Forex for a trader
Salman reforms driven by drained forex reserves

Salman reforms driven by drained forex reservesSalman reforms driven by drained forex reserves. Equities in Egypt and Saudi Arabia are becoming more attractive to Emerging Market (EM) investors as structural and economic reforms remain in full swing in the Mena region, according to a newly published white paper. Co-authored by Emirates NBD Asset Management (Dubai) and Jupiter Asset Management (London), the paper titled “Emerging Market Equities: Index Upgrades and the Middle East” provides an analytical overview of the regional equity market in 2018, focus markets and sectors for asset allocation, and what an MSCI upgrade really means for Saudi Arabia. The picture for emerging economies globally is now more robust, as EM equities continue to benefit from long-term tailwinds, such as demographics and rising penetration of products. These positives, against a backdrop of continued earnings growth, make a strong case for investing in emerging and frontier market equities. In the Mena region, Saudi Arabia and Egypt currently demonstrate the most significant upside potential. Ross Teverson, head of Strategy – Emerging Markets at Jupiter Asset Management, said: “EMs had a strong run in 2017, and this outlook remains positive. This year, only 1 per cent of the MSCI Emerging Markets Index by country weighting have a fiscal deficit likely to be over 3 per cent of GDP. Additionally, countries are now less reliant on US dollar-denominated debt. Looking at EMs from the bottom-up, there are plenty of stocks that offer compelling long-term return potential, especially within travel and tourism, financials, and technology.” The joint white paper, which highlights data over a 30-year period, suggests that if investors purchase EM stocks in the current Price-to-Book (PB) range of 1.6x to 1.8x, this has typically resulted in approximately a 50 per cent upside over the subsequent five years.

The paper further argues that while EM indices are skewed towards large-cap companies and have high concentrations in certain countries and sectors, the opportunity for investors lies in building a portfolio that covers small - and mid-caps. In 2018, anticipation of the now-confirmed MSCI upgrade for Saudi Arabia has driven the Tadawul All Shares Index (TASI) up 15 per cent YTD, in stark contrast to the MSCI EM Index itself, which is down 2 per cent for the year. At a weighting of approximately 2.6 per cent and with 32 securities selected, the importance of the upgrade as a catalyst for the Saudi capital market cannot be ignored. Salman Bajwa, senior executive officer at Emirates NBD Asset Management, commented: “With a raft of socio-economic changes taking place in the Kingdom of Saudi Arabia – from women driving to the opening of the first cinemas – we are seeing huge opportunity for EM investors in 2018-19.” “While the country has been able to plug forex leakage with issuance of US dollar-denominated debt, a great deal more can be achieved through its stock market, especially after inclusion on the FTSE Russell and MSCI EM indices. The Tadawul All Share Index is up by double digits year-to-date, and our own Saudi Arabia Equity Fund has exceeded 18 per cent returns, as investors have become increasingly bullish on the Kingdom. “Pre-upgrade, smart fund managers from the US, UK and Asia have already dipped into the Saudi market, with foreign inflows passing USD 3 billion by May 2018, which is equivalent to all inflows to the UAE and Qatar for the whole of 2014, when they were upgraded. We expect this momentum to continue as the year progresses,” he added. “A number of sectors in Saudi Arabia may seem attractive at first glance, but investors should be selective and avoid blindly following indices. Additionally, economic reforms such as the introduction of VAT and the removal of fuel subsidies may initially inhibit growth.

However, top sector targets including healthcare, consumer and insurance are set to benefit from both structural reforms and the Kingdom’s initial EM index weightings,” said Teverson. The white paper also emphasizes the stabilisation of the Egyptian economy, which is expected to experience a period of relief over the next 12-18 months, with a range of factors supporting growth in the medium - to long-term. After peaking at 33 per cent in July 2017, inflation has started to normalise, decreasing from 13.1 per cent in April 2018 to 11.4 per cent in May (year-on-year). With a stable EGP supported by strengthening foreign reserves, other factors supporting Egypt’s economic growth will include improved performance of the local stock market and the country’s recent move to secure gas self-sufficiency. Meanwhile, lower interest rates will lend support to the local equities market, particularly in sectors such as real estate. The outlook for Egyptian equities is positive, with the EGX30 index expected to trade back to its 2014 high, offering potential returns of 40-50 per cent over the next two years. In addition, as the EGP strengthens, companies reliant on imports are set to benefit from improved earnings. Bajwa continued: “Looking ahead, we think Egyptian banks will continue to do well, taking excess liquidity by loading up treasuries generating substantial net interest margins (NIMs). The consumer sector is also set to benefit from falling interest rates and rising wages, and real estate companies will take advantage of falling interest rates, improving affordability. “Meanwhile, industrial companies will attract increased FDI as the next phase of growth, which will see exports kick into full gear.

However, investing in Egyptian stocks is not without risk, as rising oil prices are likely to create upside pressure on inflation. A further sharp devaluation of the EGP will negatively impact USD-based returns, while escalated geopolitical risk may hamper investor sentiment.” The white paper’s conclusion is that Mena, among other global Emerging Markets, offers considerable opportunity for 2018-19, and none of the region’s markets show greater potential than Saudi Arabia and Egypt. Egypt is on an increasingly strong footing, while Saudi Arabia, a market that is already both substantial, and highly liquid, is now set to deliver on the anticipation of global investors ahead of its upgrade. With continued earnings growth, increased political stability, and the rising penetration of consumer products, equities across cap sizes are likely to offer attractive long-term returns. – TradeArabia News Service. Salman reforms driven by drained forex reserves. Home > Money > Banking & finance > Saudi MSCI upgrade already attracting $3bn to Tadawul with $45bn on the way. Saudi MSCI upgrade already attracting $3bn to Tadawul with $45bn on the way. July 9, 2018 10:16 am. With structural and economic reform in full swing in the MENA region, equities Saudi Arabia are capturing the imagination of Emerging Market (EM) investors, according to a co-authored 2018 white paper titled “Emerging Market Equities: Index Upgrades and the Middle East”, from Emirates NBD Asset Management (Dubai) and Jupiter Asset Management (London). Ross Teverson, Head of Strategy – Emerging Markets at Jupiter Asset Management, said: “EMs had a strong run in 2017, and this outlook remains positive. This year, only 1% of the MSCI Emerging Markets Index by country weighting have a fiscal deficit likely to be over 3% of GDP. There are plenty of stocks that offer compelling long-term return potential, especially within travel and tourism, financials, and technology.

