On the face of it, nothing much in Saudi Arabia has changed as a result of the sweeping crackdown on royals and businessmen accused of corruption last weekend.
Saudi officials insist that the biggest economic transformation of the country’s economy since the discovery of oil in the 1930s – the Vision 2030 Strategy of Crown Prince Mohammed bin Salman – is still on track. So too are plans for the biggest initial public offering in history – that of Saudi Aramco, potentially valued at $2tn . They also reiterate that a $200bn privatisation programme is going ahead as planned.
ProfileWho is Prince Mohammed bin Salman?
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Background
Prince Mohammed, 32, is the Saudi crown prince and defence minister. He was named as heir to the throne in a June reshuffle by his father, King Salman, that sidelined his older cousin, Prince Mohammed bin Nayef.
Ascent
Prince Mohammed’s profile and powers have soared in recent years under the tutelage of his father, who has given him an almost free hand across most aspects of society. He has consolidated more influence than anyone else in the kingdom, spearheading plans for the privatisation of the state oil company, Aramco, taking charge of the war in Yemen, and leading the way in the move to blockade and isolate Qatar.
Reforms and purge
Since his appointment as crown prince, Prince Mohammed has launched a dizzying series of reforms dubbed Vision 2030, designed to transform the kingdom’s moribund economy and put the relationship between the state and its citizens on a new footing, underpinned by a pledge to “return Saudi Arabia to moderate Islam". On 4 November he led an astonishing corruption purge in which 11 senior princes, one of the country’s richest men and scores of former ministers were arrested. Critics say the purge and his headlong rush to revolutionise is driven by a push for unprecedented power.
But scratch the surface, and it soon becomes apparent that everything has changed for the kingdom’s business and economic elite, some of whom opposed the reform plans.
Not only are many of them confined in the five-star luxury of the Riyadh Ritz Carlton hotel, but bank accounts worth billions of dollars – $800bn by some estimates – have been frozen and “normal” business suspended for the accused movers and shakers, many of them members of the ruling Al Saud family.
Jim Krane, fellow in energy studies at Rice University’s Baker Institute in Houston, Texas, said: “Until a few days ago, Saudi [Arabia] was essentially a one-party state. The vast Al Saud family was deeply and broadly institutionalised, with members holding numerous levers of power. Now we’re seeing a a power-shift towards a narrow subset of the royal family.”
Business people never like uncertainty, and it is this sense of increased volatility within the kingdom’s ruling family that has, along with heightened tensions between Saudi Arabia and Iran, spooked markets and investors.
The Tadawul, the main Riyadh stock market, has been volatile all week, though it ended virtually unchanged, with some suggestion of an orchestrated campaign of buying by Saudi institutions.
Bond prices – a more accurate gauge of international investor sentiment – fell marginally, while the oil price, which remains the most important indicator for the energy dependent country, jumped to the highest levels since summer 2015, although that was probably caused as much by a possible threat to oil supplies from the Gulf because of increased Saudi-Iranian hostility, analysts said.
Within Saudi Arabia, the official line is that the crown prince is an energetic reformer who is fighting against decades of entrenched corruption, who has taken radical action to stop the illegal haemorrhaging of Saudi capital, and that up to 1tn riyals (£200bn) could be reclaimed from criminally corrupt enterprises.
“The crown prince has just performed some painful but necessary surgery on the country’s economy. This is the new Saudi Arabia. One where graft and backdoor deals are a thing of the past,” an official said.
But there is a degree of political risk associated with an event as seismic as the Saudi anti-corruption drive. Jason Tuvey, Middle East analyst at London-based consultancy Capital Economics, said: “The big risk here is a backlash against [Mohammed bin Salman] that undermines his authority and threatens Vision 2030.”
That is echoed by business people in the kingdom. One Saudi banker, who asked to remain anonymous because of the sensitivity of the matter, and who is also advising on some aspects of the privatisation programme, said: “There are two big questions in my mind that will determine how all this plays out. First, has he [Mohammed bin Salman] rounded up all the dissidents in the anti-corruption sweep, or is there anybody out there at large who could lead an opposition movement to him and his plans?
“Second, what does he do with the businessmen and royals he has locked up? Will he put them on trial, and, assuming they will be found guilty, will they be imprisoned, sent into exile or worse? There are risks in any approach.”
Other experts said that the exercise of due process of law was an important factor. Ellen Wald, energy expert, author of forthcoming book “Saudi Inc” and non-resident scholar at the Washington-based Arabia Foundation, said: “As regards the impact on Vision 2030, it really depends on how global investors react. If they can be assured that rule of law and stability are predominant in Saudi Arabia, they they will happily participate [in the privatisation plan].”
Will it affect the planned IPO of Saudi Aramco, already thrown into some uncertainty by the suggestion that the company is looking to Chinese investors for a private sale of shares?
Majid al-Qasabi, minister of commerce and investment, said: “All elements of Vision 2030 and plans for modernisation and diversification of the Saudi economy remain unchanged. Eliminating corruption also means greater transparency and greater security for investors.”
The events of the last week do not look likely to derail the Aramco IPO. “The IPO is more than just cash for Saudi Arabia, after all, it would only raise at most $100bn. The IPO is also about allowing Saudi citizens to buy into the national treasure,” Wald said.
