Note: This item was originally published at SUSRIS, the Saudi-US Relations Information Service (SUSRIS.org).
Lucien Zeigler | SUSTG
In the world of international business, Prince Alwaleed bin Talal has earned a reputation for big bets. And he’s ready to make another one on the Saudi economy according to Ulf Laessing writing for Reuters.
Alwaleed is one of the most well-known Saudis internationally, and is known for his business savvy and vast private wealth. Alwaleed owns Kingdom Holding Co., which owns a large stake in Citigroup and other well-known corporations, and also owns Rotana, a media company. His staggering personal wealth places him among the world’s richest, as Arabianomics wrote earlier this year in an analysis of the 2010 performance of his holdings.
Prince Alwaleed feels that the huge dip in the Saudi market on March 2nd was not justified, and the economy overall is strong and getting stronger. After all, Saudi Arabia was well-shielded from the worst of the global economic recession, and has reinvested large sums of treasure in diversifying its economy and renewing education as a priority, signs the Kingdom is planning beyond reliance solely on oil revenue.
Uncertainty is what drives both investments and sell-offs for global markets and uncertainty breeds speculation; and for market speculators, the getting is good these days. But there are few individuals with the capital that Alwaleed can swing, and in this time of great market uncertainty, especially with respect to Saudi Arabia, Alwaleed is bullish.
The vacuum created by the March 2nd dip in stock prices on the Tadawul created an opening for investors that believe in Saudi stability. Since the dramatic drop, the bourse has recovered 14.8 percent. Despite the planned protests by some in Saudi Arabia on Friday, the so-called “Day of Rage,” investors in the Kingdom are apparently confident that a rebound in the market and the economy as a whole is imminent, and that talks of destabilizing unrest in the Kingdom are overblown.
A strong economy theoretically breeds content, but what is crucial for Saudi Arabia is addressing the underlying issues that limit the Kingdom’s potential, the need for economic reforms, in addition to the efforts at wealth distribution, as marked by the recent $36B social services package, provided by King Abdullah. Writing in the “Financial Times” Beyond Brics blog, Simeon Kerr notes:
“More handouts may help tamp down unrest, but they won’t change a structurally deficient economy, overly dependent on the state oil sector, with an education system that is similarly ill-equipped to train its people for useful work.”
Employment of Saudi Arabia’s youth is just one issue and its importance was recently the subject of BSFChief Economist John Sfakianakis’ report on the “Employment Quandary” in the Kingdom. He wrote that “For years, improving the quality of education in a bid to engage youth in the kingdom’s expanding economy has been a top state priority. Saudi Arabia’s budget dedicated to education spending has more than doubled in size since 2005.” However, he added that only one in ten private sector employees in the Kingdom were Saudi citizens, a situation that “must be drastically reversed if the private sector can shoulder the burden of future job creation.”
Also at issue is Saudi Arabia’s housing sector, which requires a new mortgage law to make housing more affordable and allow Saudis to purchase homes in a market more oriented toward buyers. And, of course, Saudi Arabia’s tech-savvy population is interested in having a greater voice in society, as many youths are, even in democracies. As Prince Alwaleed wrote in an important New York Times op-ed last month, challenges are plenty but none are insurmountable:
“Disheartening as [the] Arab condition may be, reforming it is neither impossible nor too late. Other societies that were afflicted with similar maladies have managed to restore themselves to health. But we can succeed only if we open our systems to greater political participation, accountability, increased transparency and the empowerment of women as well as youth. The pressing issues of poverty, illiteracy, education and unemployment have to be fully addressed. Initiatives just announced in my country, Saudi Arabia, by King Abdullah are a step in the right direction, but they are only the beginning of a longer journey to broader participation, especially by the younger generation.”
The economic status quo in Saudi Arabia is not as it was or is in other Arab nations. It is the Arab world’s largest economy, has the world’s largest reserves of petroleum, has measurably diversified its economy in the last decade, and is ruled by a popular and respected King, both domestically and internationally. Recently, Citibank released a study and found that Saudi Arabia is likely to be the world’s 6th largest economy by 2050. Indeed, preeminent CSIS scholar Anthony Cordesman recently wrote that:
“Every crisis in the Middle East since the time of Nasser has led to a new round of speculation about Saudi Arabia and the future of the monarchy. Yet, it has now been more than half a century since that speculation began and Saudi Arabia has not changed its regime As other countries in the region have shown all too clearly, a history of stability is no guarantee for the future, but it is important to note that Saudi stability has been the product of the fact that its government has dealt with each wave of change by making the reforms that are critical to maintaining popular support.”
Prince Alwaleed’s big bet on the Saudi Economy and reports that meaningful changes are afoot on long-stalled issues in the Kingdom help to paint a bullish picture for the country’s economy and stability in the years ahead.
-Lucien Zeigler is Research Director of the Saudi-US Trade Group, a Washington D.C.-based non-profit, and is Publisher of Arabianomics.com. He is a master’s candidate in International Commerce at George Mason’s School of Public Policy.
Edited by Nikhil Jham.