All eyes are turning to Saudi Arabia and it is going to be a fairly tense week in the world’s other magic Kingdom. As someone who has developed +$10B of high profile projects in that country, here is my assessment of what will and won’t happen.
Regarding the +$35 billion in announced reforms. These are mainly economic, not political, in nature. And you can expect them to be very successful in the short-term. They increase the salaries of government workers, move more of the population into government jobs, subsidise education, subsidise housing, and so on. The King is bringing a $35 billion sledge hammer down on the Kingdom’s most immediate economic problem – the increasing unaffordability of life for significant portions of the population. And it will work. In a country of 23M, $35 billion is a big hammer.
But does giving more people government jobs (the majority of employed Saudi men already work for the government), unemployment insurance, more subsidized education, interest free home loans and so on address any of the real problems? Not really. But short-term solutions are the order of the day.
It’s the important long-term reforms that everyone is thinking about, tensing up and watching for.
Step back and take a look at Saudi Arabia from 30,000 feet. There is 25% of the world’s oil wealth. The population is a fairly manageable 23M (and they are all capitalists as far as I can tell). You have particularly robust infrastructure and functional (albeit large) government. The politico-economic system has been fairly stable for 70 years. You have a unifying religion and culture. And you have some of the world’s greatest investors. You have everything a developing economy could ever hope to have.
So what exactly is the problem? Why did Dubai become a modern city in only 10 years while Riyadh, a much wealthier city, seems frozen in time?
Almost on cue, the region’s leading investor has recently spoken up about this. My former boss Prince Alwaleed released a particularly thoughtful Op-Ed in the New York Times calling for a combination of greater political participation and the empowerment of women and youth.
Women and youth constitute the majority of the population and are not part of the workforce today. I am no economist but when the majority of the population is not working, that seems an economic problem. He is basically calling for the political and economic engagement of both groups – which is a sledge hammer on the long-term economic problems. He is addressing the human capital problem that is the true difference between Riyadh and Dubai.
And it should work. In one move you can engage a massive, and particularly eager, population. It’s really pretty clever. After almost a decade sitting down the hall from Prince Alwaleed, I have come to be in awe of his ability to figure out realistic solutions to real-world problems. In a world of talkers, he is a proven prime mover.
That’s my assessment. A big effective short-term economic reform and maybe movement towards a longer-term one. The “Day of Rage” is this Friday. We’ll see what happens. I’ll probably be in line waiting for the iPad 2.
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