” The paper further argues that while EM indices are skewed towards large-cap companies and have high concentrations in certain countries and sectors, the opportunity for investors lies in building a portfolio that covers small - and mid-caps. In 2018, the anticipation of the now-confirmed MSCI upgrade for Saudi Arabia has driven the Tadawul All Shares Index (TASI) up 15% YTD, in stark contrast to the MSCI EM Index itself, which is down 2% for the year. Salman Bajwa, Senior Executive Officer at Emirates NBD Asset Management, commented: “With a raft of socio-economic changes taking place in the Kingdom of Saudi Arabia – from women driving to the opening of the first cinemas – we are seeing a huge opportunity for EM investors in 2018-19.” “While the country has been able to plug forex leakage with the issuance of US dollar-denominated debt, a great deal more can be achieved through its stock market, especially after inclusion on the FTSE Russell and MSCI EM indices.” Tadawul performance. The Tadawul All-Share Index is up by double digits year-to-date, and NBD’s Saudi Arabia Equity Fund has exceeded 18% returns, as investors have become increasingly bullish on the Kingdom. Pre-upgrade, smart fund managers from the US, UK, and Asia have already dipped into the Saudi market, with foreign inflows passing $3 billion by May 2018, which is equivalent to all inflows to the UAE and Qatar for the whole of 2014, when they were upgraded. “A number of sectors in Saudi Arabia may seem attractive at first glance, but investors should be selective and avoid blindly following indices. Additionally, economic reforms such as the introduction of VAT and the removal of fuel subsidies may initially inhibit growth. However, top sector targets including healthcare, consumer, and insurance are set to benefit from both structural reforms and the Kingdom’s initial EM index weightings.” Plugging the money drain. By allowing women to drive, the local workforce rapidly increases in number, harnessing untapped potential and raising productivity. It will, moreover, go some way to stemming leakage of the country’s forex reserves through remittances by expatriate workers. The Saudi Arabian Monetary Authority (SAMA) has reported that remittances have fallen from a peak of $42 billion in 2015 to $38 billion in 2017. The Kingdom boasts considerable forex reserves which, at $506 billion, making them the 4th largest globally. However, they have declined – from$ 750 billion in 2014 – in the wake of an oil price slump that reached a low of $30barrel in 2016.

As forex reserves have declined, the Kingdom has been able to plug this gap with the issuance of US dollar-denominated debt. While the sovereign could easily issue up to $100 billion in foreign debt, maintaining a debt to GDP ratio of 25% and retaining an A1 credit rating, a great deal more can be achieved through its stock market. Making Tadawul attractive. Investors must be guided by international indices, and that is now the case, with FTSE Russell, and MSCI all confirming Saudi Arabia’s status as an EM index constituent. Tadawul is making sweeping structural and technical changes to stimulate foreign inflows, including the introduction of the T+2 settlement cycle, a new custody model and clearing mechanisms aligned with international standards. The efforts of the CMA and Tadawul were rewarded with a 2.5% weighting on the FTSE Russell EM Index announced in March 2018. With MSCI’s recent announcement of the Kingdom’s inclusion – at a weighting of approximately 2.6% (with 32 securities), it is likely that foreign inflows from active and passive funds will reach $45 billion. Saudi Arabia burns through foreign reserves. Listen to this article. Saudi Arabia is burning through its foreign reserves at a record rate as the kingdom seeks to maintain spending plans despite lower oil prices.

The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz al-Saud dips into Riyadh’s rainy-day fund and increases domestic borrowing to fund public sector salaries and large development projects. The latest data show Saudi’s foreign reserves dropped by $16bn to $708bn in March, driven by public sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi Arabia has spent $47bn of foreign reserves since October. The king this week reshuffled his royal court, replacing Crown Prince Muqrin, one-time heir to the throne, as he seeks to shore up his power base and promote a younger generation of princes, including his son and nephew. Significantly, the appointments of two well respected technocrats, labour minister Adel al-Faqih to the economy and planning brief and oil executive Khalid al-Falih to the health ministry, are meant to signal King Salman’s intent to tackle the country’s economic difficulties. Unveiling his reshuffle, King Salman promised a bonus payment for military personnel engaged in the kingdom’s month-long bombardment of Houthi rebels in Yemen, a campaign that itself added pressure to state coffers. “The military bonus could increase the drawdown,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “Once this is paid, the pace of the reduction in reserves could moderate.” However, Ms Malik also raised concerns about spending for 2016, which she said would depend on a recovery in oil prices. “There is a need to rationalise spending,” she said. Brent crude, an international benchmark, was trading at $66 a barrel on Thursday. The International Monetary Fund has warned Gulf states to cut spending on wages and subsidies to prevent the draining of national reserves.

