The King Abdullah financial district sits on the horizon seen from a skyscraper under construction in Riyadh, Saudi Arabia in January. (Washington Post)
After a year of plunging oil prices, all eyes were on Ibrahim Al-Assaf, Saudi Arabia's finance minister for two decades, to deliver a budget that could restore confidence in the kingdom's finances.
Yet it was Adel Fakeih, economy minister for just eight months, who strode onto a shiny green television set to announce spending cuts and subsidy reductions. Another familiar face missing that day was oil minister Ali Al-Naimi, whose words continue to move global crude markets as they have since 1995. Changes to domestic energy prices were explained by Khalid Al-Falih, chairman of Saudi Arabian Oil Co. and health minister.
The lineup at the end of December was one of the first signs of a shift in power to officials seen closely aligned with King Salman's influential son, Deputy Crown Prince Mohammed bin Salman, as Saudi rulers confront a harsh new era of lower crude prices. With many of the new policymakers holding private-sector resumes, their mission is to overhaul one of the world's most generous welfare systems through measures that were unthinkable a decade ago.
The world's largest oil exporter can no longer rely on "the old way of doing things," said Fahad Nazer, who worked at the Saudi embassy in Washington and is now a political analyst at JTG Inc. "The economic and demographic challenges to the kingdom are too great, and they need to be resolved and confronted and addressed forcefully and quickly."
For a country that "has very effectively avoided any genuine structural reform at an essential level for forever," turning around its fortunes will be very tough, said Crispin Hawes, London-based managing director at Teneo Intelligence. "The basic structure of the Saudi economy is what it was 30 years ago."
Net foreign assets fell by $115 billion last year as the government plugged a $98 billion budget deficit by issuing bonds and drawing on reserves. After decades of talk of diversification, more than 70 percent of government revenue came from oil in 2015 and the state still employs two-thirds of Saudi workers. Foreigners account for nearly 80 percent of the private-sector payroll.
Leading the attempted revamp will be the economic council headed by 30-year-old Prince Mohammed and the economy ministry, which under Fakeih has moved from being a peripheral body that churned out repetitive five-year plans to the center of policy deliberations.
Its officials try to reassure the international bankers flying to Riyadh, alarmed by dire headlines of economic implosion, explaining how the still-vague National Transformation Program will overhaul the Saudi economy and government by 2020. Fakeih relies heavily on foreign consultants, earning for his department the moniker "Ministry of McKinsey."
At a time when officials are promising to rein in public wages, the ministry has gone on a hiring spree, wooing current and former employees of Deutsche Bank, Banque Saudi Fransi and National Commercial Bank as advisers.
Fakeih began his career as a trainee with The Savola Group, a food producer and Saudi Arabia's fourth-largest listed company by revenue, rising to chairman. Even after he became mayor of Jeddah, he saw himself "as a businessman and not a bureaucrat," according to a 2006 U.S. diplomatic cable released by WikiLeaks.
"There is a sentiment that he has unchained or loosened the chains of bureaucracy everywhere he goes," according to Nazer.
Others with private-sector backgrounds include Health Minister Al-Falih, still chairman of the state-owned Saudi Aramco, and former real-estate developer Majed Al Hogail, who as housing minister introduced a flurry of regulatory changes, including loosening mortgage rules and introducing annual fees on undeveloped urban land.
Al Hogail understands the concerns of those in the real estate market because "he was part of the private sector and he felt the pain" when dealing with government, said Mazin Al-Ghunaim, CEO of Bidaya Home Finance. Al Hogail is often bouncing ideas off real estate professionals, attending workshops and meetings "which rarely happened before," Al-Ghunaim said.
By plucking officials from private companies, the government is implicitly acknowledging that "the way we run stuff isn't good enough," said Hawes.
Saudi officials say they plan to confront the oil-price slump by increasing foreign investment, privatizing government assets, improving accountability and introducing new sources of revenue, including a value-added tax.
"Everything that's happening now is, in reality, the beginning of a large program," Fakeih said during the budget deliberations.
Ibrahim Al-Ghelaiqah, a senior economist at the World Bank, says a "positive vibe" among officials convinces him Saudi Arabia could finally be embracing change. "For the first time, I feel that the vision coincides with political will," he said in Jeddah.
Still, the delay in fleshing out the national transformation blueprint, initially expected in January, worries some analysts and business leaders who have witnessed earlier false dawns.
Skepticism is warranted, said Fahd Al-Rasheed, CEO of Emaar Economic City, a port and industrial development on the Red Sea. "There's an issue of, what does this NTP mean?" he said, pointing to delays in releasing information on what it will entail.
"Once they announce it, and the private sector sees the impact, not just the pain," there will be a "massive confidence boost," Al-Rasheed said.
