Early last year, at a royal encampment in the oasis of Rawdat Khuraim, Prince Mohammed bin Salman of Saudi Arabia visited his uncle, King Abdullah, in the monarch’s final days before entering a hospital. Unbeknown to anyone outside the House of Saud, the two men, separated in age by 59 years, had a rocky history together. King Abdullah once banned his brash nephew, all of 26 at the time, from setting foot in the Ministry of Defense after rumors reached the royal court that the prince was disruptive and power-hungry. Later, the pair grew close, bound by a shared belief that Saudi Arabia must fundamentally change, or else face ruin in a world that is trying to leave oil behind.
For two years, encouraged by the king, the prince had been quietly planning a major restructuring of Saudi Arabia’s government and economy, aiming to fulfill what he calls his generation’s “different dreams” for a postcarbon future. King Abdullah died shortly after his visit, in January 2015. Prince Mohammed’s father, Salman, assumed the throne, named his son the deputy crown prince—second in line—and gave him unprecedented control over the state oil monopoly, the national investment fund, economic policy, and the Ministry of Defense. That’s a larger portfolio than that of the crown prince, the only man ahead of him on the succession chart. Effectively, Prince Mohammed is today the power behind the world’s most powerful throne. Western diplomats in Riyadh call him Mr. Everything. He’s 31 years old.
“From the first 12 hours, decisions were issued,” says Prince Mohammed. “In the first 10 days, the entire government was restructured.” He spoke for eight hours over two interviews in Riyadh that provide a rare glimpse of the thinking of a new kind of Middle East potentate—one who tries to emulate Steve Jobs, credits video games with sparking ingenuity, and works 16-hour days in a land with no shortage of sinecures.
Last year there was near-panic among the prince’s advisers as they discovered Saudi Arabia was burning through its foreign reserves faster than anyone knew, with insolvency only two years away. Plummeting oil revenue had resulted in an almost $200 billion budget shortfall—a preview of a future in which the Saudis’ only viable export can no longer pay the bills, whether because of shale oil flooding the market or climate change policies. Historically, the kingdom has relied on the petroleum sector for 90 percent of the state budget, almost all its export earnings, and more than half its gross domestic product.
On April 25 the prince is scheduled to unveil his “Vision for the Kingdom of Saudi Arabia,” an historic plan encompassing broad economic and social changes. It includes the creation of the world’s largest sovereign wealth fund, which will eventually hold more than $2 trillion in assets—enough to buy all of Apple, Google, Microsoft, and Berkshire Hathaway, the world’s four largest public companies. The prince plans an IPO that could sell off “less than 5 percent” of Saudi Aramco, the national oil producer, which will be turned into the world’s biggest industrial conglomerate. The fund will diversify into nonpetroleum assets, hedging the kingdom’s nearly total dependence on oil for revenue. The tectonic moves “will technically make investments the source of Saudi government revenue, not oil,” the prince says. “So within 20 years, we will be an economy or state that doesn’t depend mainly on oil.”
For 80 years oil has underwritten the social compact on which Saudi Arabia operates: absolute rule for the Al Saud family, in exchange for generous spending on its 21 million subjects. Now, Prince Mohammed is dictating a new bargain. He’s already reduced massive subsidies for gasoline, electricity, and water. He may impose a value-added tax and levies on luxury goods and sugary drinks. These and other measures are intended to generate $100 billion a year in additional nonoil revenue by 2020. That’s not to say the days of Saudi government handouts are over—there are no plans to institute an income tax, and to cushion the blow for those with lower incomes, the prince plans to pay out direct cash subsidies. “We don’t want to exert any pressure on them,” he says. “We want to exert pressure on wealthy people.”
Read more:The $2 Trillion Project to Get Saudi Arabia’s Economy Off Oil
Source: Bloomberg
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