GCC countries embrace social, economic change for survival

Among many non-oil revenue alternatives explored by Saudi Ara­bia is expanding its tourism indus­try by inviting more investors.

Banner about Vision 2030 in background of royal event in Ras Al Khair


2016/12/25 Issue: 87 Page: 9


The Arab Weekly
Rob L. Wagner



Jeddah - When General Motors chief Charles Wil­son was misquoted as saying, “What’s good for General Motors is good for the country” in 1953, there was outrage that he put GM’s interests first and the coun­try’s economic welfare second. Yet many observers attending his con­firmation hearing to be US Defense secretary silently agreed with the sentiment.

The same can be said for Saudi Arabia’s $650 billion economy be­cause a robust Saudi economy brings fiscal stability to the Gulf Co­operation Council (GCC), if not to the world. Simply, what is good for Saudi Arabia is good for the GCC.

British Prime Minister Theresa May said as much at December’s GCC summit in Bahrain when she urged Arab leaders to build with Britain “economies that work for everyone”.

“We in the UK are determined to continue to be your partner of choice as you embed international norms and see through the reforms, which are so essential for all of your people,” May told the leaders of Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates, Oman and Qatar.

May singled out Saudi Arabia’s Vision 2030 as a bold step to enact social and economic reforms along with changes proposed by other Gulf countries “for more funda­mental and lasting change”.

At the helm of that engine of change is Saudi Deputy Crown Prince Mohammed bin Salman bin Abdulaziz, second in line to the throne and the first prince in Saudi Arabia’s 85-year monarchy to im­plement radical economic and so­cial reforms.

Saudi Arabia has long been a country of soft diplomacy and a go-it-slow, test-the-waters philosophy in implementing social changes. But Prince Mohammed, faced with a $98 billion budget deficit and oil revenue dropping to less than $30 a barrel in January, has shaken the country from complacency.

His Vision 2030 austerity pro­gramme, at least in the eyes of many Saudis, is severe if not brutal. If that is not enough pressure, other Arab leaders are carefully looking at whether he will succeed.

Promising to force the kingdom to quit cold turkey its addiction to oil revenues, he focused on Saudis’ spendthrift habits. He slashed min­isters’ salaries 15%, government employees’ pay and allowances as much as 40% and planned to priva­tise ministries and force employees to reapply for their jobs.

Among the many non-oil revenue alternatives explored by Saudi Ara­bia is expanding its tourism indus­try by inviting more investors to build hotels and to improve infra­structure at heritage sites.

For the first time, the govern­ment is opening portions of the country to haj and umrah pilgrims who were once restricted to the holy cities of Mecca and Medina. Although non-Muslims struggle to obtain tourist visas, Western expa­triate workers and business- and family-related visitors have freer access to venues once deemed off-limits. Tourism is perhaps the king­dom’s greatest non-oil revenue that has yet to be fully exploited.

Western economic analysts lauded Prince Mohammed’s pro­grammes as a bold move to wean Saudis from cushy government jobs that, in their view, are nothing more than entitlements. Many Sau­di fiscal observers, however, com­plain that cutting workers’ salaries will affect consumer spending, putting pressure on small and me­dium-sized businesses to generate revenue and possibly leading bank customers to default on loans.

Ehsan Ahrari, adjunct research professor at the Pennsylvania-based Strategic Studies Institute, Army War College and chief execu­tive officer of Strategic Paradigms, said he was sympathetic to the challenges the deputy crown prince faces.

“I very much would want him to succeed,” said Ahrari. “The big­gest fly in the ointment remains the Yemeni war, which is eating up Saudi dollar reserves.”

Ahrari said Prince Mohammed’s success depends on the support he is currently enjoying from the royal family and the stability of the gov­ernment.

Some Saudi analysts have warned since April, when Saudi Vision 2030 was announced, that a fiscal aus­terity programme could lead to a recession. Indeed, London-based BMI Research concluded in Decem­ber that Saudi Arabia is headed for a recession in 2017, its first since 1999.

The kingdom’s economy is ex­pected to contract 0.2% as non-oil growth continues its slow pace along with declining oil produc­tion and the austerity drive. Saudi Arabia saw slight growth of 0.8% in 2016.

“There is no way not to expect consequences when consumers stay at home instead of spending their money for goods and servic­es,” one Jeddah-based Saudi econo­mist told The Arab Weekly.

To further complicate efforts to boost the economies of GCC member states is the US Federal Reserve’s interest rate increase. It raised its benchmark interest rate to a range of 0.50% to 0.75%.

The United Arab Emirates, Ku­wait, Qatar and Bahrain joined Saudi Arabia in raising its interest rates to match the Federal Reserve and remain committed to pegging their currencies to the US dollar. As the cost of borrowing money rises, however, it will be more difficult to ease the squeeze on cash that is hindering growth.

Qatar, which is considering spending cuts and eliminating some entitlements, recently report­ed its 2017 budget has a $7.8 bil­lion deficit. It is not on the scale of Saudi Arabia’s but large enough for the GCC member to ponder what the new year will look like without a more aggressive austerity pro­gramme.


Rob L. Wagner is an American journalist based in Saudi Arabia.


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