News / Economic Divide

Saudi Arabia's purge: Is the prince moving too fast?

Friday, 22 December 2017 10:22 AM [ Last Update: Friday, 22 December 2017 10:22 AM ]

Economic Divide

Gasping for the rationale behind the recent purge, while officially claimed to be a crackdown on corruption, seems more like an attempt for quick financing. Not only would it enable MBS to proceed with his so-called reforms in the short-term, but will also eliminate any potential political opposition in the long run and win him the popular support.

It is no secret that low oil price and years of austerity have left Saudi Arabia’s economy battered. Ever since 2014, and the horizon hardly looks bright, too, as global oil demand is forecaster to be weaker than expected this year and the next and Saudis’ non-energy exports are yet to compensate for the drop in oil prices.

The Saudi kingdom is also bogged down in Yemen’s cash-bleeding quagmire for more than two years. For the Saudis, the war is far more expensive compared to their adversaries. A Harvard study says it may cost Saudi Arabia as much as $200 million a day.

The need for cash can be pinned down in Mohammad bin Salman’s privatization plans, the scale of which dwarfs any attempt done in history. Around $200 billion of firms doing everything from making flour to providing pilgrimage services are set to be offered.

And the biggest headline is the plan to sell a 5% stake in the oil giant Aramco via the biggest IPO ever to raise another $100 billion.

Yet none of the attempts so far have been effective in addressing the kingdom’s economic woes. Austerity measures are seen as short-term solutions, and little progress has been made regarding Aramco’s IPO first unveiled more than a year and a half ago. The potential $800 billion up for grabs can be a timely solution.

Even though Saudi Arabia’s economy is staggering, the royal family unofficially known as “Al Saud Inc.” has shown few signs it’s willing to share the burden.

On a visit to Russia this month, King Salman brought 1,500 people, a golden escalator, his own carpets and booked out two luxury Moscow hotels, according to people familiar with the details.

The king also spent $100m on his annual summer holiday to Morocco, visiting his 74-acre purpose-built summer palace.

Yet, the king is the king, and lavish spending is hardly surprising. Saudi Arabia’s anti-corruption champion and reform hero, however, was expected to be different. The Crown Prince, who is leading an austerity drive at home, has recently been named as the bidder who paid a record $450.3 million for a 500-year-old painting by Leonardo da Vinci, according to a Wall Street Journal report.

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