Saudi corruption crackdown is an inkblot test for analysts

Saudi corruption crackdown is an inkblot test for analysts
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The ongoing Saudi anti-corruption campaign orchestrated by Crown Prince Mohammed bin Salman (MbS) has truly been a Rorschach test for observers and analysts.

The opaque operation that saw 381 Saudi royal family members and other elites subpoenaed and involuntarily booked at the Ritz Carlton Riyadh in November inspired widespread speculation from officials, political commentators, international investors and Saudi citizens as to the motivations behind the arrests.

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The recent release of prominent international investor Prince Alwaleed bin Talal from the Ritz has refueled speculation, as has the government’s announcement that it has secured roughly $106 billion in cash and assets from settlements with detainees.

 

Examining the various readings of the corruption purge’s murky inkblots helps create a composite picture of the political and economic nuances behind the episode.

Cracking down on corruption has been the government’s stated objective since the arrests were made in early November. According to a government source, data and evidence collection for the crackdown were in the works for years, and the sudden nature of the arrests was necessary to prevent suspects within the corruption network from contacting one another and causing capital flight.

In this narrative, MbS and the government hoped the effort would restore the Saudi public’s confidence in its governance abilities and would underscore the message that the government’s aims to increase transparency were genuine.

If the $106 billion figure is accurate, the corruption settlements would go a long way economically, with the state’s 2018 budget deficit projected above $50 billion. 

In this sense, the crackdown has played relatively well from a domestic political standpoint. Corruption has long been an endemic problem in Saudi governance structures, both within the royal family and also in the less rarefied air of the bureaucracy.

As unaccustomed Saudi citizens face new taxes associated with MbS’s Vision 2030 reform plan, attacking corruption among elites has proven popular with the public.

Even though the revenue generated from value-added taxes (VATs) is not projected to make up a substantial part of the government’s spending budget, Saudis with few political rights are less than thrilled by direct taxation.

Subsidy and benefit cuts and social changes are also not universally popular, though widely considered necessary for serious economic reform and creating a more attractive, diverse investment environment.

The optics of corrupt billionaires paying their dues are therefore welcome to a public that is feeling short-term pain for supposed long-term gains, and which views the Vision 2030 plan with some (mostly private) skepticism.

The government’s message to Saudi elites also appears to be clear: Corruption will be targeted at all levels, even those previously unthinkable. At the same time, there have been efforts to demonstrate that a stay in the Ritz need not be a permanent sentence.

Prince Miteb bin Abdullah, among the apprehended in November, was prominently pictured beside MbS in late December after reaching a reported $1 billion settlement with the government. Prince Alwaleed, though almost certainly under close post-Ritz scrutiny from authorities, was permitted an extensive one-on-one interview with Reuters.

As MbS continues to consolidate political control in a previously unseen manner, he appears to recognize that he cannot entirely isolate the Kingdom’s elites if he is to succeed in his reform efforts. It remains to be seen whether the concerns of those elites are assuaged. 

Though the anti-corruption effort has appeared politically and economically savvy from a domestic perspective, the perceptions of Western observersSaudi critics and foreign investors have been less enthusiastic.

Some analysts have viewed the arrests as a political and economic power grab that signals instability at the top and an unsustainable approach to governance. They point to the arrests as another example, alongside Saudi Arabia’s involvement in Yemen and its ongoing crisis with Qatar, as irresponsible decision-making by the country’s leadership. 

Others have pointed to the arrests as a shakedown for funding from royals and elites skeptical of the Vision 2030 plan. The seeming absence of due process for detainees over the past three months is concerning if unsurprising, though the government insists it will soon take the remaining detainees to trial.

The opacity with which the Ritz Carlton operation was undertaken also undercuts investor confidence in the ability of the Saudi government to act responsibly with respect to the economy and raises questions as to the security and stability of foreign investment.

Officials in the Kingdom appear to recognize these concerns, planning an international tour in February to explain the purge episode to investors and to rebuild investor confidence.

Beneficially for the state, the economic stakes at play in the Vision 2030 effort, and especially the much-anticipated Aramco IPO, have meant that most foreign criticism has been relatively muted.

The opportunities inherent in Saudi Arabia’s efforts to diversify its economy and implement social reforms are so momentous that detractors are, for the moment, willing to put negative perceptions of the state’s means to one side as they contemplate positive ends.

Given the black box of Saudi domestic politics, intrigue and speculation at home and abroad will remain inherent elements of reform and anti-corruption efforts. Examining the wide variety of perceptions at play can help one get closer to the potential reasoning, if not necessarily the facts, behind the Kingdom’s rapidly evolving developments.

Owen Daniels is associate director of the Middle East Security Initiative at the Atlantic Council’s Scowcroft Center for Strategy and Security. You can follow him on Twitter @OJDaniels.