Ostensibly carried out as an anti-corruption drive, the forcible gathering of individuals in Riyadh’s Ritz Carlton Hotel on the 4th of November has raised broader questions about investment viability in the Kingdom of Saudi Arabia (New York Times, 09.11.2017). In particular, the modus operandi of Mohammed bin Salman now falls under greater scrutiny by actors concerned with long-term transparency and accountability.

The potential for this issue to resonate in a country where rhetoric and reality have diverged for so long is thus understandably high. It is all the more unsettling a prospect for a location which is widely perceived to finally be ‘on the move’. As the shake-up to the old order is assertively pushed through from the top, questions remain as to what exactly this remaking of the Saudi state is set to look like (Carnegie, 09.11.2017).

Shadow Governance Intel believes in closely monitoring Mohammed bin Salman’s approach to reform, and specifically how his decision-making bolsters Saudi’s longer-term outlook.

  • A swathe of arrests made in the name of anti-corruption in Saudi Arabia last month is reported to have unsettled foreign investors with one eye on opportunities in the Kingdom.
  • In fact, detaining leading political and commercial figures under the cover of darkness on the 4th of November has been increasingly presented as ‘at odds’ with a stable FDI destination. This may dampen expectations and affect the overall outlook for Saudi Arabia in 2018 and beyond.
  • Such a black or white scenario, however, does not adequately peel back the layers of complexity surrounding the internal dynamics at play in Saudi Arabia. In somewhat of an audacious strategy, the ends may justify the means for a country that is inevitably experiencing teething problems in its quest to bring about meaningful macro-level reforms.
  • Foreign actors are advised to monitor all Saudi related developments within a Saudi-centric context and measure standards in line with previous expectations of the Kingdom’s progress – not the expectations a western centric audience should come to expect.
  • It is also worth bearing in mind that media coverage and political narratives will invariably promote conflicting views, as opposed to impartial advice based on experience and intelligence.

A Clean Up Act vs Power Plays
Naturally, most analysis concerning Saudi Arabia in the period since these arrests has focused on the power afforded to Mohammed bin Salman (“MbS”), the Kingdom’s ‘golden boy’ and central political figure.

For close to three years now, the young Crown Prince has been capturing Western headlines, but the high-profile detention he led against some of Saudi’s leading political and commercial figures last month threw his influence well and truly under the microscope. For both good and bad.

Generally speaking, two broad camps have emerged seeking to situate these developments into a wider context.

On one hand, pro-regime commentators laud the steps taken by MbS to ‘clean up’ affairs in Saudi. They argue that members of the country’s ‘old guard’ have accumulated vast riches from the hand of the government for too long without providing any added value to the system in return. The entrenchment of this practice has subsequently born a model of economic dependency based on lavish government spending. Inflated public sector salaries, high-value infrastructure projects, and profitable tenders serve as the prime methods whereby wealth is distributed internally – causing sclerosis and unsustainable practice.

As a result, only a handful of family conglomerates hold significant wealth and continue to serve as the dominant players across various sectors of Saudi’s economy. Many, if not most, of the figures rounded up by MbS’s men and escorted to Riyadh’s Ritz Cartlon Hotel fall into this category and have lined their pockets by maintaining cordial relations vis-à-vis the political elite for decades.

Most of the local population enjoy lucrative employment on the public-sector payroll, whereby a very low benchmark is set in terms of performance and productivity. Despite the need for Saudi nationals to create private businesses and generate employment, expatriates made up 85% of the private sector this time last year (Financial Times, 15.12.2016), which is a ratio that will take considerable time and investment to tilt in the other direction. Invariably, this will heighten expectations from Saudi’s leading private business personalities, who are well positioned to implement meaningful economic reform.

In this light, the former status quo was simply unsustainable and requires the kind of top down reforms that MbS appears intent on.

On the other hand, critics of Saudi’s top brass contest that MbS is simply seeking to further his own influence and will undermine any democratic ideals necessary to do so (Independent, 06.11.2017). This narrative paints the events of the 4th of November as a ‘power grab’ or a ‘purge’, whereby anti-corruption was merely a front for the Crown Prince to embed himself into the political fabric of Saudi for the long haul.