“The military bonuses are not an encouraging sign,” said Steffen Herthog of the London School of Economics. “It shows the knee-jerk reaction to political challenges is to distribute more money.” A combination of reserve drawdowns and domestic debt is expected to continue funding Saudi Arabia’s budget deficit, which bankers estimate will reach $100bn this year. “Riyadh does have a very large cushion and can continue to draw down reserves and issue domestic debt for at least a couple more years,” added Prof Herthog. However, delivering large-scale projects and more efficient social services remains a challenge for a kingdom that is also battling the rising threat from Islamist extremists. ADCB data show the value of projects awarded in the first quarter of 2015 was down 10 per cent on the previous quarter. While the awards were focused on areas such as health and housing, in line with the kingdom’s social objectives, this week’s reshuffle underlined Riyadh’s awareness of the need to implement economic reforms and reduce financial efficiencies. Explore the House of Saud’s family tree in this interactive graphic. The promotion of Mr Faqih, who has won praise for his reforms as minister of labour, to economy and planning is aimed at shaking up a ministry that is meant to knit together other departments into a unified development policy but which for years has struggled to do so. The ministry also plays a role in studying subsidy reforms, a policy conundrum for Saudi Arabia, as well as other Gulf states. Mr Falih, who takes over at the health ministry that consumes about a fifth of the state’s budget, is the respected chief executive of Aramco, the state oil company. The royal family will hope Mr Falih, an Aramco veteran, will bring some of his organisational skills to the health brief. Aramco has traditionally been relied upon to deliver special projects for the government, even outside its core oil and gas market. The royal family, whose social contract with the people offers cradle-to-grave care in return for loyalty, is seeking to reduce state subsidies without sparking popular anger. But analysts are unclear how quickly the government can move on such a sensitive topic. India's Forex reserve plunge by $2.64 bn. India's foreign exchange (Forex) reserves plunged by $2.64 billion as on May 18, official data showed on Friday.

According to the Reserve Bank of India's (RBI) weekly statistical supplement, the overall forex reserves declined to $415.05 billion from $417.70 billion reported for the week ended May 11. India's forex reserves comprise of foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs) and the RBI's position with the International Monetary Fund (IMF). Segment-wise, FCAs -- the largest component of the Forex reserves -- decreased by $2.63 billion to $389.82 billion during the week under review. Besides the US dollar, FCAs consist of nearly 20-30 per cent of major global currencies. It also includes investments in US Treasury bonds, bonds of other selected governments and deposits with foreign central and commercial banks. However, the value of the country's gold reserves increased by $13 million to $21.70 billion. The SDRs' value inched down by $14.2 million to $1.50 billion, while the country's reserve position with the IMF also slipped by $14.2 million to $2.03 billion. How price of crude oil, USD may be strengthened by Saudi power struggle. BY DEB SHAW | 8th NOVEMBER 2017. Despite rebounding crude oil prices, Saudi Arabia continues to lose foreign currency reserves Wealthy elites vote with their assets, as the country continues to suffer from capital flight Mohammad bin Salman's bid to centralize power and target wealth is positive for both crude oil price, USD. Following three years of low crude oil prices, Saudi Arabian foreign exchange reserves continue to fall. After peaking at $731.2b in August 2014, reserves have fallen almost in a straight line. The latest data from September 2017 ($475.1b), shows that Saudi reserves are now below $500b. Given the Saudi riyal’s peg to the US dollar, the speed and scale of the decline is driving concerns regarding the health of the economy. While current reserves and access to US dollar bond markets means that the economic health of the Kingdom is safe for now, the outlook is concerning. Saudi Arabian FX reserve data for the last 10 years is visually illustrated below: Back to the future: Saudi FX reserves back to 2011 levels.

Despite a variety of measures undertaken by the Kingdom, including reducing the government budget deficit significantly and leading efforts to drive higher crude oil prices via an OPEC agreement, foreign currency reserves continue to fall. This suggests that falling reserves are due to reasons beyond lower crude oil prices and government deficits. A balance of payments deficit, driven by capital flight from within the Kingdom, is a likelier culprit. Less money = higher political risk. As Saudi Arabia confronts the reality of lower crude oil revenues, political risks are rising thanks to lower wages, higher unemployment and a weaker future outlook. As the fortunes of the Kingdom reverse, capital flight is likely to become a more significant problem going forward. The Saudi Arabian elite can clearly see what is on the horizon, and are responding by repatriating their funds overseas for safety. Prince Mohammad bin Salman’s political purge this weekend, labeled as a ‘corruption crackdown’, makes sense in this context. As instability within the Kingdom rises, Prince Salman is seeking to centralize power in order to quell the possibility of a ‘palace coup’. More importantly, he is also going after significant wealth in Saudi Arabia (before that wealth tries to make its way overseas). The biggest surprise this weekend was the arrest of Prince Alwaleed Bin Talal, a billionaire investor who is also a member of the Saudi royal family. Despite the prince’s cavalier attitude towards the Saudi government, he has publicly supported Mohammad bin Salman’s vision for reform in the past. Unfortunately, his proclamations did not spare him from the ongoing corruption crackdown, and his significant wealth made him an obvious target. Implications for crude oil forecast and the US dollar. Looking at crude oil, the implications for the commodity are fairly obvious.

Beyond the specter of increased domestic political instability in Saudi Arabia, Prince Mohammad bin Salman has also accused Iran of inciting war after Yemen-based forces recently launched a missile towards Riyadh. As Saudi Arabia and Iran are some of the world’s largest crude oil suppliers, even an escalation in rhetoric is sufficient to drive crude oil prices higher. This is because the price of oil remains sensitive to the prospect of lower supply. Last Monday, WTI crude oil prices jumped from $55.60 to $57.20 following this weekend’s news. Looking at the US dollar, the purge is also positive for the currency for less obvious reasons. The first reason is one that we covered in a recent commentary on how stronger crude oil prices help the US dollar. Given that US GDP growth continues to accelerate today, the additional prospect of accelerating inflation is more likely to result in the Federal Reserve raising interest rates. The second reason is due to the Saudi riyal’s peg to the US dollar. As Saudi reserves continue to fall and the Kingdom cracks down on wealthy Saudis, capital flight out of the country is set to accelerate.

As the US dollar is the natural destination for funds fleeing the country, the currency is set to appreciate further, strengthening the US dollar forecast. How Mohammed bin Salman Has Transformed Saudi Arabia. In just a few years, the crown prince has seized unprecedented power and wealth, imposed brutal repression to silence critics, and furthered a reckless foreign policy. Saudi Arabia’s Crown Prince Mohammed bin Salman speaks with members of the royal family in Mecca, Saudi Arabia, on June 21, 2017. (Saudi Royal Court via Reuters Bandar Algaloud) Ready to join the resistance? You will receive occasional promotional offers for programs that support The Nation’s journalism. You can read our Privacy Policy here. Support Progressive Journalism. You will receive occasional promotional offers for programs that support The Nation’s journalism. You can read our Privacy Policy here. Travel With The Nation.

