Saudi Arabia is pulling off an astonishing transformation

WHEN DONALD TRUMP lands in Saudi Arabia on May 13th for the opening state visit of his second term in office—a reprise of his very first state visit eight years ago—you should pause for a moment to take in just how unexpectedly the situation has changed. Mr Trump has become wilder and more autocratic. By contrast, his host, the crown prince and de facto Saudi ruler, Muhammad bin Salman (MBS), has transformed his country into a force for order.

The most surprising attribute of the new Saudi Arabia is its constructive role in world politics.  It no longer sponsors terrorism. It now counsels other countries to wind down their conflict with the Houthis. It has helped Syria’s new government by paying some of its debts to the World Bank, and promising to invest in the country if American sanctions are lifted.

Social change is the second component of MBS’s new contract with his people, and it has been nothing short of extraordinary.  Women are free to travel, work and live where they like. The vice squad has been disbanded. Like the rest of the world, Saudis can now watch rock stars on stage and superheroes on the silver screen. Even in conservative parts of the country crowds of young people are out and about, revelling in their new freedoms.

The area where Saudi Arabia’s reinvention remains incomplete is the economy. Since 2016 the government has spent heavily in order to diversify away from oil. The main targets have been gaudy “giga-projects”—such as the futuristic city of NEOM and a giant cube the size of 20 Empire State buildings—which by 2030 were projected to gobble up nearly $900bn. To cultivate new industries, the sovereign-wealth fund has backed more than 100 firms in areas from electric vehicles and e-sports to coffee-making and chip manufacturing.

Despite this, the economy remains stubbornly oily. About 60% of the government’s revenues still comes from selling crude. Although the hospitality and leisure industry is thriving, the flood of money being channelled into public spending is raising costs and crowding out private enterprise. Foreign investors are not yet excited about Saudi Arabia.

Worse, the fiscal strain is growing. Oil prices are at $61 a barrel, well below the $92 that the imf reckons the kingdom needs to balance the books. The country’s debt stock, though low, has doubled as a share of gdp since 2016. Although Saudi Arabia has got off with a so-called “reciprocal” tariff of just 10%, Mr Trump’s trade war will only worsen the strain. If the world economy slows, then oil prices and foreign investment could sink further.

To truly transform the economy, MBS must seize the chance to curb vanity projects that offer scant hope of a return. The government could retrench from areas such as tech, where private firms may invest. Improving areas where they will not, such as education and enhancing the business environment, would do more for long-term growth. A new investment law is welcome, but businesses remain unsure that their rights will be upheld, especially if they clash with the government.

The stakes for MBS and his country are high. Social liberalisation has bought him time among a youthful population. However, if economic change stalls and Saudis’ livelihoods suffer, their goodwill could easily dissipate. Unrest at home could lead the government to crack down, undoing the progress the kingdom has made. Saudi Arabia has come a long way in just a few years. It still has far to go.

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