Indeed, the arrest of certain figures goes some way towards supporting this view. Mutib bin Abdullah, for example, has long been viewed as a rival of MbS and seen as the figurehead of the former King’s support base. His position as Minister for the National Guard means that not only does he oversee one of the three military portfolios in Riyadh, but he is also a political counterweight to the Crown Prince. Little is known about Mutib’s accumulation of wealth, and so no assessments about corruption can be drawn.

None of the evidence collected against him, or any of the others, over the reported three-year investigation (the Guardian, 09.11.2017) has been released, causing accusations of hypocrisy against MbS. It can be levied that in pushing for the very principles (accountability and transparency) that Vision 2030 needs, a parallel reality is witnessing the making of a future dictator that is more damaging to these principles.

On top of this, MbS occupies more portfolios than it is possible to manage; in addition to Crown Prince, he is Minister of Defence, Chairman of the Council for Economic and Development Affairs (“CEDA”), Deputy Prime Minister, Chairman of the Public Investment Fund (“PIF”), and Head of the Supreme Anti-Corruption Committee.

His role in the latter body, and the body itself, was established mere hours before arresting the influential figures, making it feasible that those being arrested had no idea what the official mandate MbS used for their arrest was – creating confusion and anxiety among commercial partners.

Proponents of this view may rightly be concerned with the way things are progressing under MbS and be in two minds about what Saudi Arabia in 2027 and 2037 may look like.

Seeing Through the Fog of Competing Narratives
In reality, the truth is likely to lie somewhere in between these diverging viewpoints and is probably far more nuanced than traditional commentary on Saudi currently accounts for.

In terms of whether or not the arrests constitute a power grab, it is worth pointing out that the major milestones in MbS’s rise occurred prior to the 4th of November. Becoming Crown Prince in June 2017, for example, was arguably the most bold and audacious moment over the course of the prince’s ascendance. It was this moment that risked internally fracturing the Al Saud family, especially with the side-lining of Mohamed bin Nayef who had long been viewed as a well backed candidate for the throne.

The rapid rise of MbS has provoked rumours of intra regime dissatisfaction more or less consistently since January 2015, although little tangible manifestation of this has yet to appear. On the contrary, a total of 31 out of the 34 Allegiance Council members – with each member representing one strand of Ibn Saud’s lineage – voted in favour of his June appointment, suggesting overwhelming support among the royal factions vying for power.

Shadow Governance Intel believes that shrewd stakeholder management has been carried out by MbS and his father – mainly by appointing junior princes from each branch of the family to key portfolios – to gently replace the old guard with corresponding sons / grandsons in their stead. As such, he is blowing the dust off of a geriatric system as opposed to using nepotism and informal networks to entrench himself.

Furthermore, MbS is believed to have engaged in less high-profile but equally strategic power plays vis-à-vis other influencers in the Kingdom. For example, the wings of Saudi’s religious establishment, namely the Commission for the Promotion of Virtue and the Prevention of Vice, were substantially clipped in April 2016 (Al Jazeera, 14.04.2016). This is a dynamic previously thought impossible to disrupt, given the entrenchment of the ‘religious police’ in Saudi society, and is a largely unprecedented power play.

The informal societal networks between the Al as-Sheikh family and the Al Saud family are well documented, whereby an important delineation of the religious and political spheres between families is used to feed each other’s power base and legitimacy.

Although not directly attributed to the current leadership, or even claimed by them as a victory, this move clearly came as a way of subjugating religious forces as part of MbS’s drive to make Saudi an attractive global location. MbS is now flexing his muscles against this conservative faction, which serves as a continuous risk to the established power dynamics.

Moreover, his arrival to the political scene in earnest has witnessed the retirement of figures such as Ali Al Nuaimi, once acclaimed the most powerful man in global oil markets, Ibrahim Al Assaf, Saudi’s long serving Finance Minister, and Khalid Al Tuwaijri, the Royal Court’s empowered gatekeeper. Voices of dissent – but more importantly voices of failing governance practices which brought Saudi to the edge of economic uncertainty – have been gradually removed, and did not simply culminate in a power grab in November.