Sign up for our Wine Club today. When Salman ibn Abdulaziz became crown prince of Saudi Arabia on June 18, 2012, there was a palpable sense of anxiety across the country. This had little to do with the usual unease and uncertainty that succession in the kingdom begets. In his 50-odd years as governor of the capital, Riyadh, Salman had built a reputation as a firm, pragmatic, and uncompromising ruler. He commanded fear from both friend and foe. Since the early 1990s, Salman had also been instrumental in conceiving a new national development plan. The latter aimed to resolve some of the prevailing challenges of the immediate post–Gulf War period: heightened popular opposition to the ruling family coupled with a global recession that featured a fall in returns on Saudi investments worldwide. The top-down plan promised to overhaul social, economic, and cultural life in the kingdom, beginning with gradually diminishing the power of the religious establishment and diversifying the national economy. There was a lot at stake for those who had theretofore benefited from the status quo. But they were not the only ones who feared the severity of a Salman regime. With Salman just one step away from absolute power, “may God help us” was the common refrain among Saudis of all political stripes and socioeconomic classes. Salman amassed great power through his prestigious position as governor of Riyadh, long considered the heart of the ruling Al Saud monarchy. The institutions he oversaw there—largely manned by professionalized graduates of Saudi universities—ran like clockwork. This was a significant feat, considering the history of institutional incompetence in Saudi Arabia. Together and separately, they worked to implement the regime’s postwar vision, even if their scope was restricted to the capital. By the mid-2000s, and especially as the price of oil rose to an all-time high, many of the economic and cultural plans conceived in the previous decade began to materialize under the framework of the Metropolitan Development Strategy for Arriyadh Region (MEDSTAR). This strategic vision for the development of the capital included economic, environmental, infrastructural, cultural, and urban aspects.

It was (and still is) managed by Salman’s most prized institution, the Arriyadh Development Authority (ADA), through which he has engendered new loyal elites, construction moguls, and employees. Sidelining religion was central to the development plan, which provoked the ire of many, not least the Islamists and conservatives. But Salman had close ties with the religious establishment, over which he nonetheless exerted great power that he used to manage both clerics and foot soldiers to serve his own agenda. Salman was known to be ruthless toward those who did not heed his orders or toe his line, a lesson that has served his son, Crown Prince Mohammed, rather well. More than anything, then, Salman embodied the potential undermining of what many saw as the pillars of Saudi rule: traditional alliances within the ruling family and between them and the country’s economic elites and religious clerics. Even within the ruling family, it is not surprising that many dreaded the prospect of Salman’s ascending the throne. After all, he was the final arbiter of disputes between members of his family and of transgressions and crimes that they themselves committed. That the then–“family prison” was located on his estate speaks to the role he occupied within the monarchy. He was known to be ruthless toward those who did not heed his orders or toe his line, a lesson that has served his son and current crown prince, Mohammed, rather well.

Indeed, many of Mohammed’s claims to reform religion and the economy in the kingdom are continuations of his father’s three-decade-long efforts. Mohammed is a product of his father’s upbringing and political ideologies, even if he has shown himself to be less cautious, discreet, and tactful than the now-ailing king. He came of age working by his father’s side when the latter was still the governor of Riyadh, and he oversaw the making of the capital into the sprawling metropolis it is today. Upon acceding to the throne in 2015, at the age of 79, King Salman did just as many had expected and feared. Almost overnight, his regime reorganized government, regularly reshuffling top administrators in the bureaucracy. It also espoused an unprecedentedly belligerent foreign policy, the devastating effects of which have been all too tangible in Yemen, Syria, Libya, and Qatar. Gone are the days of the more cautious (even if destructive) Saudi foreign policy that characterized the previous few decades. The regime has indefinitely detained or disappeared dozens of intellectuals, activists, religious scholars, and writers, while placing others under house arrest or on no-fly lists. But if Salman’s reign is marked by the kingdom’s muscle-flexing abroad, that is equally the case inside the country. Salman’s regime has gone to great lengths to silence all forms of criticism. Not only has it criminalized opposition to the Saudi-Emirati war in Yemen and both countries’ belligerent posture toward Qatar.

The regime has also indefinitely detained or disappeared dozens of Saudi intellectuals, activists, religious scholars, and writers, while placing others under house arrest or on no-fly lists. But even as he ascended the throne, King Salman was suffering from mild Alzheimer’s disease. He thus increasingly entrusted many functions of the state to his son Mohammed, who has since centralized most powers of the state. The New Face of Modernization. When Mohammed was appointed defense minister in January 2015, he already had his eye on the throne. A newcomer to national politics, Mohammed set out to prove himself worthy of the title. Although he had limited credentials, the lesser-known member of the ruling family now called the shots. One of his first acts was to convene a coalition of Arab states in March 2015 and lead it into war in Yemen, against the advice of many of his military generals. The war aimed to root out Ansar Allah, or the Houthis, from Sanaa and restore a pro-Saudi regime to power. What Mohammed thought would be a swift and decisive victory has turned into a humanitarian catastrophe with little political gain to show for it. Although the prince has come to terms with the unfeasibility of a military victory in Yemen, he has refused to end hostilities unless his failure is covered up and repackaged as a triumph. That former Yemeni president Ali Abdullah Saleh was killed last November, mere days after he turned against his Houthi allies and offered the Saudi regime a way to end hostilities, which Riyadh accepted, further evinces the desperation of the Saudi regime and failure of its Yemen policies.

