The recently published economic reform plan for Saudi Arabia, Vision 2030, is completely unrealistic, writes ex-Shell geoscientist Jilles van den Beukel.  He argues that it should be seen in the light of Mohammed bin Salman’s grab for power. The deputy crown prince, the King’s favourite and de facto ruler of the country, has a limited time span to solidify his power base, given the frail health of his father. Van den Beukel argues that only realistic, gradual reforms can save Saudi Arabia.
Saudi Arabia plays a pivotal role in the world of energy. Over 10% of global oil production originates from Saudi Arabia and it possesses a much larger share of global oil reserves. Its spare capacity implies that it can (but not necessarily will) act as a short term swing producer. Its oil policy has a key influence on the oil price – as was demonstrated once more in 2014 when it decided to defend market share rather than price.
It is a country unlike any other. Absolute power resides with the Al Saud royal family that has by now grown to include thousands of princes. The country’s name is derived from the family name – not the other way around. Oil is virtually its sole source of income in spite of decades of official policy to diversify. (Crude oil exports delivered 73% of government revenue last year – and that excludes all the indirect oil revenue in the remaining 27%.)
Saudis have got used to handouts, whether it is the form of easy government jobs or subsidies
For its security it relies on two pillars: oil money buying internal and external support as well as the Wahhabi religious establishment, legitimising the Al Saud regime. Both these pillars are under threat. No one knows how long the global energy transition will take but it has become increasingly clear that relying solely on oil money is unsustainable. The measures enforced by the religious establishment (e.g., women not allowed to drive) are becoming an increasingly heavy price to pay for their support.
The issues are overwhelming and threaten to destabilize the country in the long term
Culturally, Saudis are not being asked to be competent or successful. They are asked to comply; to their family, tribe, religion, the Al Saud regime, and to their husbands or father/brothers (if they have the bad fortune to be female). An excellent overview of Saudi society can be found in a recent book by Paul Aarts and Carolien Roelants: Saudi Arabia: a kingdom in peril.
Saudis have got used to handouts, whether it is the form of easy government jobs or subsidies. A large public sector has a workforce that is about 90% Saudi. Its inefficiency is legendary. A much smaller private sector (with a workforce that is about 10% Saudi) offers much lower wages, has a better record regarding efficiency, but is very much reliant on government contracts.
Empires tend to fall due to the rot from within. The most dangerous moment will be when reforms are being implemented, after a long period of stagnation and oppression
A fundamentalist religious force has traditionally been in charge of education. Not only does it do a poor job in preparing students for the labour market but it also instils a deep distrust in the outside world.
A religious division exists between the Sunni majority and the Shiites (about 15% of the population, living primarily in the oil-rich eastern part of the country). The government deeply distrusts the Shiites and treats them as second class citizens. Many government jobs are out of reach for them.
Geopolitically, the country is becoming increasingly isolated. Upon the death of king Abdullah caution has been thrown to the wind. The country now has difficulty disengaging itself from an ill-fated military intervention in Yemen. It sees its influence in the Arab world diminishing whilst its main competitor (Iran) is increasing its influence now that it is coming out of a prolonged period of isolation.
The special relationship with the US has been eroded. The US is gradually moving towards energy independence and is increasingly reluctant to back a fundamentalist regime. They will not forget that most of the 9/11 hijackers were Saudi and are only too well aware of Saudi efforts to export Wahhabism. “It’s complicated” was Obama’s answer to the Australian prime minister asking: “aren’t the Saudis your friends”? The Saudi government has been taken aback by the Iran nuclear agreement, the Obama administration’s lack of support for their long time ally Egypt and their limited support for regime change in Syria. They feel the US lacks an in-depth understanding of the Middle East and does not appreciate the magnitude of the threat of the Shiites and Iran to Saudi Arabia.
Economically, the country is not competitive in any industry, except for oil or industries (petrochemicals, metal processing) that benefit from cheap oil and power.
How realistic is to expect tourists to come to a country where alcohol is prohibited? Do they really expect a population that has lived in a rentier state for decades to change their behaviour overnight?
