Saudi Arabia has experienced a collapse in the price of oil before. This time, however, the Government isn’t waiting to weather out the storm. It has initiated an ambitious economic reform agenda – Vision 2030 and the National Transformation Plan – which has shaken the conservative Kingdom to the core. Yet less than a year since the bold plans were unveiled, cracks have started to appear.
The powerful Deputy Crown Prince, Mohammad bin Salman, announced his ambitious vision to much fanfare in April, with the aim of diversifying the Kingdom’s revenue streams away from its dependence on black gold.
A few months later, the Middle East’s largest economy is on the verge of its first non-oil-sector recession in three decades, with growing rumbles of domestic dissent. Many onlookers and investors are worried that these trends may continue, as exemplified by recent controversial comments by British Foreign Secretary, Boris Johnson on the country’s lack of “visionary leadership”.
The Kingdom’s private sector, the focus of the Prince’s bold reforms, has been badly knocked by a backlog of unpaid government invoices. Some of the largest construction firms like Saudi Oger and Saudi Binladin Group have been forced to lay thousands of employees after delayed contract repayments led to sharp reductions in their income.
Early in December, negotiations between Saudi Oger and its lenders over its $3.5bn debt broke down while it was still waiting for the Government to repay certain contracts, the company said to Bloomberg.
The Government has already injected $1bn to support Saudi Binladin Group, after simmering labour unrest caused by a collapse in oil prices. Last month, the Government said that all delayed payments to private businesses will be settled by the end of the year, although officials have privately acknowledged the damage already done by withholding payments to these sprawling state-dependent companies.
The knock-on effects are far from over. The Saudi market regulator’s case against the construction firm Mohammad Al-Mojil Group (MMG) has dominated domestic media and online chatter in recent weeks. In a case that shines an uncomfortable spotlight on the Kingdom’s fledgling stock market, regulators responded to crashing share prices by sentencing MMG’s founders, the Al-Mojil family, to an unprecedented 5 years in prison and a $427m fine.
The Al-Mojil family have cried foul and have strongly contested the ruling, pointing to alleged widespread flaws in the judicial process and claiming that they are being scapegoated by an inexperienced market regulator desperate for a quick fix. Their lawyers, including a leading British QC, have described the criminal proceedings as “flagrantly unfair by any recognised international standard.”
The case is currently being considered by the Kingdom’s Appeals Committee, with a judgment expected in the coming weeks. Despite a move towards more liberal reforms by the Deputy Crown Prince, dissent and criticism of Government institutions in the Kingdom is rare, and Saudi citizens are watching this case closely. Regardless of the outcome, one thing is clear: as his ambitious reforms start to take hold, the honeymoon is definitely over for Mohammad bin Salman.