Seen in this light, the November crackdown is more aptly a manifestation of MbS’s power as opposed to an accumulation of it. Those worried about accountability and transparency – or holding out hopes the Kingdom is hoping to become a leading figure in this regard – must therefore be aware that MbS has already carved out a reality whereby he is not required to operate according to these principles. But this need not necessarily be a barrier to entry.

A Third Way? Benevolent Authoritarianism
Adhering to the values of accountability or transparency undoubtedly raises the need for critical thinking in contemporary Saudi Arabia.

Firstly, it is worth noting that MbS never sought to paint himself as a champion of these values in relation to his style of governance. In fact, he has only ever expressed a commitment to reforming Saudi Arabia so that it can start to succeed as a strong economic actor. To single him out for criticism in line with Western transparency or accountability standards is thus misguided, especially since he is surrounded by Arab regimes with identical governance styles.

Bloated power and informal channels of influence are the modus operandi of Abu Dhabi’s Crown Prince, Mohammed bin Zayed (“MbZ”) next door. Investors may want to remind themselves that the UAE is one of the most stable and hospitable FDI destinations in the MENA region, which is a status that MbZ is keen to use his powers (however unaccountable or opaque) to protect and uphold. No independent judiciary exists in the UAE, with arrests and trials taking place routinely against individuals without publically available evidence.

The difference between these two countries is that one is not wrestling with complex power dynamics that have served to constrain its society for decades. MbS simply wants Saudi Arabia to catch up with, and potentially compete with, its economically prosperous neighbours – all of whom adhere to their own levels of accountability and transparency, yet are not making the same headlines as pernicious or unaccountable barriers to entry.

Secondly, Saudi’s economic trajectory could simply not undergo the radical shift hoped for while the key components of the previous system continued to exert control. In other words, if a genuine attempt to overhaul the sclerotic state machinery in Saudi Arabia is to be made (which King’s Salman era is extensively lauded for) then the state cannot leave its old nepotistic crony culture – espoused by its strongest figures – unaddressed.

In pursuit of this, it is unlikely that a fully transparent and accountable figurehead could make inroads to reforming the old guard’s practices without strong centralised control. Shadow Governance Intel sources corroborate the view that key to these arrests was catching all of the figures in the Kingdom at the same time. The element of surprise served as an impressive tactic to bring multinational businessmen to the negotiating table.

A prolonged stay in the Ritz Carlton, however unwanted and embarrassing, is a gentle slap on the wrist to those who have taken so much from a system that has required little in return. With the level of influence MbS already has, he could take far harsher measures and cripple these ‘opponents’ or ‘rivals’. In fact, if this move was about personal entrenchment, he would be seeking to remove these figures altogether from the system.

However, it is suspected that MbS would most likely prefer to reach amicable settlements with the businessmen currently housed in the Ritz and walk away from this episode with a fresh mentality among the group, rather than completely devastate Saudi’s commercial field.

Should they embrace his vision and work in the wings of their de facto leader, there is little doubt they could retain prominence in a new look status quo. Yes, this may require more from them in terms of meeting their end of an economic bargain, but the rewards will no doubt be on offer for them in return for contributing towards new dynamics.

Outlook
Yes, MbS’s approach undoubtedly raised questions about transparency and accountability (Medium, 25.11.2017). To focus on this, and to pre-emptively use it as a deterrent for investment, however, may ultimately run to the detriment of profitability in Saudi Arabia.

Turning the Kingdom’s fortunes around requires strength in position and politically astute movements from the Crown Prince, which may be (unhelpfully) viewed as power grabs.

Should MbS make any unexplainable or overtly political decisions that exclusively serve to strengthen him further – with little positive externalities to note for the Kingdom’s overall health – then it can be reasonably inferred his agenda is compromised. With his power already unquestioned, recent events signal that the concerted push for reform is continuing, albeit with teething issues.