcy law, Saudi Arabia remains a lousy place to do business and a hopeless one when it comes to high-tech and innovation.

All the money and all the marketing has created a global cheerleading squad of bankers, consultants, economists, analysts and even journalists who sell the MBS reform story. But the country is suffering capital flight and expats are leaving. The people in Saudi Arabia, its subjects and its giant expat workforce, know better.