Saudi Arabia is losing what’s left of its credibility

The Saudis’ decision to suspend indefinitely the sensationally announced sale of 5% of the national oil company, Aramco, has called the credibility of the Prince, Mohammed bin Salman, directly into question. The offering of this giant on the stock market was in fact the cornerstone of the Prince’s politics, hoping to diversify his Kingdom’s economy using the 100 billion dollars that were meant to be the fruit of this IPO, even if earnest and credible analysts had instead guarded this optimism by banking on income bordering on 75 or even 50 billion… Aramco’s major international stock market offering was supposed to end the opacity of this Kingdom, and this IPO an opening-up and a welcome path to a culture of transparency which has absolutely not been the regime’s prerogative. Actually, this sum levied on the financial markets could have relieved the country’s roughly 13% current unemployment rate, and at the same time bought some time for a Kingdom sitting on a ticking time bomb of lack of social progress.

But actually, the indefinite postponement of this IPO is calling into existential question the management of the whole process by the MBS team. It is even calling into question its mould – that being the renowned “Vision 2030” – that has come out of it terribly compromised and that now just looks like a bad communication plan meant to propel the popularity of a Prince as ambitious as he is shady. Hadn’t Vision 2030 and its spearhead – Aramco’s stock market offering – propelled MBS to the front of the international stage and sharpened the appetites of global investors? The corollary: don’t the uncertainty and muddle around the Aramco IPO implicitly show the impulsiveness, indeed the incompetence, of the country’s top leaders … who appear to be effective only when it comes to cooping opponents up in luxury hotels ?!

Once called a visionary, the Prince is now seen simply as a political calculator after his attempt to neutralise the vigilance of global investors via this stock market offering that was meant to give the Kingdom an unprecedented level of transparency. In the end, the economic consequences will be severe for this country that has indeed been bleeding capital for years. Confidence there has in fact eroded so much that, according to JP Morgan, 65 billion dollars will leave the Kingdom in 2018, which is 8.4% of its GDP, after the 80 billion already lost in 2017. This blood loss triggered by the Saudi public itself will contribute immensely to the worsening of the economic climate, since it is effectively no less than 14 billion dollars in the first quarter of 2018 that have been invested by Saudi Arabia in global stock markets, according to Standard Chartered.

The situation seems inextricable for this Kingdom where currency control doesn’t formally exist. The strategy employed by the authorities for the last few months has been to contact – even making “courtesy visits” to – every person and institution wishing to make substantial transfers abroad in order to discover their motives, and if possible to dissuade them from doing so. This mass exodus of capital is even more problematic since it comes at a time when oil tariffs are making a spectacular comeback, though in reality there hasn’t been any impact on the Saudi balance of payments, which is still in deficit. The Saudi authorities are not managing, it is true, to depart from their traditional policy of gargantuan public spending in order to offset weak growth and non-existent private investment.

It’s always the same story stuck on a loop in this country: its deficit spending covers for anecdotal levels of productivity and tries to revive a bloodless labour market that is all the more moribund since the nationals feel entitled to be paid handsomely when foreign workers are leaving the country in increasing numbers. In summary, the Saudi economy can no longer depend only on the government and its ability to pay off its debts, just like its economic cycles must no longer fluctuate at the sole discretion of oil income. The muddled and unimaginative public powers must therefore give way to private initiatives that will, however, be encouraged only by well-prepared economic reforms and not by grand gestures like Vision 2030 and Aramco, which most of the time are underpinned by ulterior political motives.