Saudi business cheers leadership shift, frets over reform, region
Riyadh - The promotion of Saudi Arabia’s top economic reformer to crown prince cheered business leaders who said the move will open new opportunities. They worry, however, about officials’ ability to implement reforms and about geopolitical tensions in the region.
The Saudi stock market jumped 7% in the two days after Mohammed bin Salman bin Abdulaziz, previously deputy crown prince, was appointed first in line for the throne.
Part of the market’s rise was due to a decision by index compiler MSCI to consider upgrading Riyadh to emerging market status but much of the euphoria was political; shares in companies closely linked to Crown Prince Mohammed’s reforms were the top performers.
National Commercial Bank, the biggest lender, which is expected to play a big role handling financial transactions related to the reforms, surged 15%.
Miner Ma’aden soared 20%; Crown Prince Mohammed has labelled mining a key sector in his drive to cut Saudi Arabia’s reliance on oil exports. Emaar the Economic City, builder of an industrial zone that the prince hopes to develop as an export industry base, gained 16%.
Business leaders said the promotion of Crown Prince Mohammed, 31, removed political uncertainty by ensuring a smooth shift of power from an older generation of Saudi leaders to a young generation represented by the prince.
“The political transition was very smooth. We expect the reforms to continue,” said Muhammad Alagil, chairman of Jarir Marketing, a top retail chain.
He said Jarir, which has 47 stores, including 39 in Saudi Arabia, would open at least six additional stores this year and a similar number next year, mostly inside Saudi Arabia.
To some in business, Crown Prince Mohammed represents a fresh opportunity in the form of a $200 billion privatisation programme and state investment to help kick-start new industries such as shipbuilding, auto parts making and tourism.
Some executives predicted the progress of these plans, which are still largely on the drawing board a year after there were announced, would accelerate after Crown Prince Mohammed’s promotion.
“I didn’t see a risk of the reforms stalling or being reversed before, given the political backing behind them, but now the reforms can go ahead with more strength,” said Hesham Abou Jamee, chief executive at Alistithmar Capital.
He added that social initiatives in the reforms would help the economy by stimulating consumer spending.
For example, developing an entertainment sector, in a conservative society that has shunned many forms of public entertainment, would create jobs. The government plans to create an entertainment zone south of Riyadh that has facilities for sports and cultural and recreational activities.
Increasing the role of women in the workforce would boost family income and potentially accelerate the creation of small businesses such as restaurants, Abou Jamee said.
Crown Prince Mohammed is also the architect of a tough austerity policy that includes spending cuts and tax rises aimed at abolishing by 2020 a budget gap that totalled $79 billion in 2016. The austerity has slowed private sector growth almost to zero.
Many in business, however, saw austerity as inevitable in an era of low oil prices and were pleased by the prince’s willingness to moderate it to avoid a worse slowdown. To mark his promotion, Riyadh retroactively restored civil servants’ allowances at a cost it estimated at around $1.5 billion.
Privately, many executives said they expect Crown Prince Mohammed to persuade or pressure wealthy Saudis to repatriate some of the billions of dollars they are believed to have transferred overseas for safe-keeping.
It is not clear what tools he would use — moral suasion, legal action or financial incentives — but his promotion may have given him the political capital for such a sensitive step.
Businesses remain worried by two other issues, however.
One is the competence of the bureaucracy to carry out the complex reforms. The government talks of creating partnerships between the public and private sectors to finance projects, for example, but has not released legal frameworks for such deals.
“Many of the reforms are in name only, nothing has happened. They’re struggling with the details,” said a foreign economist who advises the Saudi government.
The other big worry is rising tensions around Saudi Arabia.
In addition to its military intervention in Yemen, Saudi Arabia is locked in a diplomatic confrontation with Iran, its allies are struggling in Syria’s civil war and it cut diplomatic and transport ties with Qatar.
For some in business, those tensions are at best a distraction for the government at a time when it needs to focus on the economy and at worst risk a more serious regional crisis that could deter foreign investment and endanger reform.