The Saudi authorities want to give up on oil and promise to make their country even cooler than the United Arab Emirates. EADaily’s correspondent has interviewed a European company manager, who has worked in both states.
Last year, Saudi Arabia unleashed a price war for oil and fell victim to it. This year, the Saudis will face a $100bn budget deficit. So, they are already beginning to spend reserves, to cut subsidies, to curtail construction and to raise petrol, water and electric power prices. The first blow was on expats: Saudi Binladin Group has recently fired as many as 77,000 expats. The next risk group is young people, who make up more than half of Saudi Arabia’s population and 1/3 of whom are jobless. In Apr 2016, Saudi Deputy Crown Prince Mohammad bin Salman Al Saud appeared with an ambitious Saudi Vision 2030 plan. Today, oil exports ensure 80% of the Saudis’ budget and 45% of their GDP. But, according to Salman’s plan, in just four years Saudi Arabia will stop being oil dependent and in 2030, oil will have no role in its life. Salman suggests large-scale privatization and huge private and semipublic investments in non-oil sectors, like tourism, defense, petro-chemistry, retail trade, education and health care.
Salman’s plan is very much like the program that has been carried out in the United Arab Emirates for many years already. But the Saudis are committed to go even further. Some experts see this as Salman’s endeavor to become a king. Others warn that this plan may face lots of challenges and may lead to a crisis.
The manager interviewed by EADaily has worked in the United Arab Emirates for 20 years already. Some five years ago, his company opened an office in Saudi Arabia. He was eager to answer EADaily’s questions but asked not to specify his name:
When they in the Middle East say that they are going to give up on oil, I remember a story from the global crisis of 2008. At that time, the Emirate of Dubai was carrying out two large investment projects: the World archipelago and the Burj Khalifa tower. When the crisis came, Dubai proved unable to repay the money it had borrowed for the projects. It was then that the Emirate of Abu Dhabi helped by lending $10bn. This is why the world’s highest tower is called Burj Khalifa – in honor of Abu Dhabi’s Emir Khalifa bin Zayed Al Nahyan. But the point here is that Abu Dhabi produces 95% of all oil in the UAE, while some emirates don’t have oil at all. Dubai has little oil. This is why its Emir is focused on tourism and real estate. But it was still oil that saved the emirate when the crisis emerged.
Today, the UAE is 30% dependent on oil, with the local authorities promising to reduce this dependence to 20% by the end of the 2010s. But in the UAE, this program was started as long as 20 years ago and the UAE is 10 times smaller than Saudi Arabia. But this is not the major difference. Although being both Islamic, the UAE and Saudi Arabia have very different attitudes towards the rest of the world. When in 1971 the UAE became independent, lots of Americans and Englishmen stayed there to help the locals to build their state. The Emiratis are grateful to them for this and today westerners are welcome in the UAE. In Saudi Arabia, all westerners live in special compounds. And the locals are not very hospitable.
Nobody will touch you in Riyadh, but you won’t still feel very comfortable there. If you look at Egypt, where all hotels are guarded by military men, you will understand what the problem is. In Saudi Arabia, people are more conservative and the risk of terrorism is high. The UAE is a cosmopolitan state - 4/5 of its population are expats. Here you will see lots of Indians, Pakistanis, Kazakhs, Egyptians, Syrians, Lebanese, Englishmen, Filipinos and very few local Arabs. Radical Islamism is strictly prohibited here. Last winter the local authorities arrested a group that sponsored radical Sunnis in Syria and Iraq and prosecuted a group that supported Shia Hezbollah in Lebanon. So, naturally, professionals from the West will be glad to work here. But if you invite them to Saudi Arabia, they will think twice. So, the Saudis will hardly be able to rely on professionals from the West and their key human resource will be cheap labor force from Asia.
It is not clear how the Saudis are going to solve the key problems that prevent them from developing private business. They are going to stop red tape, but this is also a matter of mentality. It is still hard to get a Saudi visa at once. They will always find some errors in your documents and it often takes a person as much as a year to get a work permit.
A year ago, our company was asked to shut down one of its plants in Saudi Arabia as the local authorities needed the land for some security purposes. But they did not care to say where we could move. They just told us to clear off. Our neighbor, a German concern, also received such a letter. Only months later we learned that the land had been allotted for a residential area. So, we just moved back to the UAE. In the meantime, we asked Saudi Aramco to register our bids for a number of private-public projects. A month later, they called us and said that thousands of companies are going to bid for the projects, so, we may hope to get registered in some four years at earliest.
Almost 70% of the Saudis are public employees. So, things will hardly change as Arabs are not good at private business and are not very much eager to work there. In the UAE, the authorities are doing their best to give jobs to all of their locals. Today you will find Arabs in almost all companies but this is a kind of a must for business. Companies are divided into categories depending on the percentage of Arabs in their staffs: A (more than 2%), B (2%) and C (less than 2%). The attitude of the migration and labor authorities towards a company depends on its category. Companies with a bigger percentage of Emiratis enjoy longer licenses and higher wages. There is an informal rule that Emirati employees should get at least twice as much as expats. In our company, there is an Arab manager who gets 8,000 AED ($2,700) a month, while an expat with similar duties gets no kore than $1,000.
In Saudi Arabia, the rules are even tougher: a company should have no less than 20% of Saudis in its staff. So, it is not clear how private business is going to endure this pressure.
The Saudi authorities say that in some sectors they will register companies fully controlled by foreigners. In the UAE, they keep promising this for five years already, but the rules are still the same: 51% of a company should be owned by Emiratis. Why aren’t they changing their rules? Because for many locals real or fictitious ownership is the key source of income. You can do nothing at all and get $1,000-10,000 a month just because you are a citizen and without you your foreigner partner is simply unable to work.
Tourism and free economic zones are the key drivers of the Emirati economy. But they will hardly take roots in Saudi Arabia. The key sights in Saudi Arabia are Mecca and Medina, but both are open for Muslims only. The Saudi authorities say that they are planning to enlarge the number of pilgrim tourists from 8mn to 30mn but they don’t say that most of them go to Hajj on a charity basis, while western tourists with their real money are mostly Christians and have no access to the sights. Saudi Arabia has no infrastructure for international tourism. In Jeddah, they have hundreds of hotels, but their four-star hotels are very poor, and only 70 meters of their 70-km-long coast are used as a public beach. Local landowners do not let anybody into their lands. Though the UAE is also a Muslim state, it is more liberal towards foreign tourists. In the UAE, public life stops only on Friday, during the Jumu'ah prayer, while in Saudi Arabia, they pray five times a day for an average of 40 minutes. So, you must not be surprised if you enter a shop or an office and suddenly they close it for half an hour.
The Saudis will hardly change anything for the sake of tourists or foreign investors. Alcohol in Saudi Arabia is strictly prohibited. In Dubai, you can have a good party. In Riyadh, this is impossible. If you try, you will buy alcohol there - but only illegally and for a huge price. In the UAE, in a licensed store, a bottle of Bacardi costs 60 AED or $20, while in Saudi Arabia we bought it for 1,200 AED or $328.
The Saudis have no plans to open free economic zones. For the Emiratis, this is the most beneficial way to contact with foreign markets. In the UAE, they already have over 40 such zones. In fact, this is the only way for them to boost their private business.
Official Emirati mass media have welcomed Salman’s plan, but local businessmen are just shrugging their shoulders and saying “Inshallah!” which means “If God wills so!” and seems to be the key principle of the Saudi plan: Inshallah and then we will see what happens.