In this rentier state, handouts buy passivity rather than loyalty or gratitude. In the long run, the size of the pie is getting smaller whilst the population grows. It is estimated that 25% of the population is living in poverty. The middle class is struggling. House prices are high and rising. Saudi graduates, unless they have good connections, are either unemployed or employed in meaningless, not very well paid government jobs. They live in a prison – but one that has internet access. A struggling middle class and mass youth unemployment rather than jet setting superrich princes is increasingly becoming the image of Saudi Arabia.
It is the lack of coherence within the country that should be the most worrying to the Saudi rulers and most threatening to the status quo. Empires tend to fall due to the rot from within. The most dangerous moment will be when reforms are being implemented, after a long period of stagnation and oppression.
Vision 2030 does not stand a chance
Vision 2030 is the latest bold initiative from deputy crown prince Mohammed bin Salman (universally known as MbS). The combination of sweeping aspirations and the complete lack of discussion on how these aspirations are to be met is mind boggling. No consideration whatsoever is given on the reasons why earlier initiatives for economic reform and to diversify from oil have failed.
Among the aspirations are:
- To close the gap between education and the requirements of the job market
- To lower the rate of unemployment to 7% by 2030
- To establish a thriving manufacturing industry, including a defense industry that can be responsible for over 50% of military equipment spending by 2030
- To create a tourism and leisure industry of the highest international standards
- Subsidies for fuel, power and water to be eliminated
The entire document is based on a December 2015 McKinsey report: Saudi Arabia – Beyond oil. A study that looks at Saudi Arabia from an economic angle without consideration for the cultural and religious constraints. A study that looks at the country in the way that McKinsey looks at a western company that has issues with its business model.
How realistic is it to expect that a complex military industry can be built up in a little over 10 years? How realistic is to expect tourists to come to a country where alcohol is prohibited? Do they really expect a population that has lived in a rentier state for decades to change their behaviour overnight?
The McKinsey consultants should know that such a plan cannot work and should do more to justify their royal fees
At least they have given some thought on how to fund these new industries: by selling a part of Saudi Aramco, probably the only Saudi enterprise that does perform to a level that is anywhere near to western standards. Have they really thought through the detailed disclosures required for such a listing? The listing of the company will be a feast for consultants and banks but is it really in the interest of the country?
Surely the fundamental issues need to be addressed. But not by such an unrealistic plan that is heavy on aspirations and light on ways to achieve them.
This country has been singularly uncompetitive in any non-oil related industry. It needs to be changed with a stepwise approach, starting with a realistic assessment of what is possible in the current situation rather than a grand vision of the future. Allowing women to drive, greatly helping their participation in the economy, would be much more beneficial than all these grand plans.
Perhaps a prince with a bachelor degree in law at King Saud University can be forgiven for thinking that he can change a country in the way that he can implement change in his royal household: by ordering it. But the McKinsey consultants should know that such a plan cannot work and should do more to justify their royal fees.
MbS’s grab for power may destabilize the country in the short term
MbS’s position as deputy crown prince is solely based on his being the favourite son of the king. His father is over 80, in poor health and reported to be in the early stages of dementia. MbS has a short window of opportunity to solidify his power base. He reaches out, over existing power structures, to a young population in a bid to become too popular to be deposed.
Since he became deputy crown prince in April 2015 he is seen as the de facto ruler of the country. He is now minister of defence and chairman of the council for Economic and Development Affairs. But most importantly he is chief of the royal court, controlling all access to the king.
He has initiated a number of bold initiatives:
- the war in neighbouring Yemen, which has now become a stalemate. Whilst intense aerial bombardments have destroyed the country’s infrastructure and have brought misery to its population, a conclusion to the conflict is not anywhere near
- the increased oppression of the Shiite minority, culminating in the execution of 47 Shiites, including one of their religious leaders (sheikh Nimr al-Nimr). What purpose does this serve apart from placating Wahhabi fundamentalists?
