Saudi Arabia’s Strains

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[If you do much reading about Saudi Arabia this stuff is well known, otherwise it provides a good primer to some of the social issues that make it such a fractious community. If you'd like more, try John R. Bradley (2005) Saudi Arabia: Inside a Kingdom in Crisis, or Craig Unger's (2004) classic House of Bush, House of Saud. *RON*]

Dana El Baltaji & Glen Carey, Bloomberg, Updated June 21, 2017

For Saudis, economic life is changing. Daily life? That's shifting, too, but more slowly. Saudi Arabia remains the only country that bans women from driving. Also outlawed: movie theaters and Valentine’s Day. Religious police still patrol the streets. There are signs of change, including the first comic-book festival and a government agency offering more entertainment in the kingdom. For the most part, though, the country’s 21 million citizens are religiously conservative Muslims, and many are suspicious of outside cultures. At the same time, the biggest economy in the Middle East needs to urgently reduce its reliance on oil, which provides three-quarters of government revenue. That means fitting in better with the modern world and tampering with the cash-for-loyalty contract that Saudi kings have had with their people for decades. As part of an ambitious plan for an economic shakeup, Saudi Arabia intends to sell shares in its massive state-run oil company. Economic realities are forcing change. The question is how much.

The Situation

Crown Prince Mohammed bin Salman, who was promoted to next-in-line to the throne in June, is spearheading a campaign to diversify the country's economy away from oil. Lower oil prices and continued spending on major projects, subsidies and public-sector wages ballooned the budget deficit to more than 15 percent of gross domestic product as the kingdom burned through currency reserves at a record pace. At the same time, the country is footing the bill for taking a bigger political role in the region, funding rebels in Syria’s civil war and leading airstrikes against insurgents in Yemen. The government is cutting subsidies for citizens on basics like electricity while trying to increase tax revenue and create jobs. In September 2016, it canceled bonuses for state employees that had long been taken for granted, then reinstated the perks seven months later after complaints in public forums and on social media. As part of a goal to earn more from investment income than oil within 20 years, the country intends to sell shares in the parent of oil giant Saudi Aramco and create one of the world's largest sovereign wealth funds. The initial public offering — potentially the world's biggest — is part of a drive to double the size of the $400 billion stock market. Another goal is to make the citizenry more productive. Youth unemployment is about 30 percent, and expatriates fill half the country's jobs. The government wants to phase out foreign workers in some roles. Even women have been encouraged to work outside the home, despite traditional disapproval of face-to-face contact with men.

The Background

The kingdom was founded in 1932 and became the biggest oil exporter by the 1970s, with the Al Saud family ruling under a compact with Wahhabi clerics who maintain control over social and religious laws. When the Arab Spring began to stir democracy movements in the Middle East in 2011, the government unleashed a $130 billion spending drive to head off potential unrest and create jobs for the post-hydrocarbon age by investing in education and health care. The throne of Saudi Arabia, one of the world’s last remaining absolute monarchies, passed to King Salman in 2015 after the death of his half-brother King Abdullah. Salman has set up a new generation of princes to take charge. His son, 31-year-old Prince Mohammed, amassed unprecedented power soon after his father became king and went on to replace his cousin as heir to the throne.

The Argument

With the world’s biggest petroleum fields and more than $500 billion in foreign reserves, Saudi Arabia can continue to rely on its oil money for some time. The question is whether it can restructure the economy before the clock runs out. While the tradition-bound country is becoming less isolated, its puritanical religious life will create a challenge to reforms. A decade-long push to force the "Saudization" of the workforce has had limited success so far because Saudis lack technical skills and many continue to view occupations such as barber, butcher or painter as beneath them. But with almost half of Saudis under the age of 25 and the size of the workforce expected to double by 2030, Saudi Arabia can no longer afford its unproductive population. At the same time, if more Saudis earn their own living and are asked to pay taxes, they could begin to demand a greater say in how their country is run. That could require the Saudi royals to develop a new kind of plan altogether.
The Reference Shelf

To contact the writers of this QuickTake:
Dana El Baltaji in Dubai at
Glen Carey in Riyadh at

To contact the editor responsible for this QuickTake:
Leah Harrison at


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