In
the Faisaliya mall in central Riyadh, the call to midday prayers brings
down the shutters on shops selling luxurious global brands and the
basement mosque fills up. Customers are routinely searched at the
entrance – a woman guard in a niqab, black abaya and white gloves sits
by the metal detector. Cafes and restaurants have mixed “family
sections” to ensure privacy. Harvey Nichols is having a holiday sale.
Business seems slow, though visitors look in vain for any serious
sign of Saudi Arabia’s gathering economic crisis, born of the lowest oil
revenues in decades and subsidy cuts to reduce a $98bn budget deficit –
15% of the country’s GDP. The price of petrol has just gone up by 60%,
though it is still dirt cheap, and VAT and other taxes are planned –
significant novelties in a country where most people have not known such
things in their lifetimes.
“There isn’t much economic pressure here because we deal with rich
people,” laughs Tamer, an affable Egyptian who lost his clerical job
with a Saudi construction company and now sells timeshares in Dubai.
Beyond the Faisaliyah’s marbled halls, however, many government projects
have stopped, expenditure has been slashed and rents have risen
sharply. The housing shortage is a major preoccupation.
Women shop for jewellery in a Riyadh mall. Photograph: Fayez Nureldine/AFP/Getty Images
Khaled, a taxi driver touting for custom at Riyadh’s international
airport, manages to keep his family comfortable with the help of an army
pension, but he worries what will happen when all subsidies end in five
years. Mohammed, a fifty-something from Medina who has 10 children,
moonlights on top of his undemanding government job, and his wife also
works in an effort make ends meet. “Look,” he says. “There’s a war in
Yemen. Of course it causes economic problems, but it’s not so bad.”
For some, however, it is. Just a few miles from the city centre, near
walled royal estates, mothers and children huddle outside over
makeshift fires to save electricity and take the chill off a winter’s
evening. Poor Saudis, badly educated and ill-equipped to compete with
foreign workers, are not a contradiction in terms. An estimated 2 to 4
million of King Salman’s 21 million subjects live beneath the poverty
line – a challenge to every cliché about the oil-rich kingdom, and to
prospects for future reform.
Salman’s first year on the throne saw oil prices drop to below $35 a
barrel, and even if they recover longterm, demand is shifting. The
growing scale of shale oil production in the US is a major factor.
Iran’s re-entry into the market after the lifting of sanctions related
to its suspected nuclear weapons programme will also boost an existing supply glut.
Mohammed is right. The conflict in Yemen is reportedly costing $6bn a
month and shows no sign of ending any time soon. By any reasonable
assessment, leaner times lie ahead.
“It was OK when you could throw money at a problem,” muses Hisham
Alhegelan, the CEO of a solar energy company. “But when you have to
start counting the pennies, the pennies matter.” Austerity, Saudi-style,
means the wealthy are talking about emptying their swimming pools,
swapping gas-guzzling SUVs for something greener and even turning off
the air conditioning when they travel abroad.
Change is being driven by the king’s ambitious and powerful son, the
deputy crown prince and defence minister, Mohammed bin Salman. The idea
is to raise non-oil revenue without hindering competitiveness and
causing unrest. “Everyone used to say subsidies were a political taboo
and that if you increased the price of water, gasoline and electricity
there would be revolution,” says John Sfakianakis, a Greek economist who
has advised the Saudi government. “Well, people are not out in the
streets, but that doesn’t mean the government will be complacent and
forget about the average citizen.”
After years of over-spending, the 2016 budget bears the stamp of Bin
Salman’s quest for innovation. There is also rare transparency,
including the revelation that military and security expenditure makes up
25% of the total. Talk is rife of improved governance and the use of
key performance indicators to monitor a multi-year strategy of the kind
employed by Dubai and Abu Dhabi. Ministers have come and gone with
unusual speed, generating wry jokes about brisker management style.
News that even the state oil behemoth Saudi Aramco may
be sold off has underlined the scale of an effort that will include an
increase in the private provision of healthcare and education. The word khaskhasa,
Arabic for privatisation, is being bandied around. Vast tracts of land
could be up for grabs, along with lucrative untapped mineral resources.
Tackling corruption and job creation are also being highlighted.
None of these ideas are new. Subsidy reform has been discussed for
years and VAT came up in 2012, but Salman’s predecessor, King Abdullah,
then still raking in healthy oil revenues, vetoed it. Now a sales tax is
on the way, by agreement with the other five members of the Gulf
Cooperation Council. So are “sin” taxes on fizzy drinks, which may help
to tackle the country’s obesity problem. Further subsidy cuts seem
certain. Key details are expected with the publication of a heavily
flagged “national transformation plan”, drawn up with the help of McKinsey and other blue-chip consultants.
“With some tweaking they can do a lot to raise revenue from non-oil
sources and use it to invest and pay salaries,” says Sfakianasis. “They
can’t let themselves believe that one day oil prices will rise again and
the Saudi economy will recuperate. They don’t want to let luck or Allah
decide their future.”
Saudis recognise the universal truth that economic reform will have
political consequences. “People will expect something in return,” says
the historian Mohammed Al Zulfa, a veteran of the appointed Majlis al-Shura
or consultative council. “The government takes all the oil revenue, and
there is huge government expenditure. But if Aramco does go to the
private sector and you introduce taxes, people will ask ‘what’s in it
for me?’
“If the king says the Majlis al-Shura has the authority to
question ministers or check the budget, then maybe things will be
different. But unfortunately our society is not ready for that. Saudi
education does not promote the right to participate. We need more time.”
The view that change needs to be slow and cautious appears to be
widely shared. “No one talks about income tax so the
representation-taxation equation is inapplicable in the Saudi case,”
argues Saud al-Tamamy, a political scientist at King Saud University.
“And the word representation has a different meaning here.”
If there is to be greater public participation in decision-making it
is likely to be incremental, agrees Haifa al-Hababi, a Riyadh architect
who stood in the recent municipal elections – the first time Saudi
women were allowed to vote. Failure to win a seat has not deterred her,
and she is already demanding more accountability from her local council.
“In Saudi Arabia
and the Gulf we are selfish,” she said. “It’s all about what people get
from the government. We treat the government as a father who must look
after us. Prince Mohammed is doing what Thatcher did in Britain. That is
a part of the solution, though it is not just an economic problem but a
political one too.”
Saudi dissidents, some of them Muslim Brotherhood sympathisers who
call for constitutional monarchy, are behind bars, intimidated into
silence or in exile, so it is hard to gauge the level of support for
far-reaching change. Democracy is not discussed on the street, and the
elite appear to have no interest in it.
The maximum that seems likely is “the habit-forming effect” of
limited political participation rather than any “grand departures”, in
the words of one academic expert. “Why would you want representation if
you have a good standard of living and the government is responsive?”
asks Alhegelan. “If we were a democracy I don’t think I’d live here
because it would be dominated by fundamentalists. Look around the
countries that were autocracies and tried to be democracies and are now
in ruins. That was the Arab spring. And this is Saudi Arabia.”
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Shoppers at the al-Hayatt mall in Riyadh. Photograph: Fahad Shadeed/Reuters
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