Much has been written about Mohammed as the architect of the ongoing war in Yemen, even as the war’s devastating effects have been largely obscured in the mainstream media. But what, exactly, was Mohammed doing on the domestic front? Immediately after King Salman appointed him deputy crown prince in April 2015, the regime began quietly arresting hundreds of citizens, including religious scholars, preachers, writers, journalists, activists, and bureaucrats. These ranged from people who opposed the regime outright to those who called for political, economic, and other reforms, even if within an Al Saud–led state. Those familiar with Saudi regime tactics understood these wide-ranging arrests as punitive and a prelude to unpopular policy changes, about which the regime wanted to silence and preempt all forms of criticism and dissent. It was in this broader context of foreign-policy failure and local opposition that Mohammed began to consolidate his economic power in order to strengthen both his political and financial positions. To start with, his personal wealth paled in comparison to that of his cousins, who had amassed great fortunes when their respective fathers ruled the country as kings (Fahd, 1982–2005 and Abdullah, 2005–15) or ministers of interior (Nayif, 1975–2012) and defense (Sultan, 1963–2011). Making matters worse, Mohammed came to power at a time when low oil prices (since 2014) had led to a ballooning budget deficit that saw the regime burn through its foreign-exchange reserves, which shrank by $208 billion between 2014 and 2016 alone. Seeing the financial crisis as his main weakness, Mohammed proceeded to secure control of important economic institutions such as the Saudi Arabian Monetary Agency, the Council of Economic and Development Affairs, and the newly formed Supreme Council of the Saudi Arabian Oil Company (Aramco). It is through the latter top decision-making body that Mohammed aims to partially list the oil company in domestic and international exchanges in the coming years, which he claims would raise $100 billion. Mohammed then began to snub many of the country’s traditional economic elites and to slowly strip them of their privileges. This was most evident in the contracting sector, where he made it very difficult for the historically dominant construction conglomerates to conduct their business. At times, he canceled existing contracts and transferred them to his own front companies and those of his allies. From early on, Mohammed targeted the Saudi Binladin Group, long noted for its sheer size, market share, and operations, especially in Mecca and Medina, where real-estate values are among the highest in the world. But SBG was not an easy target.

Its longstanding networks extended to the highest echelons of the ruling family as well as throughout various strata of economic elites. The collapse of an SBG-owned crane in Mecca in September 2015 presented the perfect opportunity to weaken the company, primarily because it resulted in the death of over a hundred people. King Salman quickly halted work on that and other SBG projects in Mecca. A speedy investigation revealed that SBG was only partially responsible for the crane collapse, with stormy weather conditions the main culprit behind the tragic accident. Yet the company paid an unusually heavy price: In the name of anti-corruption and reform, the regime prevented SBG from taking on new business and confiscated many of its existing contracts, especially in Mecca and Medina. It then transferred them to front companies linked to the king and his son, Mohammed, thereby increasing their share of a lucrative market that had been largely closed off to Salman and his sons. That same month, the regime shut down one of the main arteries going from Central Mecca to neighboring Mina at the height of the annual pilgrimage (hajj), reserving it for the sole use of a VIP-designated car. The resultant stampede killed 769 people according to official Saudi sources, although most independent observers put the estimate closer to 2,400. This was the highest casualty rate for any accident in the modern history of the hajj. The regime, however, was not as quick to investigate the incident and pursue the perpetrators. More than two years later, the investigation is still pending. To be sure, SBG is as corrupt as they come.

Those living in the Hejaz, and especially in Mecca and Medina, are all too familiar with the myriad schemes that the company has concocted over the past few decades—with the support of some in the highest echelons of power—for the personal enrichment of the Binladin family as well as their subcontractors and Al Saud allies. Such a dynamic was not limited to SBG or the contracting industry more generally. Saudi corporations and their regime allies are notorious for inflating costs, signing phantom deals, encouraging massive kickbacks, contravening the law, and ignoring safety measures—all for the sake of increasing profit margins. The regime has used these maneuvers against its economic allies when they fall out of favor, as has been the case with SBG. Since the consolidation of the Saudi state in 1932, and especially during times of economic and political crises, cash-strapped Al Saud regimes have relied on merchant financing for their own survival. This was a central way through which the authoritarian monarchy engendered loyal economic elites that would reap the benefits of a corrupt system but finance the state in times of need. In this way, the survival of economic elites was strategically tied to the longevity and enrichment of the regime. Such a symbiotic relationship was further institutionalized during the regime’s consolidation in the 1960s, under then-King Faisal. It has since characterized economic and political life writ large in the kingdom. Any and all successful business ventures require an alliance with one prince or another to secure permits and avoid intimidation. Those economic elites that attempt to bypass this ritual have either been excluded from new deals or have had existing projects suspended. This is the stark reality of regime-business relations, one that is common knowledge to all in Saudi Arabia. Mohammed bin Salman was not so much upending the historical relationship between regime and economic elites as much as he was narrowing the circle of those who benefited from it—and positioning himself at its center. Mohammed bin Salman was not so much upending this historical relationship between the regime and economic elites as much as he was narrowing the circle of those who benefited from it—and positioning himself at its center.

Not surprisingly, this has created many enemies—both among the economic elites as well as among their beneficiaries in the ruling family. It is this factor that explains why several of the wealthiest families began to move some of their capital abroad as early as 2015. Since then, the heads of such families—including Bakr Binladin and Saleh Abdullah Kamel—have publicly expressed their dissatisfaction with the economic direction that Salman’s regime was taking under the tutelage of Mohammed. As deputy crown prince, Mohammed continued to tighten his grip on the contracting industry. In April 2016, he announced Vision 2030, an ambitious national blueprint that had as its goal nothing short of overhauling everyday life in Saudi Arabia. Vision 2030—much like the still-operational MEDSTAR, which inspired it—centers on the reorganization of the economic, infrastructural, social, and cultural spheres. Focusing on diversifying and streamlining the Saudi economy, it lauded the alleged role that a predominantly young Saudi population would play in achieving this vision. In a slight diversion from MEDSTAR, it touted the new, open lifestyle it would enable, which would better accommodate Saudi youth. Yet the regime has cynically deployed this seeming accommodation to “Saudi youth” only to legitimize its authoritarian schemes. Mohammed has not consulted Saudi citizens or studied the needs of a population whose middle class is shrinking and whose poverty rates are increasing. Instead, the regime has predominantly relied on foreign consulting firms, notorious for severely inflating their costs and producing plans that are so disconnected from realities on the ground as to render them useless. The voices of the very youths that Mohammed claims to be saving have been ignored or even silenced. Many Saudis were initially excited about Vision 2030 and its promises of increased jobs and better living conditions, demands they had long called for. But the initial excitement led to skepticism only a year after it was announced.

