It’s now 24 hours until the previously rumoured and then quietly canceled “Day of Rage” in Saudi Arabia. In similar fashion, many of the past week’s bold predictions about the situation in Saudi Arabia have also fizzled.
As a long-time veteran of Middle East investing, I have been listening to the recent commentary with quite some interest. My conclusion: the West completely misjudged the Saudi situation. Here is my list of the past week’s worst assessments of the current happenings in the desert kingdom.
“The +$35 billion in newly announced reforms is a bribe.”
The government’s announced economic programs were widely cited as a type of political bribe. There is certainly a political dimension to this (i.e., people who depend on government jobs normally don’t openly protest) but this was overwhelmingly an economic reform. Per my blog on this, the King brought an economic sledge hammer down on Saudi Arabia’s main economic problem today – the increasing unaffordability of life for segments of the population.
And this is keeping within past measures and within the Saudi form of local government. It is not some new thing thought up, more an extension of current practices. When the Chinese government perceives an economic problem its tool of choice is directing credit through its state-owned banks. When the Saudi government perceives an economic problem, it reaches out through government employment and subsidies. It is one of their primary economic tools (and it usually works).
“Saudi Arabia is unstable and its fall is inevitable.”
This week saw some bold predictions on the stability of the entire country. How exactly is Saudi Arabia unstable? In recent years it was the one country that barely noticed the financial crisis. And before that it has arguably been one of the most stable countries of the last century.
Founded as a modern state in 1932, Saudi Arabia is now coming up on 80 years as a continuous monarchy, free of instability, civil war or other major disruption. Compare this to Europe, Russia, Asia, or especially other Middle Eastern countries. America itself is only about 150 years from its civil war.
As for a fall being inevitable, this argument usually follows from the young demographics of the country (more than half the country was born after the first Iraq War) or its unemployment rate. This is a theoretical macro-argument. And while it could happen, I do not see a shred of evidence in reality on the ground that indicates it is even a possibility today. Also, take a quick look at Saudi Arabia’s balance sheet some time.
“The King and his likely successor are in their eighties”
This is not a prediction but it is brought up in virtually every article. The implication being that there cannot be an orderly succession? Why not? There have already been quite a few.
It implies that the leaders are somehow out of touch? That there is a demographic disconnect? My experience has been that there is now in Saudi Arabia a very deep bench of skilled people – both in business and government. In fact, in the last 10 years, we have seen a quantum increase in the sophistication of Saudi professionals.
“Riyadh and Jeddah are hot-spots to watch this week.”
Well, yes Riyadh and Jeddah are always hot. It’s a desert country. But there was little to no chance of anything as dramatic as a “day of rage” happening (there could be some rage among options traders who bet oil would hit $200 per barrel). Nobody really thought this would happen.
I reiterate the main point from my previous post on this, Saudi has serious but not critical long-term problems. And there are clear workable solutions to these. My ex-boss, Prince Waleed, published one such solution in a recent New York Times Op-Ed.
Saudi Arabia is simply not the same type of situation as Egypt or Libya – where you have catastrophic problems and populations who feel they have nothing left to lose. My predictions for Saudi Arabia remain the same. The short-term economic measures will be economically successful. And everyone will keep watching for any movement on the longer-term reforms.
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