- the Vision 2030 plan for economic reform and the planned partial sale of Saudi Aramco
Externally he has put the country on a collision course with its main regional rival Iran. Internally he has put himself on a collision course with established Saudi power structures such as the ministry of the interior and its security services (run by crown prince Mohammed bin Nayed, generally referred to as MbN).
Libya style chaos with Wahhabi fundamentalists, Shiites, a secular opposition and remnants of the Al Saud regime all fighting each other is still unlikely but it is a more realistic vision than the Vision 2030 mirage
MbN is currently keeping a low profile and biding his time. Other parts of the royal family are reported to be deeply unhappy about the current developments.
Whereas fundamentals may destabilise the country in the long term (and this may be unavoidable), MbS’s grab for power and associated rash policies may destabilise it in the short term (and this is avoidable).
Saudi Arabia deserves better than Vision 2030. The fundamental issues need to be addressed – in a realistic way with achievable targets. Reducing the current dependency on oil and emulating Dubai will take decades, not years.
Libya style chaos with Wahhabi fundamentalists, Shiites, a secular opposition and remnants of the Al Saud regime all fighting each other is still unlikely but it is a more realistic vision than the Vision 2030 mirage.
Editor’s Note
Jilles van den Beukel worked as geologist, geophysicist and project manager and lastly as a Principal Geoscientist for Shell in many parts of the world. See his Author’s Archive.
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Cyril Widdershoven says
The need for an assessment of Prince Mohamed Bin Salman’s 2030 vision is needed. The challenges that he, and the group supporting his current drive to change Saudi Arabia, are vast but can be definitely addressed and are not out of reach. The above mentioned analysis has several enormous flaws, largely due to some unexpected but clear lack of knowledge of the ongoing challenges of Saudi Arabia, the willingnesss of some parts of the ruling elite, and the ongoing economic changes taking part due to low oil prices and possible budget constraints. Taking the views of Paul Aarts, Carolien Roelants, as the leading analysis of Saudi’s current situation is astonishing. Better to do a new research of ongoing issues in Saudi, without leaning too much on the socalled Fundamentalist Wahhabi drive in most of the ongoing issues.
Saudi Deputy Crown Prince Mohamed Bin Salman will be able to succeed if he continues to put in place managers and ministers which are able to change the Kingdom’s economy to Western standards. The new Minister of Energy Al Falih is one of the persons able to perform such tasks. The negative remarks about Saudi Aramco’s overall standards and capabilities are also remarkable. Shell’s history and technological capabilities, lets say in Production Optimisation/Intelligent Oilfield, are already being dwarfed by Aramco. The technical standards of SABIC, just another small petrochemical group (1st in world), are also leading in the sector. MBS has understood this to the fullest. Performance management is needed, taking some ideas from McKinsey (also in place with groups in Shell etc!), is not bad, but needs to be tweeked to Saudi political and economical issues. MBS is fully aware of this, taking the chance of making enemies at home. However, the low oil prices have given him a strong hand to deal with all. The 2030 Strategy is well placed, with its own flaws ofcourse. But better to have a Grand Strategy with issues, than to have no Strategy (Western Leaders) or an energy strategy which is disfunctional (Large UK-NL IOC). If needed, a new assessment can be made!
Jilles van den Beukel says
Cyril, I am a bit puzzled by the “The negative remarks about Saudi Aramco’s overall standards and capabilities are also remarkable”. The only remark I am making in this paper is “probably the only Saudi enterprise that does perform to a level that is anywhere near to western standards”.
For good measure: I do not have a negative view on Saudi Aramco’s technical capabilities at all. My impression is that Saudi Aramco’s capabilities are overall on par with those of western IOC’s. Many people in Saudi Aramco have worked for IOC’s (and vice versa). In a previous paper for Energy Post on IOC’s I stated that one of the issues that IOC’s are having is that they have lost their technical edge to companies like Petrobras and Saudi Aramco.
rogerthat says
Of all the many challenges that Saudi Arabia has, not one of them of them can be met, or overmatched by the application of the knowledges and skills that are to be found in the graduate schools of economics, policy, or finance, of the major American or European democracies. No MBA can devise a strategy that undertakes for Saudi Arabia, which which would be the equivalent of Christianity’s, Protestant Reformation; coupled with an age of enlightenment, both simultaneously.
