Doing the work: MBS’ true legacy

Richard Wilson
Richard Wilson
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This month marks eight years since the launch of Saudi Arabia’s Vision 2030. While most Americans (and members of Congress) couldn’t tell you what Vision 2030 entails, they probably have an opinion on LIV Golf, NEOM or Cristiano Ronaldo.

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Given our clickbait, short-attention-span media reality, we can’t really be surprised that Saudi Arabia’s splashy external investments and massive ‘giga’ projects are the glitter that catches the eye of the inattentive.

In fact, while the Kingdom’s high-profile investments and massive construction projects actually do serve a purpose, the truly meaningful change that should matter to Americans and its elected officials is happening elsewhere.

Mohammed Bin Salman’s (MBS) lasting legacy for Saudi Arabia will be his unstinting commitment to systemic economic and fiscal reform. MBS is a Vision 2030 true believer and a relentless administrative and bureaucratic bulldozer who recognizes that the work required to achieve Saudi Arabia’s goals is more fundamental than flashy.

Like his father, Crown Prince Mohammed Bin Salman arrives early, stays late and, by all reports, has an eerie grasp of details of countless projects, sectors, and initiatives. Ministers, who in the past tended to behave like tenured professors, are now compelled to keep similar hours, hit strict benchmarks, and constantly prove their worth.

The ‘work’ includes top-to-bottom reform of the Kingdom’s legal, judicial, and regulatory framework. It is unglamorous and often politically difficult. It entails the touchy business of codifying sharia law to integrate internationally accepted legal and judicial practices. As a result, three new laws have come into effect. The Personal Status Law deals extensively with the rights of women, in particular. The Civil Transactions Law has over 700 articles concerning financial transactions and contracts, critical to assuring transparency and legal recourse. The Law of Evidence also covers civil and commercial transactions.

These changes are comprehensive and profound and one reason the World Bank recently reported that “When it comes to laws affecting women’s decisions to work, laws affecting women’s pay, constraints on women starting and running a business, and laws affecting the size of a woman’s pension, Saudi Arabia gets a perfect score of 100.”

Beyond new major laws, Saudi Arabia’s regulatory environment has been largely overhauled; from getting a visa and a driver’s license to intellectual property protocols, dispute resolution and data protection laws.

Also important to spurring investment is Saudi Arabia’s increasingly transparent government budgets. A very short time ago, finding reliable data on public spending in Saudi Arabia was nigh on impossible. The Saudi government now publishes executive budget proposals for the coming year beginning in July. In its 2023 Fiscal Transparency Report, the US State department commended Saudi Arabia, noting, “When actual revenues and expenditures did not reasonably correspond to those in the enacted budget, the government produced and publicly issued revised budget estimates. The supreme audit institution met international standards of independence and followed up on its findings.”

Launched in 2017, Saudi Arabia’s Fiscal Sustainability Program strengthens oversight of public finances, improves tax administration and fiscal management and planning. The National Debt Management Center, established with IMF assistance, is also part of the Fiscal Sustainability Program.

Critically for potential investors, as Saudi Arabia has improved its fiscal data, research, and management it is able to move toward a more countercyclical fiscal policy. A 2022 IMF study found that when revenues increase, GCC states have historically, “deepened their dependency on oil and gas, increased wages and hirings in the public sector, expanded social safety nets, and ramped up capital expenditure.”

This boom/bust cycle not only reinforces detrimental spending habits but undermines the confidence of potential long-term investors.

With a firm grasp of its fiscal situation and its borrowing capability, in 2023 Saudi Arabia maintained spending by running a deficit and is expecting to run deficits through 2026. A reassuring signal that its enormous and attractive pipeline of projects will continue to be funded regardless of energy markets.

The work also includes reinventing a sleepy sovereign wealth fund to become the main driver for economic diversification in the Kingdom. Like MBS, the most significant role of the Public Investment Fund (PIF) can be overlooked. PIF’s high-profile investments in golf, soccer and a variety of other sectors have their strategic, financial, economic, and even domestic social logic. The reality is, though, that the PIF deployed almost 80 percent of its assets domestically in 2022.

Conversely, the Qatar Investment Authority, Abu Dhabi’s Mubadala and Singapore’s Temasek invest only about 25 percent of their wealth at home.

The PIF has now established 92 portfolio companies with $40-$50 billion deployed domestically each year (and a commitment to deploy $70 billion annually after 2025). The PIF has not only catalyzed potentially lucrative sectors such as tourism, entertainment, mining, and sports, it has also compelled internationally accepted accounting practices and transparent bid processes in sector after sector.

The reimagined PIF, largely an MBS creation, deserves not a little credit for the fact that Saudi Arabia’s non-oil revenues reached 50 percent of GDP in 2023, the highest level ever with private-sector investments growing 57 percent to a record high of $254 billion.

As a result of doing the unglamorous but foundational work of economic reform, Saudi Arabia, already the largest economy in the Middle East (18th largest in the world), with a GDP that tipped over $1 trillion in 2023 is now firmly a Middle Power that features an increasingly reliable regulatory and judicial environment, remarkably easy access and a government with the means and intent to maintain investment even in downturns.

From the US perspective, Saudi Arabia has always had tremendous geostrategic, financial, resource (energy) and political (think Arab and Muslim worlds) value.

Vision 2030’s commitment to meaningful economic reform and the improved governance that underpins it is now creating a more stable, predictable, and transparent Saudi Arabia. Ultimately, this is the MBS legacy that matters most. Americans should take note.

Read more:

Saudi Arabia is not abandoning upstream investment

Saudi Green Initiative: Targets and progress so far

How Saudi Arabia is building its digital sporting infrastructure

Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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