Saudi Arabia’s corruption crackdown looks like a plot to shore up the country’s depleted coffers — but it won’t work

Ambrose Carey, Alaco Ambrose Carey, Director at Alaco Alaco

  • Saudi Arabia’s so-called corruption crackdown is likely an attempt to fill the kingdom’s depleted coffers.
  • This plot is unlikely to succeed, though.
  • Many of the funds the Crown Prince is seeking to acquire are beyond his reach.

It was cast as an anti-corruption drive. Now a more probable motive for Crown Prince Mohammed bin Salman’s unprecedented detention of members of the country’s rich elite is emerging. Reports suggest that detainees are signing away cash and assets to secure their freedom in what looks like an unorthodox bid to plug the kingdom’s gaping budget deficit.

On Monday, it was reported that one of the highest-profile suspects, Prince Miteb bin Abdullah, held for more than three weeks, had been released after agreeing to a settlement of $1 billion. The authorities are demanding suspects disclose and relinquish control of 70% of their liquid assets, described as a “tax on corruption”. Reports suggest that at least three other suspects have struck financial agreements with officials. Our sources indicate that some have begun disposing of shares in Saudi companies.  For example, on Sunday detainee and prominent businessman Nasser Tayyar disposed of 0.5% of his shares in Al Tayyar Travel Group, raising $26m.  Nonetheless, the apparent bid to shore up the country’s depleted coffers is unlikely to succeed, as many of the funds the Crown Prince is seeking to acquire are beyond his reach.

 

In early November, scores of princes, ministers and businessmen were arrested on corruption charges. The move had been viewed as an attempt by Mohammed bin Salman — known as MbS — to consolidate power, removing any sources of potential challenge in advance of his eventual accession to the Saudi throne. But news of the settlements that are reportedly being negotiated with detainees suggests that he is just as concerned about the country’s finances.

saudi arabia crown prince Saudi Crown Prince Mohammed bin Salman, Masayoshi Son, SoftBank Group Corp. Chairman and CEO, and Christine Lagarde, International Monetary Fund (IMF) Managing Director, attend the Future Investment Initiative conference in Riyadh, Saudi Arabia October 24, 2017. Reuters

The fall in the price of oil — the kingdom’s main source of revenue — has led to a huge budget deficit, which stood at $79 billion in 2016.  The government has had to use foreign reserves to help cover the revenue shortfall, with the former shrinking by about a third over the last three years. The recession has forced MbS to rein back public spending, alarming cosseted Saudis long accustomed to cradle-to-grave subsidies.

The Crown Prince has staked his reputation on the success of an ambitious economic transformation plan, Vision 2030, to wean the country off its dependence on oil, but he needs to fund planned reforms and projects. He was banking on a part-floatation of the national oil company Aramco, which appears to have been postponed for at least a year. The ruthless purge and financial strong-arming could now deter the very western investors and regulators needed to move forward with the sell-off.

MORE:   http://www.businessinsider.com/saudi-arabia-corruption-crackdown-looks-like-a-plot-to-plug-deficit-2017-12/?IR=T

 

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