The Saudi government sought to confiscate cash and other
assets worth as much as $800 billion in ostensibly cracking down on corruption in late 2017.
More than 60 princes, officials, and business practitioners were initially detained.
Both the figure and the number of arrests reflect merely “the initial stages”
of asset seizures and arrests, according to a Saudi spokesman.[1]
It was not long before 500 had been detained.[2]
I submit that both the swiftness and scope left international investors and
foreign businesses in Saudi Arabia unnecessarily
rattled. Doubtless uncertainty as to the real reason for the crackdown unnerved
the business elite. Corruption was endemic in the Saudi political economy, so
the sudden need to crack down on it understandably left people to wonder as to
the real reason, which, as it turns out, was nothing for business to fear.
The first point to make regards the spuriousness of the
prime facie anti-corruption motive. At the time, Saudi laws “included little or
no regulation of the sprawling royal family and its closest clients.”[3]
For example, a major Saudi investment firm founded by one of King Salmon’s sons
and then chaired by another owned “a significant stake in a conglomerate” that
did “extensive government business.”[4]
Indeed, princes “were known for borrowing money and simply never paying it
back, which nearly led to the collapse of the National Commercial Bank.”[5]
Prince Alwaleed bin Talal, curiously one of the detainees, told the American
ambassador in 1996 that a handful of senior princes controlled billions of
dollars in off-budget programs.”[6]
Bringing about accountability in princely self-aggrandizement at the expense of
the government can only be an oxymoron when said government belongs to the royal family. To apply
democratic accountability would only be to demonstrate a foreigner’s base
ignorance of the Saudi political economy.
The New York Times observed at the time that “if corruption
is defined as private profit at the public expense, the practice is so
pervasive that any measures short of revolutionary change may appear to be
selective prosecution.”[7]
Such change was clearly not in the cards. Doubtless the Crown Prince, who
headed the anti-corruption force, shielded his allies and supporters and took
advantage of the opportunity to take some detractors out of play, but his
motive likely went beyond merely consolidating power, given the precariousness
of the economy’s oil-dependency in the twenty-first century amid global calls
for lower use of fossil fuels. Indeed, being dependent on any industry is not sound economic practice for any government or
ruling family.
Crown Prince Mohammed bin Salman said that going after
corruption at the highest level would be necessary to moving the Saudi economy
off its dependence on oil, but the pervasiveness of “unlawful gain”—as if the
law touched the royal family—undermines the claim. Were the Crown Prince
determined to rid the political economy of corruption, an entirely new system
would be needed; such a prospect would indeed legitimately raise caution-flags
among investors and businesses, but they needn’t have worried as corruption
itself was still safe in Saudi Arabia given the continuance of the royal family
as the economic and political sovereign.
The riddle as to the actual motive is solved once it is
realized that the assets seized would go to the state, and thus be available
for investment to diversify the economy. The prolonged period of low oil prices
had “forced the government to borrow money on the international bond market and
to draw extensively from foreign reserves, which dropped from $730 billion at
their peak in 2014 to $487.6 billion in August” 2017.[8]
Eurasia Group, a political risk advisory firm, claimed that the crown prince
needed “cash to fund the government’s investment plans.”[9]
Like other countries in the Middle East, Saudi Arabia was facing time pressure
to diversity economically while oil-money could still make it possible. The low
oil prices simply meant that more than on-going oil revenue would be needed. So
rather than being spooked by the uncertainty unleashed in the dramatic
crackdown, investors and business practitioners having an interest in the Saudi
economy should have felt more secure, for a diversified economy enhances
stability for the long term.
[1]Margherita
Stancati, “Saudis Target Up to $800 Billion in Assets,” The Wall Street Journal, November 8, 2017.
[2]
Nicholas Kulish and David Kirkpatrick, “Arrests Reveal Blending of Kin and
Kingdom,” The New York Times, November
8, 2017.
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8]Margherita
Stancati, “Saudis Target Up to $800 Billion in Assets,” The Wall Street Journal, November 8, 2017.
[9] Ibid.