According to Hawes at Teneo, one test will be if over the next two years "anybody is able to generate real finance and build real companies on the basis of their real output, rather than the ability of the company to get a slice of the government pie."
© 2015 Bloomberg L.P.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
Yet it was Adel Fakeih, economy minister for just eight months, who strode onto a shiny green television set to announce spending cuts and subsidy reductions. Another familiar face missing that day was oil minister Ali Al-Naimi, whose words continue to move global crude markets as they have since 1995. Changes to domestic energy prices were explained by Khalid Al-Falih, chairman of Saudi Arabian Oil Co. and health minister.
The lineup at the end of December was one of the first signs of a shift in power to officials seen closely aligned with King Salman's influential son, Deputy Crown Prince Mohammed bin Salman, as Saudi rulers confront a harsh new era of lower crude prices. With many of the new policymakers holding private-sector resumes, their mission is to overhaul one of the world's most generous welfare systems through measures that were unthinkable a decade ago.
The world's largest oil exporter can no longer rely on "the old way of doing things," said Fahad Nazer, who worked at the Saudi embassy in Washington and is now a political analyst at JTG Inc. "The economic and demographic challenges to the kingdom are too great, and they need to be resolved and confronted and addressed forcefully and quickly."
For a country that "has very effectively avoided any genuine structural reform at an essential level for forever," turning around its fortunes will be very tough, said Crispin Hawes, London-based managing director at Teneo Intelligence. "The basic structure of the Saudi economy is what it was 30 years ago."
Net foreign assets fell by $115 billion last year as the government plugged a $98 billion budget deficit by issuing bonds and drawing on reserves. After decades of talk of diversification, more than 70 percent of government revenue came from oil in 2015 and the state still employs two-thirds of Saudi workers. Foreigners account for nearly 80 percent of the private-sector payroll.
Leading the attempted revamp will be the economic council headed by 30-year-old Prince Mohammed and the economy ministry, which under Fakeih has moved from being a peripheral body that churned out repetitive five-year plans to the center of policy deliberations.
Its officials try to reassure the international bankers flying to Riyadh, alarmed by dire headlines of economic implosion, explaining how the still-vague National Transformation Program will overhaul the Saudi economy and government by 2020. Fakeih relies heavily on foreign consultants, earning for his department the moniker "Ministry of McKinsey."
At a time when officials are promising to rein in public wages, the ministry has gone on a hiring spree, wooing current and former employees of Deutsche Bank, Banque Saudi Fransi and National Commercial Bank as advisers.
Fakeih began his career as a trainee with The Savola Group, a food producer and Saudi Arabia's fourth-largest listed company by revenue, rising to chairman. Even after he became mayor of Jeddah, he saw himself "as a businessman and not a bureaucrat," according to a 2006 U.S. diplomatic cable released by WikiLeaks.
"There is a sentiment that he has unchained or loosened the chains of bureaucracy everywhere he goes," according to Nazer.
Others with private-sector backgrounds include Health Minister Al-Falih, still chairman of the state-owned Saudi Aramco, and former real-estate developer Majed Al Hogail, who as housing minister introduced a flurry of regulatory changes, including loosening mortgage rules and introducing annual fees on undeveloped urban land.
Al Hogail understands the concerns of those in the real estate market because "he was part of the private sector and he felt the pain" when dealing with government, said Mazin Al-Ghunaim, CEO of Bidaya Home Finance. Al Hogail is often bouncing ideas off real estate professionals, attending workshops and meetings "which rarely happened before," Al-Ghunaim said.
By plucking officials from private companies, the government is implicitly acknowledging that "the way we run stuff isn't good enough," said Hawes.
Saudi officials say they plan to confront the oil-price slump by increasing foreign investment, privatizing government assets, improving accountability and introducing new sources of revenue, including a value-added tax.
"Everything that's happening now is, in reality, the beginning of a large program," Fakeih said during the budget deliberations.
Ibrahim Al-Ghelaiqah, a senior economist at the World Bank, says a "positive vibe" among officials convinces him Saudi Arabia could finally be embracing change. "For the first time, I feel that the vision coincides with political will," he said in Jeddah.
Still, the delay in fleshing out the national transformation blueprint, initially expected in January, worries some analysts and business leaders who have witnessed earlier false dawns.
Skepticism is warranted, said Fahd Al-Rasheed, CEO of Emaar Economic City, a port and industrial development on the Red Sea. "There's an issue of, what does this NTP mean?" he said, pointing to delays in releasing information on what it will entail.
"Once they announce it, and the private sector sees the impact, not just the pain," there will be a "massive confidence boost," Al-Rasheed said.
According to Hawes at Teneo, one test will be if over the next two years "anybody is able to generate real finance and build real companies on the basis of their real output, rather than the ability of the company to get a slice of the government pie."
© 2015 Bloomberg L.P.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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