The lack of serious planning that has marked Vision 2030, coupled with its hefty and unrealistic price tag, led many to question whether this was simply a marketing ploy. Others saw it as yet another of the regime’s many failed infrastructural megaprojects, with which they are all too familiar. Questions arose as to how an inflated and incompetent bureaucracy would process a backlog of millions of housing applications, let alone actually increase employment rates when thousands of Saudis have lost their jobs in the past year alone. In fact, last fall the regime announced that it would not balance the budget by 2020, as promised, instead postponing that deadline to 2023. Saudis have therefore been especially alarmed about the prospects of the regime’s squandering the proceeds of a potential Aramco IPO on such unsound projects, thereby jeopardizing the country’s most efficient company and its only reliable source of income. New Investment Frontiers. On January 2, 2016, the Saudi regime executed renowned Shiite cleric and Al Saud critic sheikh Nimr al-Nimr and three other Saudi Arabian Shiite activists, along with 43 Sunnis accused of participating in Al Qaeda terrorist attacks in the kingdom. The political executions constituted an alarming escalation of the regime’s repression of Shiite activism. Facing a humiliating defeat in Yemen, the Saudi regime used the executions to project a semblance of power while seeking to terrorize the Shiites of Saudi Arabia’s oil-rich Eastern Province into submission. For the most part, however, the regime’s belligerence was aimed at Iran. The message was that there was little Mohammed would not do to confront Iran, even if it meant worsening government relations with the Shiites of Saudi Arabia and using great violence against them.

Thereafter, Saudi-Iranian relations only deteriorated. By mid-2017, as Mohammed’s economic and political ventures came under heightened scrutiny, he began a new war against the Shiite inhabitants of Awamiyya in the Eastern Province. By mid-2017, as Mohammed’s economic and political ventures came under heightened scrutiny, he began a new war against the Shiite inhabitants of Awamiyya in the Eastern Province. Awamiyya is home to the executed sheikh Nimr al-Nimr as well as many of the opposition activists who have sustained peaceful mobilizations against the regime since 2011. In early May of 2017, the regime began demolishing al-Musawara, an old neighborhood in Awamiyya where 3,000 Saudis lived, mere months after unilaterally announcing its intentions to “redevelop” the neighborhood. Without consulting the people of the town, and under an almost-complete media blackout, the regime ordered residents to evacuate, providing them with temporary yet inadequate housing in a nearby town. It then sent in contractors with their bulldozers to demolish the neighborhood. Security forces used live fire against peaceful protesters who had refused to evacuate their homes, killing several of them. Armed confrontations ensued, and the regime escalated its campaign by shelling the neighborhood and killing 12–25 people before the last inhabitant managed to escape. In demolishing the town and reconstructing it within two years, the regime would kill two birds with one stone: It would uproot some of the most radical anti–Al Saud activists while opening up a new investment frontier to Salman’s companies and those of his allies. Such private-public endeavors are not new. As with previous Saudi rulers who have regularly blurred the line between public and private for their own personal enrichment, the current regime relies on such ventures, especially at times of financial duress. It is in keeping with the corporate underpinnings that have sustained the Saudi state since its inception. And in this case, the Eastern Province provided a particularly lucrative opportunity. Throughout the 20th century, most of the Shiite towns in the east were actively ignored by the construction drive of the Saudi state.

These underdeveloped towns now constitute new investment frontiers for a cash-hungry regime that at once sought to assert its control over Shiite neighborhoods. Indeed, this was not simply about sectarianism or flexing the regime’s muscles in the face of growing regional challenges. But, driven by financial motivations, the regime nonetheless justified its military assault on people and infrastructure in the name of counterterrorism. In the past, the scale and mode of such violence has usually been limited to Saudi Arabia’s Shiite population. But the belligerence of Mohammed—who became crown prince on June 21 of last year—was not. As the bombs dropped on al-Musawara, with the aim of “redeveloping” the town, the regime also intensified its silencing campaign across the country. It arrested hundreds more Saudis who were still skeptical of regime policies or called for serious reforms. Those included writers, intellectuals, bureaucrats, and preachers: Not only were they arrested, but their families were also regularly terrorized through armed house searches, if not by direct threats. Several cultural producers who simply refused to voice their support for domestic and regional policies met a similar fate. For the latter, remaining silent came at great cost. The regime, however, especially bore down on the most popular of the (Sunni) Islamist movements in Saudi Arabia, the Sahwa. Calling for constitutionalism, civil rights, and political reform, the Sahwa had threatened successive Saudi regimes since the 1991 Gulf War. Salman’s regime was no different, and the Sahwa especially targeted Mohammed’s corruption, economic policies, and unwillingness to embark on political reform. They saw these as further disenfranchising the Saudi population, its youth in particular. It was also around this same time that the Saudi and Emirati regimes escalated tensions with Qatar, accusing the neighboring state of supporting the Muslim Brotherhood—which has historically challenged the legitimacy of Wahhabism and the Al Saud monarchy—and what they saw as fundamentalist Islamist groups in the region. This belligerence quickly turned into a full-blown embargo. Last fall, Mohammed announced plans to build a $500 billion high-tech megacity, NEOM, on Saudi Arabia’s northwestern coast, pitching it as a lucrative global investment opportunity and sociotechnical experiment rooted in religious tolerance and sustainable development.

