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Government Stability/Internal Conflict
Holding back the Tide of Rebellion
The political climate in the kingdom remains broadly stable, but tense, amid spreading unrest in North Africa and the Middle East that has put regimes throughout the region on high alert. Calls for mass public gatherings demanding political reform in Saudi Arabia have so far failed to get a strong response, but given the speed with which protests movements in Tunisia, Egypt, and elsewhere achieved a critical mass, it is impossible to rule out the possibility that conditions could deteriorate very rapidly in a short period of time.
Concerns about the potential for instability in Saudi Arabia were heightened by the fact that the regional upheaval began while King Abdullah bin Abdul Aziz Al-Saud was out of the country receiving medical treatment. The monarch’s return home in late February after a three-month absence has bolstered confidence in the Saudi regime’s ability to maintain order, and the government has moved to stave off the contagion of rebellion with a three-pronged strategy consisting of massive welfare spending, mobilization of the conservative clergy in defense of the monarchy, and the deployment of the full resources of the security apparatus.
It is difficult to gauge the extent of discontent among the population, but many of the factors that contributed to mass rebellions in Tunisia and Egypt—shortages of housing and jobs, high food prices, and an insufficient number of jobs for the country’s large youth population—are present in Saudi Arabia. Overt calls for the elimination of the monarchy have so far been exceptional, even among those intrepid souls willing to ignore the beefed-up security presence and voice their complaints in public.
Saudi Arabia remains a conservative society, and the embrace of western notions of liberalism and democracy is less apparent than in Tunisia and Egypt. Moreover, with foreign reserves totaling some $450 billion and high oil prices generating a windfall for the state, Abdullah can afford to spend as freely as is necessary to buy domestic peace, and the importance of Saudi stability to the global economy ensures that the regime in Riyadh will be given a free hand to dealing with domestic dissent if economic incentives fail to achieve their aim.
A combination of repression and generous social spending will limit the risk of serious instability in the near term, although the potential for smaller, localized protests will persist, particularly in areas with a significant Shia presence. However, given Abdullah’s age and failing health, and the question marks surrounding the process of royal succession, a power struggle within the royal family could erupt at any time, and the possibility that such a development might ignite a generalized popular uprising animated by anti-monarchical thinking cannot be ruled out.
Maintaining Order in the Neighborhood
The downfall of the kingdom’s closest Arab ally, former Egyptian President Hosni Mubarak, holds the potential to alter the dynamics of the regional order and Saudi Arabia’s position within it. Deploying its financial and military clout, Saudi Arabia has taken firm pre-emptive measures aimed at stemming a threat to the broader stability of the Persian Gulf. A Saudi-led military force operating under the auspices of the Gulf Cooperation Council (GCC) has been deployed to the tiny island state of Bahrain, whose Sunni Muslim ruler has struggled to quell a rebellion by members of the country’s Shia majority that could potentially inspire anti-government militancy within the Saudi kingdom’s Shia minority population.
At the same time, Saudi diplomats are working to broker a settlement that would clear the way for the safe exit of embattled Yemeni President Ali Abdullah Saleh and lay the ground for an orderly transition of power. Saudi officials are keen to prevent a complete collapse of state authority in Yemen that could be exploited by the Yemen-based Al Qaeda in the Arabian Peninsula (AQAP).
Saudi Arabia has also worked with fellow members of the GCC to extend financial assistance to Oman, which has been troubled by a rash of protest demonstrations and strikes over the last few months. The wealthier members of the regional bloc have pledged $10 billion over the next 10 years for investment in infrastructure and housing, which will create jobs in the construction sector and eliminate a key impediment to attracting the private investment required to produce a long-term reduction in unemployment.
In a national address delivered shortly after his return home in late February, King Abdullah revealed plans for a $93 billion social spending program aimed at addressing the economic grievances of the Saudi population. Along with increases in welfare benefits, the establishment of a minimum wage, bonuses for public-sector workers, and cash allowances for students, the plan authorizes the creation of 60,000 new security jobs within the Interior Ministry. In addition, some $70 billion has been earmarked for the construction of 500,000 housing units and new medical facilities.
The king also indicated that political reforms are under consideration, although he made no mention of any plans for an elected Parliament or a reshuffle of the Cabinet, in which key posts are monopolized by senior members of the royal family. The government has since announced that long-overdue municipal elections will be held in September, but this is a minor concession at most, as the municipal councils have little power, only one-half of the seats are filled by means of election, and the polls are tightly controlled.
In fact, moves to shore up the regime’s alliance with the conservative religious establishment represent a setback for advocates of greater political openness and pluralism. The support of the Wahhabi clergy lends legitimacy to the religious basis of royal authority—the king’s formal title is Custodian of the Two Holy Mosques—but relations between the two institutions have not always been amicable. Many clerics, particularly in the junior ranks, are displeased by what they perceive to be the government’s less-than-total commitment to the implementation of Islamic law, while members of the royal family resent the clergy’s interference in the exercise of royal prerogatives.
In a bid to smooth over past differences, the king announced part of the financial package will be allocated for the establishment of new branches of the religious police, which enforces observance of Islamic legal requirements as defined by a clerical body headed by Grand Mufti Abdul-Aziz Al al-Sheikh. The gesture points to the abandonment of the monarch’s cautious efforts to loosen the clerics’ control of the judiciary. So far, the regime is getting its money’s worth. Most of the clerics have come to the monarchy’s defense, with some denouncing any anti-government activity, even peaceful protests, as anti-Islamic sedition.
High Oil Prices Will Support Growth-focused Spending
Assuming the government’s political strategy succeeds in preventing an outbreak of destabilizing domestic unrest, the economic outlook is fairly bright. Although anxiety over turmoil elsewhere in the Gulf region will discourage private sector spending and investment, reduced oil output will hold global prices remain high, ensuring that the Saudi government has sufficient financial resources at its disposal to prevent a sharp deceleration of economic growth. Government spending and a pick-up in the non-oil sector, particularly in transport and communications, will boost real GDP growth to 5.7% in 2011.
A rise in global food prices has contributed to a rise in the consumer price index, which is forecast to increase by an average of 8.3% in 2011. Any significant easing of inflation will require steps to address housing shortages, which have been one of the main drivers of inflation in recent years.
The passing of the long-awaited mortgage law would have a favorable impact on the residential property market, opening doors for the creation of private mortgage-finance companies. It could also create a basis for a recovery of the banking sector. After years of debate, the law is now expected to be approved by the end of the year. At present, it is not clear how many people might qualify for mortgages, or how quickly the supply of homes for mid- and low-income buyers will increase.Back to Insights