• Succession
  
  • Economic Upturn

Succession

Uncertainty about the future has been increased, more abroad than in Saudi Arabia, by concerns about the succession. King Fahd has been a sick man for some years and in November 1995 he had a stroke. At the beginning of January 1996 he announced that he was handing over his powers to Crown Prince Abdullah, who would rule as regent, but in the next few weeks Fahd gradually recovered and on 22nd February he declared that he was taking power back into his own hands. It is thought that he acted partly under pressure from close members of his family who were seeing their ifluence and prospects of making money diminished under the regent.

Since his return, Fahd has been only partially in control of affairs. He has had "good days", when he has been photographed with foreign visitors, and "bad days", when he has been incapable of work of any sort. Increasingly he has been represented by Prince Abdullah, who has regularly chaired the Council of Ministers (the cabinet), received foreign heads of state and held important meetings with Arab visitors. It is understood, though, that in most cases Abdullah has been well briefed on what he has to say by his half brothers, Sultan, the Minister of Defence, who also handles Yemeni policy, and Naif, the Minister of the Interior, who takes a particular interest in Gulf and Iraqi affairs.

Saudis are starting to treat Abdullah as a "king in waiting". He is being courted by his relations - particularly by princes outside the Al-Fahd, who feel they would like a post in government, or at least a gift of land. Abdullah, in turn, is happy to be courted, knowing that as he has no full brothers he will need the support of as many family members as possible when he becomes king. Court officials and civil servants likewise are trying to ingratiate themselves with him, hoping for promotion for themselves, members of their families or friends. New groups of businessmen and officials are hoping they will win contracts under the new king.

Abroad, foreign ministries and the pundits who surround them have been speculating as to what difference Abdullah's accession will make to Saudi policies. Abdullah certainly has a different view of the world from Fahd and Sultan. He is much less an admirer of America, and he feels closer to the Arab countries. He has long links with Lebanon and Syria, from where he has taken more than one wife. In 1989 he played an active role in negotiating the Taif Agreement, which is the basis of the current political settlement in Lebanon. During the Iran-Iraq war of 1980-88 he was a firm supporter of Saddam Hussein. It is currently suggested in the Arab countries that if he exerts an influence on Yemeni policy when he becomes king he will be much "softer" in his dealings with that country than Sultan has been. He could even allow some minor border adjustments in Yemen's favour, which might at last reconcile two countries whose relations have been uneasy since the creation of the Saudi kingdom.

Abdullah's more nationalist and less Westernised sentiments have won him some sympathy among the Islamists, who hope that he will at least reduce the American presence in the kingdom when he becomes king. Many more people hope that a curb will be put on the business activities of the Al-Fahd.

Whether or not government under Abdullah will be very different from what it has been under Fahd is an open question. Much depends on the manner of his accession. It may be that Sultan, Naif and Salman, the Governor of Riyadh, will negotiate an understanding with Abdullah and then persuade their older brother to abdicate; it is believed that Fahd was on the point of leaving the Kingdon twice during the summer but at the last moment had second thoughts. If, finally, Fahd does go in this way it is assumed that Abdullah's power will be circumscribed by whatever deal he has struck with his half brothers.

If, on the other hand, Fahd dies, Abdullah will be in a much more powerful position. In theory he will be able to make whatever changes he likes, and because he speaks bluntly, albeit with a stutter, he may give the impression of being quite decisive. Yet there are good reasons for thinking that he will proceed slowly, testing the water as he goes, and in the end not alter very much. He is already quite an old man - he is 73. He is not particularly clever, and having no full brothers and no large body of supporters in the royal family he does not control much of the machinery of government. He must also be as aware as his half brothers of the need for the family to appear united. Abdullah was given his senior position in government, Commander of the National Guard (a post he still holds), in 1962 in the middle of the crisis that led to King Saud's abdication. It was at the same time that Sultan became Minister of Defence and Salman Governor of the province of Riyadh.

It is quite likely if Abdullah succeeds after Fahd's death that some step will be taken to distance Saudi Arabia from America or reduce the US military presence in the Kingdom, but the change will be a matter of degree only, the result of a compromise between Abdullah and Sultan. Abdullah may also do something to curb corruption. He may issue a statement on the matter and, much more important, he and his supporters will ease the Al-Fahd and their supporters out of some of their most lucrative business relationships. In this he will be backed by many of his 16 surviving half brothers, and more distant relations, outside the ranks of the Al-Fahd. In effect what may happen is that some opportunities for personal enrichment will be transferred from one group of princes to another, though, initially at least, the commissions taken will be smaller. Throughout Abdullah's reign, which presumably will be quite short, there is bound to be constant politicking within the royal family.