As security forces intensified the countrywide silencing campaign, the crown prince convened hundreds of foreign dignitaries, investors, business leaders, journalists, and public-relations experts, among other speakers, at the Future Investment Initiative held on October 24–26 at the Ritz Carlton in Riyadh. There, Mohammed announced his plans to build a $500 billion high-tech city on the northwestern coast of Saudi Arabia. The prince pitched this utopian sustainable megacity, or NEOM, as the solution to the country’s ailments but also as a lucrative global investment opportunity and sociotechnical experiment rooted in religious tolerance and sustainable development. It was the beating heart of the prince’s Vision 2030. Set in the pristine northern desert coast of the Red Sea, the proposed economic zone is being marketed predominantly to investors as an unprecedented global hub and the “world’s most ambitious project…for a new way of life.” The earmarked location remains “unspoiled” today because it was designated a military zone in the early 1960s and closed off to civilians, given its proximity to Israel as well as Egypt, which was Saudi Arabia’s prime adversary. It mattered little to the cheering investors that the Saudi regime had expropriated this very land in the 1960s without compensating those who claimed ownership over it. As rumors of the area’s demilitarization and future development began to circulate late in 2015, those claimants have sought compensation, which they have thus far failed to secure. The site allotted to NEOM reflects the changing geopolitical realities and a desired shift of the center of economic power away from the oil-rich Persian Gulf in the east to the Red Sea in the west. It is meant to signify a shift away from oil production, but also one in which neighboring Israel is no longer considered an adversary or a threat. This is not surprising. Informal relations between Saudi Arabia and Israel can be traced back to the 1960s, when Israel militarily assisted King Faisal’s regime in his proxy war against Gamal Abdel Nasser in Yemen (1962–70). These relations further improved under King Abdullah, who ruled from 2005 until his death in 2015. During this period, Saudi-Israeli relations were becoming more of an unspoken reality.

In 2006, Abdullah’s regime blatantly sided with Israel in its war on Lebanon, in which 1,109 were killed, the vast majority of them civilians, 4,400 were injured, and over 1 million were displaced. It also supported Israel in its brutal wars on Gaza in 2008–9, 2012, and 2014. It was during Abdullah’s reign that officials from both countries began expressing cordiality toward each other in public for the first time. Prince Turki al-Faisal—Saudi Arabia’s former director of general intelligence and former ambassador to London and Washington—was, and still is, the face of Saudi-Israeli rapprochement. Such overtures have only increased and become more official since Salman ascended the throne. As a matter of fact, since announcing NEOM, the regime has embarked on an aggressive media campaign that is paving the way for the normalization of ties with Israel, using the country’s most renowned cultural producers. Deploying ‘Saudi Youth’ NEOM thus promised a geopolitical restructuring, and not just technological, cultural, and economic rewards to those who buy into the crown prince’s pet project. The optics are seductive, not least to a global audience of investors, politicians, planners, and cultural producers. These are more interested in cashing in on a corrupt regime’s development projects and empty promises of reform and religious moderation than in acknowledging the forms of violence that have conventionally undergirded similar reformist claims in Saudi Arabia. In so doing, such an audience reinforces Saudi rulers’ own exclusion of citizens and, like them, mobilizes “the Saudi youth”—this elusive and allegedly homogenous group—only when it benefits their own interests. Few, if any, have expressed a desire to understand, let alone acknowledge, the diverse lived realities, needs, and political affinities of people in Saudi Arabia before uncritically perpetuating the regime’s ostentatious, top-down narratives, claims, and plans. The regime’s pervasive disregard for people in Saudi Arabia, as in other authoritarian states, is not new. But given the difficulties of entering the kingdom, coupled with the heightened surveillance on, and punitive measures against, popular opinion and social media in general, the experiences, desires, and opinions of Saudis have been absent in all but the most critical of analyses. With the crown prince adopting so many policies in the name of Saudis, and youth in particular, it is all the more urgent to discern where Saudis stand in all this, even if they do not factor into the calculations of those in power and their global allies.

It is a stretch of the imagination, for example, to conclude—as many have—that normalization with Israel would have much traction among Saudis just because of the heightened state of sectarian, anti-Iranian, and anti-Shiite sentiments in the country. It is one thing for people’s interests to converge with those of the Israeli state on some policies. It is another to then assume that fear of Iranian power trumps both the political affinities that Saudis feel toward Palestinians and widespread Saudi opposition to Israeli colonialism. The Saudi regime’s blatant pro-Israel rhetoric reached caustic levels in late March when, in a meeting of Jewish organizations in New York, Mohammed allegedly said that Palestinians should “agree to come to the negotiations table or shut up and stop complaining.” Yet Saudis overwhelmingly support Palestinians and see Israel as an illegitimate settler-colonial state. At least since the 1970s, Saudi socialization mechanisms have privileged Palestine in constructions of Saudi identity, especially in the state-sanctioned historical narrative and in history textbooks. This was so even as it became evident to Saudis that successive administrations in Riyadh were simply paying lip service to the importance of freeing Palestine. In reality, these regimes were holding secret talks with Israel, and in various instances, doing its bidding across the Arab world, often at the expense of Palestinians. In semi-public and private venues, Saudis have criticized their rulers’ complete disregard for Palestinians and the prospects of the normalization of ties with Israel. Against all odds, many have begun to mobilize in the last year to counter these strong currents, using social media, informal gatherings, and even in non-academic publications. This has been the case across the Gulf, not just in Saudi Arabia. But as the current wave of state terrorism continues apace, few if any inside Saudi Arabia will be able to voice concern, let alone dissent, in the case of the establishment of formal ties with the Israeli state. The social contract in the kingdom was not so much based on the exchange of oil wealth for political subordination but rather on violence—and the extreme threat thereof—coupled with religious legitimation, in return for subordination in all realms of life.

Similarly, it is one thing for Saudis to covet the economic security, access to entertainment, and lifting of social restrictions that the crown prince has promised. It is another to equate that with mass support for the regime, and for the crown prince in particular. Economic indicators were never sufficient measures of Saudi political desires, as some theoretical models such as rentier-state theory, would like us to believe. According to the latter, the regime has historically bought off the loyalties of Saudi citizens with oil wealth in what is better known as the “authoritarian bargain,” the equivalent to “no taxation, no representation.” Yet, since the creation of the state in 1932, Saudis have demanded political participation, either within the Al Saud regime or in opposition to it, regardless of the state of the economy. In the 1950s and ’60s, many protested US imperialism and Saudi authoritarianism and demanded the nationalization of oil. Calls for constitutionalism, political rights, social justice, religious reform, and women’s rights, among other things, marked later decades of the 20th century. Today more than ever, the people of Saudi Arabia want to have a say in political as well as economic, social, and cultural life. To think otherwise is to at worst reify regime narratives about Saudis not having political will or sensibilities, and at best to be disconnected from everyday lived realities there. The social contract in the kingdom was not so much based on the exchange of oil wealth for political subordination. Rather, it has always been based on violence—and the extreme threat thereof—coupled with religious legitimation, in return for subordination in all realms of life: economic, political, social, and cultural. Those who continue to regurgitate tropes about the apolitical, bought-off Saudi subject not only fail to comprehend the political economy of oppression in the kingdom; they also reinforce the state-centered view the regime has sold to the world since the very creation of the Saudi state. This Saudi Blogger Called for Modernization. So Has the Crown Prince.

