In the past decade, Saudi Arabia has undergone a significant transformation under the leadership of King Salman and his son, Crown Prince Mohammed bin Salman (commonly known as MBS). While the veil of autocracy remains intact, the country has shifted considerably in terms of social reforms and economic aspirations, signaling a complex interplay of progress and persistent challenges.
A decade ago, Saudi Arabia was characterized by rigid gender segregation and stringent societal restrictions. Women were largely barred from public life, prohibited from driving, and required to obtain permission from a male guardian to travel. This environment has changed remarkably, with women now asserting their rights to work and travel independently. Many have exchanged traditional attire for a headscarf, symbolizing a broader movement towards social liberalization. The disbanding of the religious police and a reduction in the emphasis on religious instruction in schools reflect an ongoing effort to modernize the nation’s cultural landscape. As noted by The Economist, these changes have brought Saudi Arabia into closer alignment with its Gulf neighbors and other countries in the region.
Nevertheless, the narrative of reform is counterbalanced by the reality of an autocratic regime that is quick to suppress dissent. Reports indicate that while the kingdom has shifted its stance on sponsorship of extremist activities, it maintains rigid control over political expression. Crown Prince Mohammed bin Salman, despite being characterized as a rational and pragmatic leader, continues to wield significant power without accountability, leaving the political landscape largely unchanged in terms of true democratic governance.
Amidst these social changes, MBS is also spearheading ambitious economic reforms under the banner of Vision 2030. This initiative aims to transform Saudi Arabia from a petroleum-dependent economy into a diverse economic powerhouse. The stark reality, however, is that the kingdom still relies heavily on oil revenues. Official figures indicate a decrease in oil’s contribution to GDP, from 36% in 2016 to 26% in recent years. When including all activities related to the oil and gas sectors, however, the dependency soars to nearly 48%, as reported by the World Economic Forum. Furthermore, oil accounts for approximately 60% to 75% of government revenues, evidencing the fragility of the social contract that underpins the Saudi state.
The pressing question arising from this economic model is sustainability, particularly given the fluctuations in global oil prices. The International Monetary Fund (IMF) anticipates that Saudi Arabia needs oil prices to exceed $90 per barrel to maintain budgetary equilibrium. Currently hovering around $60, prices may not escalate significantly in the near future. Goldman Sachs has further adjusted its year-end projections for Brent crude, predicting a price of $60 in 2025, with a lower estimate of $56 for the following year. Should oil prices stagnate near the projected levels, the kingdom could face a substantial budget deficit estimated at $70 billion to $75 billion, a figure that would necessitate increased borrowing or cuts to government spending, both of which could have widespread effects on the economy and financial markets.
Despite the challenges posed by lower oil prices, Saudi Arabia’s current debt-to-GDP ratio stands at just under 30%, offering relative leeway compared to major economies such as the United States and France, which have ratios exceeding 120%. The Saudi government retains significant borrowing capacity, but absorbing an influx of $75 billion in debt issuance would pose market challenges. Analysts suggest that major development projects, particularly the ambitious Neom project, could see significant scaling back amid fiscal constraints.
Concurrently, the government is pursuing diversification strategies to stimulate sectors beyond oil. There has been a notable influx of reforms aimed at fostering new industries, including tourism and technology. The construction sector is booming, aided by relaxed mortgage lending regulations, while the domestic tourism market has surged, going from approximately 60 million overnight stays in 2016 to over 100 million in 2023. However, these opportunities are frequently overshadowed by the government’s overwhelming presence in key markets, which has stifled private investment. With about half of the male workforce employed as civil servants, the intertwining of business and political connections remains a significant factor for economic engagement.
Looking ahead, Saudi Arabia aspires to position itself as a leader in emerging technologies such as artificial intelligence. The establishment of the state-owned AI company Humain has led to substantial partnerships with major U.S. corporations, including Nvidia and Amazon Web Services, marking a bid to develop a robust tech ecosystem. Furthermore, the kingdom is in negotiations with prominent firms concerning its burgeoning ambitions in the AI sector, including potential collaborations with OpenAI and several venture capital initiatives planned to spur innovation.
While the social reforms initiated under MBS have brought a degree of international attention and potential goodwill, the overarching question remains whether these changes can lead to sustainable economic transformations. The current reform trajectory, albeit promising, is in its nascent stages and may require more robust efforts to truly diversify the economy and create a climate conducive to genuine entrepreneurship.
In summary, Saudi Arabia is at a critical juncture, balancing an evolving social landscape with entrenched autocratic governance and economic vulnerabilities. The vision outlined in Vision 2030 may still hold potential for reshaping the kingdom’s future, but the path forward will depend on the government’s ability to manage its economic dependencies while fostering an environment that promotes genuine innovation and attracts foreign investment. Such challenges will redefine the very fabric of Saudi Arabian society and its role on the world stage for years to come.