Saudi Prince’s Year of Prestige Is Unraveling in Front of Him

Saudi Prince’s Year of Prestige Is Unraveling in Front of Him

(Bloomberg Businessweek) -- The courtyard around the Grand Mosque in Mecca should be teeming with hundreds of thousands of pilgrims marking the start of Ramadan. Instead, it’s deserted: The coronavirus pandemic has hit the city where the Prophet Mohammed was born.

Saudi Arabia’s health minister appealed for social distancing during the month of abstention, a time of large gatherings at iftar, the daily meal at sunset to break the fast. On state-run Ekhbariya TV, doctors and nurses are hailed as heroes as they test foreign workers living in cramped quarters and hand out medical supplies in plastic bags with a rose sticking out of each one.

The country’s response to Covid-19 was to lock down quickly, winning praise from many Saudis. Tourism is at a standstill worldwide, hitting the finances of many nations. The economic impact of the pandemic, though, couldn’t have come at a more pivotal time for Saudi Arabia.

This was supposed to be Crown Prince Mohammed bin Salman’s year. For 2020 the plan was for Saudi Arabia to exhibit some of the first fruits of its great modernization project—from a record number of Muslim faithful visiting holy sites to new industries and entertainment that showed the society had become more open and could one day thrive without oil. Then in November, the 34-year-old prince, the kingdom’s de facto leader, would claim the spotlight on the world stage by hosting his fellow Group of 20 chiefs.

A combination of his own actions and calamitous world events is now throwing up some tough questions for the prince over whether his economic dream remains attainable in its current form.

For all Crown Prince Mohammed’s efforts to crush dissenters at home and silence his critics abroad, his role in escalating an oil war with Russia showed a rashness that’s marked some of his decisions—including a failed boycott of neighboring Qatar and a disastrous military campaign in Yemen. There was also the gruesome murder in 2018 of columnist Jamal Khashoggi by Saudi agents on his watch. No leader, though, could have predicted the coronavirus crisis.

The hush of Mecca and Medina is now the most striking illustration of the challenges facing a prince who staked his leadership on bringing economic prosperity to a nation where two-thirds of the population is under the age of 35.

Saudi Prince’s Year of Prestige Is Unraveling in Front of Him

According to a blueprint Crown Prince Mohammed unveiled exactly four years ago, called Vision 2030, one of the aims was to increase income from religious visits to Islam’s holiest cities. Saudi Arabia planned to enable 15 million Muslims, mainly from abroad, to perform the minor pilgrimage called Umrah to Mecca this year, almost doubling 2019’s arrivals. This was to be achieved by increasing capacity and improving the quality of the services offered to visitors. But coronavirus restrictions prevent travel. Mecca remains in total lockdown with the country’s highest number of Covid-19 cases, even as the curfew has been eased elsewhere.

In truth, the grand transformation plan was already faltering before the pandemic spread across the world and oil prices crashed. Bringing in more pilgrims and opening to tourism weren’t the only ways Saudi Arabia intended to boost the private sector and diversify the economy away from oil. Its most eye-catching megaprojects include the futuristic city of Neom on the Red Sea and a 334-square-kilometer (129-square-mile) entertainment, arts, and nature site on the outskirts of the capital, Riyadh. All are dependent on a healthy budget, foreign investment, and attracting skilled labor from abroad.

“Although it was difficult before, now it’s close to impossible to deliver on all elements of the vision,” says Ayham Kamel, head of Middle East and North Africa at the Eurasia Group consultancy. “This level of pressure requires a rethink of the grand plan rather than the minor details here and there.” It leaves Crown Prince Mohammed having to make “difficult choices in terms of what he wants for diversification, the megaprojects, investments in assets abroad and at home,” he said.

Kamel says the short-term impact will be felt mostly economically, but the political cost will accumulate over the long term. The kingdom has already moderated its positions on Iran and Qatar and announced a ceasefire in Yemen in April after months of trying to seek an exit strategy, he said.

Saudi Arabia’s economy still hinges on petrodollars, despite the prince’s insistence in 2016 that by this year the kingdom would be able to “live without oil.” With such a young population, the government can’t continue being the main employer and needs to create jobs in the private sector while bringing more women into the workforce.

Significant progress has been made to develop cinemas and concert venues and in lifting non-oil revenue with taxes and fees. But the oil shock resulting from the price war and then the impact of the virus are making it difficult to fund projects and investments when more than 60% of revenue this year was meant to come from sales of crude.

At a news conference on April 22, Finance Minister Mohammed Al-Jadaan assured Saudis the kingdom has been through similar crises in its history and “was able to pass through them.” The vast Public Investment Fund has accumulated stakes in European oil companies and a concert promoter and is in talks to buy an English Premier League soccer club.

But Al-Jadaan also said the country might end up borrowing as much as 220 billion riyals ($58 billion) this year and the government is assessing additional spending cuts. The Saudi economy needs oil at roughly four times the current prices to balance its budget while the central bank depleted its net foreign assets in March at the fastest rate in at least two decades. That’s left the kingdom staring at a different reality.

“Saudi Arabia and young Saudis, the prince’s main constituency, are going to face another new normal: a poorer country, slow economic growth, even a weaker private sector,” says Karen Young, a resident scholar at the American Enterprise Institute.

For the time being, the emphasis in the kingdom is on highlighting the slew of measures the government has announced to aid businesses during the virus shutdown, including a plan to cover 60% of the salaries of some Saudi nationals working at private firms. In total, the state has pledged 177 billion riyals ($47 billion) of support, though that includes extra allocations for the health sector.

Known as MBS, Crown Prince Mohammed has been the face of the new Saudi Arabia since he sidelined opponents—often through his security forces—to cement his position in 2017. Yet it’s notable that his father, King Salman bin Abdulaziz, who represents a more cautious and stable generation of Saudi leaders, has assumed a prominent role during the coronavirus crisis. The monarch made a speech at the start of the national quarantine in March and another, through his acting information minister, welcoming Ramadan.

“Because of the oil price crisis and the Covid crisis, the prince would want his father to be there,” says Yasmine Farouk, a visiting fellow in the Middle East program at the Carnegie Endowment for International Peace, a global policy think tank. “As long as the king is there, in this phase, MBS is probably secure.”

Indeed, there’s a lot of goodwill toward Crown Prince Mohammed as the kingdom works to fight the virus. But once it’s under control, the focus will be on the main challenges facing the kingdom, says Kamran Bokhari, director of analytical development at the Center for Global Policy in Washington, D.C.

The prince has worked hard to ensure he doesn’t have an organized challenge to his power, “but that’s like a bare minimum,” says Bokhari. If he doesn’t deliver on his promises, he will be “a weak monarch struggling with a lot of social and political problems at home, along with external threats.”

©2020 Bloomberg L.P.