Under Abdullah family politics will quite soon become focussed on his successors. There is no doubt that Sultan will follow Abdullah - unless he dies first. Sultan is already 72, he is overweight and has not been in especially good health. There will presumably be a group of princes and officials during Abdullah's reign who will attach themselves to Sultan and hope for his early accession. When, or if, Sultan becomes king, the politicking may be reduced because it is assumed that he will pass over a number of half brothers with limited qualifications and appoint as his crown prince either Naif (now aged 63) or Salman (aged 60). Both these princes are members of the Al-Fahd and are not known as particular rivals. Salman is certainly the more respected by the Saudi people. He is regarded as honest, generous and intelligent and, unlike many of his brothers, he is not overweight. Most of his sons hold, or have held, responsible positions in government. His family is by no means poor - it holds large areas of land - but it has been careful in its business activities. Within the royal family Salman has excellent contacts. For much of the 1970s and 1980s he organised the Family Council, an influential ad hoc body, of varying membership, which is periodically consulted on matters of family importance.

Economic Upturn

While Saudi politics have been going through a worrying period, the Kingdom's economic prospects in the last year have improved sharply. Since the summer of 1995 prices for Saudi oil have been running above the $14.50 a barrel average which has been the basis of both the 1995 and 1996 budgets. It is likely that in 1996 the average will be more than $3 higher, and given that for every $1 by which the price rises the Treasury makes an additional $2.8bn, it seems that this year its oil revenues will be some $9bn above the forecast made at the beginning of January. For 1996 the government was projecting expenditure at $40 bn (in practice it often underspends) and revenues at $36 bn - so the effect of the surge in oil prices has been to change a $4bn estimated deficit to a $5bn surplus.

The question that has arisen in business circles and among international bankers - not least at the International Monetary Fund - is "how is the Kingdom going to treat this windfall?"

Most likely the government will continue to bring itself up to date in its payments to suppliers, contractors and wheat producers. As of September this year, after more than twelve months of making substantial payments of arrears, it still had $1bn oweing from before the end of 1995. These payments, which are very wise politically, will absorb the major part of the 1996 surplus. It is possible that whatever is left will be spent on some further popular gesture, such as an additional month's salary for state employees. The civil service is the biggest employer of Saudi labour, but its salaries have been frozen for several years.

The current prospect is for the Kingdom to continue to earn higher than expected oil revenues during 1997. The oil market remains quite tight and Iraq's re-entry has been delayed. Even if Iraq does begin to export again during 1997, the market feeling in late 1996 is that its effect may be to stop prices rising further, rather than depress them.

Rumours in Riyadh are that the Government will keep its budget for 1997 at $40bn, as in the last two years - but this is a very vague figure of partly symbolic significance. The Saudi government releases no details, either of its spending plans or the outcome of its budgets. The spending target for the five year plan covering the second half of the 1990s is no more than five times the budget figures for 1995 and 1996 - in other words $200 bn.

If on 1st January Fahd or Abdullah announces a budget of $40 bn, the purpose of the exercise will be to avoid raising the public's expectations. In practice it is likely that the government will increase capital spending on utilities, mainly water and electricity supplies. It may also accelerate repayments of its $96bn domestic debt. Normal levels of repayments are included in the spending projections.

In one way it is feared that the rise in oil revenues may have an adverse effect on the economy. At the beginning of 1995, King Fahd announced significant increases in the amounts Saudis would have to pay for oil products, water, electricity, telephone services and domestic air fares - all of them previously hugely subsidised or provided free. His government had been urged for many years to increase charges, but it had hesitated, and even on one occasion reversed an increase, because it feared that if the public was asked to pay more for utilities it would resent still more the extravagance of the princes. The Islamist opposition had been referring to the existing trivial charges as "taxes". Even since the 1995 increases, fuel and utilities have remained heavily subsidised and it is the recommendation of the IMF that, to reduce the government's debt and in the long run make the economy more efficient, they be increased to market levels. The Fund also wants the government to eliminate agricultural subsidies and subsidised credit given by specialised loan agencies. There has never been a strong prospect of the government carrying out all the Fund's recommendations in the near future, but had it continued to run a deficit it is probable that it would have taken further small steps to reduce subsidies. Under the improved oil price regime such steps are unlikely.

Similarly it is feared that its healthier financial position will discourage the government from pushing ahead with privatisation. This was another IMF/World Bank prescription for cutting state spending and making the economy more efficient, and in part it has been endorsed by the Saudi government. However, it implies reductions in employment, the institution of a new legal framework, public accountability, the creation of an efficient stock exchange and a loss of state control over a major part of the nation's life - an idea from which all Arab governments instinctively recoil. In the present circumstances the Saudi government probably feels that it will be able to sell just one or two assets, such as a further tranche of the Saudi Basic Industries Corporation (SABIC), the mainly state-owned partner in Saudi-foreign petrochemicals ventures. The sale of small shareholdings in profitable companies, which do not require complete restructuring, is a way for the government to appear to have a privatisation programme without incurring political pain.