In February 2019 the Crown Prince of Saudi Arabia –
the largest Kingdom amongst the GCC held a state
visit to India. Little is known about this country with the
exception that it is the largest producer of oil globally.
Muhammad Bin Salman born on 31 August 1985 is
known to his close associates as MbS. He assumed
office on 21st of June 2017
ushering a new era of
modernization in the Kingdom. To begin with, he
dismantled the once feared religious police, allowing for greater freedom for his people.
With malls in the capital crowded with shoppers and
younger folk keen to increase their spending on
entertainment and fashion, MbS embarked on his “Vision 2030”
– an ambitious plan to diversify his
economy from an oil producing nation to one that is
aimed at creating jobs in retail, tourism and banking.
The Saudi stock market is up 9% in CY 2018 and the
GDP is projected to grow at 1.9% with the non-oil
sector by 2.3% for CY 2019. But one asks the
question – is this is reality or just a mirage?
Case in point - the stock
market. On the outside it
looks healthy but dive deep
into the analysis and one
would find that the
secretly propping it up by placing
huge bets to counter selloffs.
This links into the political crisis the Kingdom is
facing with MbS flexing his muscles by arresting those that oppose him. The GDP figures are also misleading
with the economy tied to oil receipts and little data to
support the view that the diversification strategy of
Vision 2030 is in execution mode.
Notwithstanding the critics, MbS went ahead to attract
foreign investments to the Kingdom with a
mega investment conference in Riyadh in October 2018 only to be overshadowed with the murder of Jamal Khashoggi an exiled Saudi journalist, in the Saudi consulate in Turkey. Rich Saudis in an attempt to protect their wealth moved $80 billion out of the Kingdom to safer heavens last year.
Foreign direct investments fell
to $ 1.4 billion in 2017 from $
7.5 billion a year before. For
an economy with a fast-rising
population, pulling out of a
recession due to the drop-in
oil prices lacks the punch in
performance. With a GDP
growth rate of 1.5% MbS
attracts investors by showcasing state directed mega projects like Neom, a futuristic $ 500 billion city on the
north western coast staffed by robots. On 10th December he laid the foundation stone of yet another mega project – Spark – the “energy city” in the East meant to create 10,000 jobs. Both seem to far from reality.
Rising oil revenues and austerity drives for example, a cut in subsidies and introduction of a 5% value added tax, have helped reduce the budget deficit. The government has increased public spending with Saudis spending more.
Despite this, retail sales are sluggish and the number of retail jobs have fallen by 177,000 negating the very framework of Vison 2030. Jobs in the most crucial areas of the policy that MbS is attempting to execute are hard to take off.
Inspite of the issues, young Saudis speak highly of MbS. They believe that he is attempting to make a change
despite the rash decision making in some cases. Yet without
foreign money, the Prince will find it difficult to build his country in a manner that will keep the Saudis happy.
Till then, look before you leap. The Kingdom of Saudi Arabia will continue to allude investors with its secrecy. SELECT INVEST RELAX the Phundoway always!
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