Saudi Arabian Economy Braces for Foreign Domination

On Tuesday, the Saudi cabinet agreed to allow 100% foreign ownership of companies in the retail and wholesale industry. The wording of the announcement was careful; ‘only in retail and wholesale’, suggesting a limitation on foreign ownership when in fact, the industries in which foreign ownership has been permitted are some of the most lucrative.

The retail industry thrives off one of Saudi Arabia’s main sources of income after oil; the holy pilgrimages Umra and Hajj. Makkah and Madinah are filled with shopping malls that boast all the well-known and latest brands and fashion icons, all within 100 metres of the two holy mosques.

Re-aligning relationship with the US

The careful wording of the announcement speaks volumes as to the sensitivity of the subject, but also as to the awareness of the government that such a move is unlikely to be welcomed with open arms within Saudi Arabia. The decision to privatise ARAMCO drew sharp criticism from influential figures within the kingdom including Abdel-Aziz Al-Treefe, who implied that Deputy Crown Prince and de facto ruler of Saudi Arabia Muhammad Bin Salman, was selling the country to appease the US. To be exact, he said:

TreefeClear

‘Some rulers believe that compromising on some aspects of his religion to non-believers will fend off their pressure. And every time he compromises on something, they push him to compromise on something else…They (the non-believers) will not be pleased until you follow their way.’

However, this time, the disgruntlement within Saudi Arabia is likely to spread to Saudi businesses who are, at least at the moment, far behind and ill-equipped to compete with the American companies set to take advantage of the relaxing in ownership laws. Whilst the law applies to all, the move is in fact geared towards US investors, in a bid to offer something ‘more’ to the US as the latter becomes less dependent on the former for oil. It is poignant that the announcement of intent to deliver this particular reform was delivered in Washington in 2015 to US businessmen.

Saudi Arabia does boast domestic titans, including the Bin Laden Group, and a whole host of billionaires including Saleh Kamel and Abdul-Rahman Sharbatly. However, the Bin Laden group has seen its lucrative contracts taken away following the crane accident in Makkah, whilst the billionaires are rumoured to be restricted in their freedom to some extent as they remain under pressure from the government not to withdraw their investments from Marshall Sisi’s Egypt.

Unemployment problem

The idea however is not solely to entice the US and provide a new incentive in an increasingly strained relationship. Saudi Arabia has an endemic unemployment crisis particularly amongst the youth. This is exacerbated by the fact that the new generation are not interested in jobs that consist of manual labour, but aspire to management and executive positions at young ages. The government believes that by opening up the retail and wholesale market to foreign companies, they will be able to create white-collar jobs that appeal to this new generation and encourage them to take up employment in these sectors.

Potential disturbances

However, many worry that with the expected influx of foreign companies comes foreign influences that threaten the identity of Saudi Arabia in a manner more extreme than the threat faced by British companies that has evoked Britain’s search for ‘Britishness’ and ‘British’ products as it finds its local manufacturers unable to compete against foreign companies. The fear is that as Saudi companies begin to lose market share to their foreign rivals, disgruntlement will give momentum to accusations of ‘selling the economy to foreigners’ or the ‘non-believers’. Given the deeply embedded ideologies in Saudi society, epitomised by the continued dominance of religious authorities and ‘celebrity’ sheikhs, and the current feud between some of religious figures and the government, such messages may well find resonance and take on a dangerously volatile and religious angle capable of domestic upheaval.

The Big Gamble

More importantly, and perhaps the greatest gamble, is whether these economic incentives will improve relations between the Kingdom and the US. The reason for the strain is clear; Iran. However, it remains to be seen if these economic incentives will slow the pace with which the US is bringing Iran back into the international community. Saudi Arabia may be lucrative, but Iran remains a powerful force and voice in Syria and Iraq, two areas where the US is heavily ‘invested’.