In the novel A Hologram for the King by Dave Eggers (2012, Mondadori), the protagonist, an American computer scientist, waits days and days in a desert camp in Saudi Arabia for the King to come and approve his infrastructure project destined for to a new futuristic city in the middle of the dunes. Ten years later, reality has surpassed fiction.
It can be said that the King (in this case Crown Prince Mohamed bin Salman) has finally arrived. The futuristic Saudi city, Neom, already has its first sketches that have come to light last week. The plan, valued at around 490,000 million euros, is no longer a utopia, because there are financial resources.
Saudi Arabia now runs like never before. And, above all, more than anyone. In the second quarter, its GDP soared almost 12% compared to 2021, its highest rate in eleven years. For the IMF, the year will end with an increase in its wealth of 7.6%. According to this organization, Riyadh is an economic oasis: no other among the great Western or emerging nations will be able to overshadow it in 2022.
This has been possible thanks to the increase in the price of oil, with a barrel of Brent that has come after the conflict with Ukraine to exceed 120 dollars. Thus, the value of its exports this year has almost doubled. Saudi Arabia earns close to 1 billion euros every day, according to Bloomberg. Benefits from heaven, some would say. Although prices have now fallen, for the regime it is a time of fat cows. The Aramco oil company is consolidated as the most profitable company in the world.
Finances, after the slump of 2020, are healthy. Saudi Arabia posted a budget surplus of $20.7 billion in the second quarter. Total government revenue stood at 370.4 billion riyals, up 33% from the previous quarter. The IMF expects Saudi Arabia's fiscal balance to reach a surplus of more than 5% of GDP this year, when most Western economies are in deficit.
Likewise, the war launched by the Russians has, paradoxically, benefited them even from a political point of view. Both French President Emmanuel Macron and United States President Joe Biden have buried the controversy over alleged Saudi involvement in the murder of journalist Jamal Khashoggi in a drawer and have not only reestablished relations with Riyadh, but have also asked him to upload its oil production to alleviate the energy bill and curb inflation. Saudi Arabia is the only one among OPEC members that has the capacity to do so.
However, as has been seen this week, the regime does not seem willing to grant many favors. As Platts Analytics pointed out, Saudi budgets have set an average minimum price of $70 a barrel and we are currently well above it. Even so, they are reluctant to open the tap. “At the moment it is convenient for the Saudis to make the more cash, the better, because in the medium term it is not known how the price of oil will evolve. For them it is the only way to finance the diversification of their economy in the coming years”, comment sources familiar with the country.
Oil still accounts for half of the country's wealth, but despite having tripled VAT as a result of the covid crisis that sank income, this June, domestic consumption grew by 13.4%, which confirms the recovery in demand after the pandemic. In addition, the situation works in its favor since inflation within the country only grows by 2.3%, an enviable rate at the moment, thanks to the strength of the dollar and the ceiling to the prices of some products.
The Vision 2030 plan aims to optimize these resources from black gold, putting the country in the ranking of the first fifteen economies in the world. The sovereign wealth fund (PIF) (which manages 423,000 million) is increasingly present in Western brands, as has been seen recently with the generous contributions in Aston Martin or the Newcastle football club.
The latest proof of this expansive policy has been Mohamed bin Salman's recent trip to Greece. He has promised to connect Europe and Asia through an underwater gas pipeline to “provide much cheaper renewable energy” for the Old Continent, committed to reducing its dependence on Russia, as well as financing data transmission with the East to Med data Corridor.
At the same time, the Saudis also hope to attract foreign investment: Riyadh has announced that from 2023 they will no longer work with companies from abroad that do not establish their regional headquarters in the kingdom: this rule can accelerate the arrival of capital.
Still, weaknesses remain. “Great efforts have been made in the last four years, as non-oil revenues have doubled to 12.8% of GDP. However, this figure is still considerably lower than the G-20 average, and non-oil revenues need to continue to be raised,” says the IMF.
According to the latest study by the reinsurer Coface, "the progress of the regime's reforms is slow, there is an excessive dependence on foreign workers and the persistent tensions with Iran pose geopolitical uncertainty." Mohamed bin Salman is in a hurry to change. He now he is the King who is tired of waiting.
