Tuesday, March 08, 2011

King Abdullah of Saudi Arabia has returned to a Middle East that is radically different than the one that he left last November, when he traveled to the United States for medical treatment. The toppling of Egyptian President Hosni Mubarak and Tunisian President Zine al-Abedine Ben Ali and the protests around the region must be deeply unnerving for a monarchy whose endurance has long depended on a regional status quo, one now starting to crumble.

Although protests in Saudi Arabia have not been on the scale seen in other countries, the authorities are understandably nervous. The country shares some of the characteristics that have brought serious unrest elsewhere: unemployment, frustration among certain segments of society, and a youthful population. Perhaps the most accurate barometer of the mood in the kingdom was the country’s stock market, which last week dropped by 14 percent, before rebounding by 7.3 percent on Saturday.

There have been increasing calls for reform. At the beginning of February Islamist activists called for the formation of a political party, which is illegal in the kingdom. Although the activists did little more than make a polite call for political change, their actions were viewed as a challenge and they have been imprisoned until they renounce their views, something none of them have done. Last week, three groups of intellectuals and prominent Saudis from both the liberal and Islamist camps signed petitions that included complaints against corruption and calls for elections at the municipal, provincial and national levels, as well as a Cabinet reshuffle. In the kingdom’s Eastern Province, Shiite activists have ignored the ban against protests and staged marches in recent days seeking equal rights, complaining that they are discriminated against in the kingdom.

King Abdullah’s response to the unease felt by the Saudi regime was a $36 billion spending plan aimed at raising the wages of civil servants and providing housing and benefits for the unemployed. The injection of cash is a time-honored Saudi method of maintaining loyalty, and the program may put out potential fires of unrest in the short term. With instability having boosted oil prices, the regime will have little trouble finding funding. However, in the longer term the kingdom faces complex problems that money alone will not resolve.

The regional protests have come at time when succession in the Saudi leadership is a burning issue. Predictions of who will become king after Abdullah is a favorite topic of speculation; it is also a cause of tension and uncertainty. In a land in which all major decisions are made from the top down, the king’s mindset dictates the pace of reform. King Abdullah’s gradual reform program, which includes the improvement of women’s education facilities, investment in peripheral regions and the opening up of the economy, could become even slower or stop altogether should his successor have other ideas.

There is also the issue of how succession is managed in the long term. Since the death of King Abdul Aziz, the founder of Saudi Arabia, a monarch has been chosen among his many sons. Yet this generation is now aging and there is fear that the Saudi system will face periodic crises when each new king dies, creating a vacuum while the next is appointed. That is not to mention the problem of what happens when power is passed on to King Abdul Aziz’s grandsons.

Reforms and long-term planning require continuity, something the kingdom will not get if power continues to pass between the current line of brothers and half-brothers. The succession issue also complicates the business of government, and differences of opinion within the Al-Saud can make management of the country difficult. For example, several Saudi regions require government attention. Jeddah has experienced devastating floods for two years running, and the city’s exasperated inhabitants feel they merit better as the kingdom’s commercial hub and gateway to the holy sites of Mecca and Medina.

To his credit King Abdullah has tried to address the neglect that some areas have suffered and his $400 billion spending plan includes new economic cities and other projects spread across the kingdom. Hopefully, this will be safe in the hands of a successor.

Saudi Arabia must develop its private sector in order to create new jobs for hundreds of thousands of Saudi nationals who enter the job market each year. The government learned a tough lesson during the period of Al-Qaeda-led terrorist attacks between 2002 and 2007 and it cannot ignore young, frustrated males. Considering the kingdom’s wealth, the unemployment rate is surprisingly high. Official estimates put this at 10 percent but the real figure is likely to be higher. The female unemployment rate is estimated to be above 25 percent.

The process of developing the private sector is hindered by elements within the Saudi religious establishment, whose intervention has complicated the passing of laws crucial to businesses. One example of this is a law which will legalize mortgage loans, and which has been discussed for the past 10 years but has never been passed. Most observers believe the law is still being scrutinized by the religious authorities, who are uncomfortable with the idea of repossession, as they believe it is not compatible with Islamic law. This presents a problem for a country with a major shortage of residential housing.

Problems such as these restrict the huge potential of Saudi Arabia, which has the largest economy in the Arab world, 25 percent of the world’s oil supplies, and occupies a globally strategic position. The fact that the kingdom’s fiscal position has been strengthened by the impact of regional unrest on the price of oil, which reached $104 a barrel on Friday, indicate that the Saudis are in a position of strength
If the Saudi leadership manages this period properly, it could result in reform allowing the kingdom to fulfill its ambitions both politically and economically. But raising government spending alone will not be enough in an atmosphere in which citizens across the Arab world are making bolder demands than ever before. The winds of change are blowing and the Al-Saud will find it difficult to ignore them.

Christian Henderson is director of Dunlin Consultants, a London-based market research and risk advisory consultancy focusing on the greater Middle East region. He wrote this commentary for THE DAILY STAR.