Where does the Crown Prince want to take his country? Does he even know? The evidence says no, he does not. He is a rentier ruler of a rentier people, living in a rentier culture; where real work is something that is done by foreigners; most of whom are servants, and not observant in the Muslim faith. What is to motivate these Saudis’ to become, what is as a present fact, unbelievers; who are, socially beneath them? Especially while all the time the oil spigot is running (mostly wide open), and can more than meet domestic rentier consumption’s needs. And where the only things that have to be jettisoned, are the expeditionary expenditures in foreign wars; and, the destabilizing crusades in terrorism, global hate mongering proselyting, and anti-Shia activism.
Karel Beckman says
Cyril, what I find astonishing is your seemingly naive belief in the promises of Saudi leaders.
You don’t explain why we shouldn’t take Paul Aarts seriously, or why we should disregard the Saudi religious establishment.
You don’t even read very carefully, because the author singles out Saudi Aramco as the one company that does operate to western standards. But that doesn’t exactly make an IPO a simple matter.
When I visited Saudi Arabia in 2006, I was treated to the same kind of Visions that the current crown prince is presenting. Great vibrant cities on the Red Sea coast. All a fata morgana of course. The reality of Saudi Arabia is a grossly repressive, corrupt state with huge inequalities, massive social problems, ruthless leaders, in the grip of radical fundamentalist religious leaders. No Vision 2030 will change that. It’s not about any Grand Strategy, it’s about power and money.
stephen says
Sometimes you need a bold vision to achieve something closer to it. A modest slight change in their future economy would achieve less than that. Appealing to the youth is a way of bypassing what the CP (crown prince, ed.) already knows- its too late to change the older age group as they never had to deal with the real competition. Iran is also constrained by religious interference in industry and only now will Iran see what full competition might inflict on an economy warped by sanctions and constrained by no oil windfall with exports.
The good news is that low oil prices and the US oil independence means the CP has the means to cut subsidies further which makes it easier for managers to instigate efficiency reforms to make up for higher utility costs, allows him room to steadily cut family/state subsidy handouts and push the poor performers out to retirement jobs. Saudi Arabia has plenty potential in terms of Religious tourism (Chaotic Rome/Italy does well out of this), Solar energy to cut internal energy use and offer excess power to nearby favourable states ,a Red sea shoreline where it could allow controlled western tourism and compete with Egypt on the Red Sea, without many of the same issues (this worked to some extent in closed Cuba). Cutting raw crude exports and encouraging more higher value material production is still an unrealised resource. Even if the youth does not have the get the same education levels as the west, this youth resource does have an education to some university standard.
While I am sure the CP would love to offer much greater freedoms to the female population, youth male unemployment is still way too high and this pop is more likely to threaten political instability and be a resource for religious conflict if jobs are not found for this workforce first. Culturally this works also. Once jobs are found and there are less males available for other jobs then its alot easier to free the constraints on female workforce participation.
I do not envy the CP- constrained by religious interference, spoilt by free money from oil, aware that global warming will soon impede oils ability to feed our energy demand, surrounded by either states at war/microstates who feed of oil wealth and stuck with a older population who are just barely realising that oil money will not always come to the rescue.
The alternative is a failed state with oil assets at war-proxy war (see Iraq/Iran/Russia), youth revolt and a military that could step in but with no experience of running a country and a workforce dependence on non Saudi workers who would flee if the state started to fail. The goal should not be the failed Russian model but ideally Norway or Australia – asset rich but not dependent.
Jilles van den Beukel says
Yes, one needs a bold vision to get things going. The problem that I am seeiing is that it takes more than a bold vision; it takes a population whose heart is in it.
Perhaps that resort on the Red Sea is possible. With controlled acces I could even envisage that they will serve me a beer. But what I cannot envisage is that that beer will be served to me by a Saudi. Or that the concrete for that resort will be poured by a Saudi, sweating.
