The right conservative
A broad cabinet reshuffle, some surgical appointments, and a younger voice at the helm of the central bank mark some pretty sizable changes in the Kingdom of Saudi Arabia.
There has been a great deal said already about the message King Abdullah was trying to send with his biggest cabinet move since taking power in 2005. What may have been overlooked is how the pieces of the puzzle come together.
We know that a woman, specifically Nora Al-Fayez, will become deputy education minister. That would not mark huge changes in Brussels, the United Arab Emirates or Qatar, but it certainly does in Riyadh. Overlooked recently in this process is that plans to build a $10 billion co-education university under the management of Saudi Aramco (not the Education Ministry) is going full steam ahead.
At the same time, four senior cabinet ministers have been removed, and the long serving deputy of the Saudi Arabian Monetary Authority takes over as Governor. Muhammad Al Jasser is a western educated economist who has obtained his bachelors, masters and PhD in California.
“We now have somebody who is U.S. educated, and of a younger generation”, said Jane Kinninmont of the Economist Intelligence Unit, “He will be very good at putting forward the Saudi message internationally, in and beyond the region.”
The timing is not accidental. Beyond the demands of falling revenues from declining oil prices, Saudi Arabia is being called upon to play a larger role in the region and within the global economic community as it prepares for a single currency.
Back in November there were calls -- quickly rejected by the Kingdom -- to increase its contributions into the International Monetary Fund. The new Governor’s stance at the G20 meeting in London on April 2 this year will make for intriguing analysis. The position to date has been that Riyadh has done more than its fair share, but that may be in a drive to formally expand the G7 to the G20, with the Kingdom representing the Middle East.
The bottom line, in business terms, is that we should not expect a great deal of economic change from Saudi Arabia. I am calling it the right kind of conservative.
The Kingdom has remained loyal to the dollar, conservative on banking regulation and a conservative investor in relation to its foreign assets. Boring U.S. Treasury bonds were in -- taking a large stake in U.S. banks was not an option. As Kinninmont says, “Right at the moment they feel they have been vindicated with all these things.”
On the ground in Riyadh, long serving Chief Economist of SABB John Sfakianakis reaffirms that belief, "To the credit of the authorities, particularly the central bank, money has stayed and accumulated, it has not been lost unlike other countries in the region and outside."
According to one of the key architects of Saudi Arabia’s build out, Governor Amr Al Dabbagh of the Saudi Arabia General Investment Authority (SAGIA), the Kingdom will forge ahead with $400 billion dollars of spending over the next five years. That is a sizable sum considering a population of 28 million. When you land in the Kingdom you can see where it is being spent -- roads, airports, seaports, schools and four new economic cities, maybe growing to seven if the demand is there.
While there is a lot of discussion in the region and globally about retrenching during this downturn, Saudi Arabia (as well as Qatar) is using the wreckage to leverage lower prices for everything from cement to silicon. If you build while everyone else is not, the negotiating power is even greater.
Speaking of power, King Abdullah seems to be using his to streamline government operations and reduce bureaucracy. In the World Bank’s latest “Doing Business” survey the Kingdom ranked 16 out of 181 countries last year, however in the enforcing contracts category it was all the way down to 137.
“He (King Abdullah) is upping the ante as he sacks most of the key judicial leaders to get in new faces”, says Kinninmont, “This means there is pressure on the new guys to do something.” The courts and schools according to local and international observers have traditionally been the spheres of influence of the religious clerics.
This King seems to be a leader in a hurry. It explains the recent bi-lateral meetings with China to expand trade ties, record spending during a global recession and yes his biggest cabinet reshuffle to date.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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