So Why Is the Blogger in Jail? Why Are US Colleges Collaborating With Saudi Arabia? In this vein, then, is yet another so-called global megacity what Saudis really need, let alone want? For many, it is not clear how NEOM differs from the financial and economic cities that Saudi Arabia planned during the reign of King Abdullah, some of which are almost completed. Like NEOM, these earlier megacities—in Riyadh, Rabigh, Jazan, or Medina—aimed to diversify and grow the economy while raising the standard of living for Saudis. But none have achieved these objectives, nor are they likely to do so. At the time, Saudi planners predicted the uselessness and utter failure of these cities, given their stated goals. They still do today. Indeed, the planning of these financial and economic cities, as with so many other large-scale developments, has been scarred with corruption and ineptitude, a fact that is not lost on Saudis, not then, and not now. Such city planning has relied on the very same experts and consulting firms that the current crown prince relies on for all of his projects. As such, these megacities, like NEOM, do not have the needs of the Saudi citizen in mind. They are driven by profit motivations of the ultra-wealthy and the requirements of global capital and cheap labor.

Unlike earlier megacities that Abdullah’s regime sponsored, NEOM has the added layer of being driven by an unpopular ruler who, facing domestic opposition, foreign-policy failures, and a financial crisis, must garner global support to ensure his own survival, both politically and financially. To increase investor confidence, Mohammed has promised that he will run state affairs differently. A week after announcing NEOM, he revealed an anti-corruption campaign that in its first two days arrested princes, bureaucrats, military leaders, and business tycoons. Mohammed used the media to broadcast these high-profile arrests in order to showcase his commitment to fighting corruption—but also to terrorize the political, economic, and military elites into submission, not to mention the rest of the population. Since then, the regime has quietly arrested some 500 Saudis in a campaign that has left most in the country terrorized. Saudis have long supported a crackdown on corruption. They have called for exactly that over the past several decades, and increasingly so during the reign of King Abdullah. But many of the arrests that Mohammed has ordered have more to do with the centralization of his economic and political power and increasing his personal wealth than with rooting out corruption. Indeed, such business tycoons as Bakr Binladin and Saleh Abdullah Kamel are said to have threatened to move more of their capital abroad only months before they were arrested. Having to deal with a struggling economy and a cash-strapped regime, the crown prince simply could not afford to allow capital flight. Furthermore, as recent reports have indicated, he has deployed all means—legal, political, and coercive—to force these billionaires to give up significant portions of their wealth in return for their freedom. Indeed, the crown prince first released his cousin Prince Miteb, the son of the late King Abdullah, in late November of last year in return for $1 billion of his personal wealth. The other detainees followed suit to secure their freedom.

At the same time, it is business as usual for many notoriously corrupt individuals and conglomerates, especially those that have sided with the crown prince or have turned a blind eye to his policies. So even as some Saudis celebrated the belated arrest of those who have pillaged the country’s resources with great impunity, the corruption and nepotism of the current regime is not lost on them. This is especially the case for those who have lived in Riyadh in the past decade and are more familiar with Mohammed’s various attempts at pillaging public money and private and public land through his father’s Arriyadh Development Authority. Through such a highly selective anti-corruption campaign, Mohammed’s kleptocracy has nonetheless accomplished several goals. It has disempowered many of the economic elites and their Al Saud allies and expropriated their sources of income. Detaining several media moguls and investors, Mohammed has privileged his family’s own media company and controlled the narrative coming out of Saudi Arabia. He has also shattered notions of consensus as well as the long-standing balance of power within the top ruling members of the monarchy. While the latter may not have been able to prevent the crown prince from taking the throne, they could have presented many obstacles to the centralization of his power and governance in general. Most tragically, the regime has succeeded at what every Saudi regime has historically done best: terrorizing a whole population. Yet again, people’s political aspirations, let alone dreams of leading better and more prosperous lives, will not see the light of day. With the absence of serious resistance to the state-led and highly public campaign of last November, Mohammed has, in theory, secured his reign. While many of his investors have expressed concern about the viability of investing in such a volatile Saudi Arabia and in meeting a similar fate as the country’s once-esteemed tycoons and investors, the crown prince is not worried. He is banking on the passage of time and a return to a “stable” state of affairs. He also knows well that the business community has no choice but to work with him if it is to maintain, if not further, its interests in the kingdom. His recent, largely successful personal branding tour in Europe and the United States—which will most likely not be tarnished by Saudi Arabia’s arrest this month of 10 women’s-rights activists—revealed just that. Despite having upended the traditional balance of power and cut the historically powerful branches of Al Saud to their size, Mohammed knows that his relatives will fall in line.

Indeed, it would be premature, if not altogether simplistic, to celebrate the beginning of the end of the Al Saud. The monarchy is one of only two post–World War I regimes to survive into the second decade of the 21st century. Over the years, and despite great internal strife and struggles over power, the monarchy has shown a remarkable resilience and unity when faced with threats to its existence. Such threats are bound to increase in the coming years, and Mohammed is all too aware of this fact, as his heightened security protocols reveal. But with almost unflinching and widespread global support, Al Saud are here to stay. May God help the Saudis indeed. Rosie Bsheer Rosie Bsheer is assistant professor of history at Yale University and co-editor of Jadaliyya e-zine. To submit a correction for our consideration, click here.



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