I feel that in the western world the context in which we look at Vision 2030 is that of our own struggle of a global transition away from fossil fuels. And here comes an Elon Musk Arab style, leading his people away from oil…
I feel that Vision 2030 should be looked at in the Saudi context. An internal power struggle in the royal family with MbS trying to solidify his power base, making sure he is too popular with a young population to be deposed. An urgent need to adress high youth unemployment.
With respect to oil, those in charge of Saudi Aramco and the energy related ministries are expecting to produce it – a lot of it – for a long time (whatever Vision2030 says). Their current policy to reign in high cost production in the western world reflects a belief in the long term future of oil. Accept about 3 years of painfull low oil prices and with resulting reduced supply in the coming years aim for another 10 years of reasonably high prices (unfortunately not as high as it could have been without US shale oil).
Jamie Joyce says
I am pretty staggered at the reckless judgments forwarded in this piece. Bin Salmon does not really need to “solidify” his power, he is the heir apparent. This article is super western centric. The Saudi 2030 vision is remarkable and would be a wonderful thing for the middle east and the whole world if it were achievable. Why not applaud the Saudis for this vision? The Arabic world is certainly and absolutely fraught with difficulty, but if even a portion of the 2030 vision is achievable it could mean absolutely profound change for a profound region and find leadership emerging from the chaos that is the middle east. In the words of Obama, “Yes we can”, and I do not find this comparison inappropriate. The author is engaging in some reckless egoism in writing these sweeping judgements on a foreign culture – despite spending years in a geophysical capacity in Shell he can surely not be politically aware enough to engage in this commentary in such a judgemental way.
Jamie Joyce says
And furthermore, Aramco is absolutely a leading force to be reckoned with in energy R&D. If there is something to be achieved here, they may well achieve it. And we are not taking into account here the Saudi youth population, and the Saudi female population. Under the radar Saudi Arabia has been sending its young people (including women) out to absorb global knowledge, I cannot help but believe that Bin Salmon’s vision does include participation of women who have been supported in their international fellowship programs. There is leadership and a young educated population at play here and I see the instruments of some pretty remarkable potential for change.
Karel Beckman says
Jamie, if there is anybody who is “western centric”, it is you. If you swallow this kind of propaganda, and the blather about Saudi youths absorbing the cultures of the world, it means you know very little about that society. Ever heard of Raif Badawi? Under the leadership of your enlightened “Bin Salmon” [sic] he was sentenced to ten years in prison and 1000 lashes for the crime of advocating “liberalism”. Maybe you should go and attend a public execution sometime in Riyadh. This is a regime that tortures and beats prisoners, wages war, kills and oppresses minorities, and exports/finances the most radical version of Islamist fundamentalism on the planet. Maybe someone should ask “Bin Salmon” what he wants to do about this and see what he has to say.
Gigi says
i’ve seen your comment/reply above and the hate you have toward us (Saudi’s). i’m not going to debate your political, social, economical view.
You provide no value to the discussion by bashing others and spreading hate mate. Your point is and i’m quoting you “No Vision 2030 will change that”.
WHY ?
you hated the saudi you saw in 2006, right ? won’t you love to see a better saudi where all what you didn’t liked is gone.
IS TIME ENOUGH ?
From your visit in 2006 until 2030 is 24 years. that is a new generation blooming with new ideals and goals.
again, i’m not saying saudi will have 0 bad decisions and 0 crime. what i’m saying we can improve, we believe in it & WE WANT IT.
p.s. its not “Bin Salmon” but Bin Salman.
Gigi says
Dear Jamie Joyce,
Thanks for wishing the best and believing in us.
hopefully by 2030 we will show the world that we made it.
regards from Saudi.
Karel Beckman says
Gigi, I don’t hate Saudi’s, I just hate it when people get beaten, imprisoned and tortured for their views. Any comments on that? Did your Crown Prince announce more freedom, more respect for human rights? I object to the Saudi leaders, indeed to all political leaders anywhere who abuse their power. I support anybody who wants to change this, regardless of their nationality or beliefs.