Lost in the headline generating buzz around Mohammed bin Salman’s determination to plow $2 trillion into the Public Investment Fund (PIF) and turn it into the world’s largest sovereign wealth fund were some intriguing insights into how he believes he will, almost singlehandedly, transform the Saudi economy.
In his 4 April Bloomberg interview, the deputy crown prince and chair of the hugely powerful Council for Economic and Development Affairs (CIDA), reaffirmed his determination to take Saudi Aramco public by selling off a small portion, less than 5%, of the parent company. How big a shift is that? Well, as Capital Economics’ William Jackson notes “following the IPO of Aramco, the government will transfer its remaining shares in the company, as well as some real estate assets, to the PIF, which will increase its size. In other words, it reflects a shift on balance sheets, rather than any new assets.” So not the big news that it at first might seem to be. No, the big news lies elsewhere.
Where Mohammed bin Salman really put flesh on his plans for an economic revolution (first outlined in an interview he gave to the Economist magazine in January), was by targeting the country’s health care system. Where, with the NHS, UK politicians have always feared to tread, the deputy crown prince boldly strode forward, declaring his intention “to get rid of all the assets owned by the government and transfer them into a holding company.”
Replacing a service that is free at source with comprehensive health insurance is a huge gamble, one that the prince seems happy to take and one he believes Saudis will embrace – not that they appear to have much choice in the matter. According to the prince, citizens will be convinced that “services provided through health insurance are better than the free healthcare services and faster for them.”
He also singled out what he called “service ministries”, citing the interior ministry as a good practice example that has “privatised a lot of their services.” Naming the interior ministry, run by the crown prince Mohammed bin Nayef and arguably still the single most powerful ministry in the kingdom, as best practice is an unmistakable signal to other ministers that it is time to embrace the privatisation mantra.
On low oil prices the prince was sanguine: “For us it is a free market that is governed by supply and demand” and in such a climate he was happy to freeze production if the other big players agree. But should Iran choose to ignore a freeze then “we will not reject any opportunity that knocks on our door.”
Or put another way, if the Iranians attempt to flood the world market with their oil, then the Saudis will counter by increasing supply and driving the price of oil down even further, thereby inflicting great damage to the Iranian economy as it seeks to emerge from years of sanctions. Hydrocarbons as a weapon? It seems the prince has learned a thing or two from Vladimir Putin.
On America, Mohammed bin Salman was a little more emollient then he had been in the Economist interview. Gone was the scolding tone about the US not acting like the number one power in the world. In its place was affirmation that the kingdom remains “the main ally for the US in the Middle East and we see America as our ally as well.” America is, after all, still the world’s number one economic power, so a bit of fence-mending can’t do any harm.
Even Yemen saw a much less bellicose tone being adopted, from “is there any country in the world who would accept the fact that a militia (the Houthis) with this kind of armaments should be on their border?” to “there is significant progress in negotiations and we have good contacts with the Houthis.”
However lest anyone think that Mohammed bin Salman is mellowing consider the shot he put across the bow of the construction giant Saudi Oger, reputedly mired in corruption and unable to pay its workers.
The Saudi government has contracted and paid for several prestige projects, some of which sit idle and uncompleted. Said the deputy crown prince: “We have paid them many instalments but they have debt in and out of Saudi. So as soon as money is transferred to their bank accounts, the bank withdraws it. Saudi Oger can’t cover their own labour costs. That’s not our problem, that’s Saudi Oger’s.”
Of course it doesn’t help that the company is owned by the Lebanese Hariri family – Lebanon neglected to condemn the sacking of the Saudi embassy in Teheran earlier this year and the Saudis remain very cross about that.
Still, the real message here again is unmistakeable. Saudi Oger was once and not so very long ago a favoured firm that seemingly could do no wrong in the eyes of the ruling family. Now as Saudi Arabia is poised to embark on a long overdue affordable home building programme, construction firms are being told in no uncertain terms and quite publically to get their affairs in order.
The government will no longer be there to encourage excess and reward failure, if for no other reason than that housing is a key element in the coming Saudi economic revolution. So it’s deliver on time and within budget or face the wrath of Mohammed bin Salman.
Follow Bill Law on Twitter @BillLaw49