The unexpected hard hitting anti-corruption strategy of Saudi Arabia’s Crown Prince Mohammed bin Salman (MBS) has not resulted in a total shutdown of interest of institutional investors or equity holders. Saudi Arabia’s attractiveness has received only a minor hit after the arrest of clique of billionaires and princes, but current signs are showing that Saudi Arabia’s bondholders are a pretty sanguine bunch.
The power grab and anti-corruption move by the crown prince has not scared investors in Europe, US or Asia. Analysts are currently getting more self-assured about the positive effects coming out of the crackdown on corruption and the stranglehold that major Saudi corporations and royal family members had on the Kingdom’s economy. The ongoing swoop now is being looked at a positive move which clears the way for accelerating economic and social reforms under Crown Prince Mohammed Bin Salman.
As stated before, in several other articles (see oilprice.com), the crackdown is now looked at as a major solidifying factor in the prince’s position. As indicated already, the financial sector is getting to grips with the immense ongoing changes in the Kingdom. The moves implemented the last weeks are regarded to be necessary. Some even state that if MBS manages to secure the succession, it does enhance his ability to push through the reforms. And, in the end, Saudi Arabia has a very strong balance sheet -- not much debt, a big cash reserve, the ability to borrow, assets to sell, and clearly they have a reform agenda.”
The last couple of weeks, rumors have been going around about the total outcome of this exercise by MBS. Some royals already have left the so-called “Colditz Castle of Riyadh” or also known as the Ritz Carlton. Articles emerged in which it is stated that these royals have paid their way out, such as the former head of the Saudi National Guard, Prince Miteb. The latter is rumored to have paid around $1 billion for his ticket out. These arrangements and financials have not been confirmed by officials yet. The fate of the others is not yet known, but financial tickets will be the main possibility to get of the ‘luxurious’ Ritz Carlton Riyadh. The MBS move against corruption has not only stunned Western investors but also has been a major surprise for investors across the six-nation Gulf Cooperation Council as concern spread of over who might be targeted next.
The Saudi move however is not standing on its own. Several other Middle Eastern regimes, and even Russia, have been using the same practices in a move to quell high levels of corruption, while at the same time countering possible opposition. In the past 18 months alone, Turkey has arrested thousands of civil servants after a failed coup, Brazil’s president has fought corruption charges and South Africa’s President Jacob Zuma has been fending off attempts to unseat him. Russia after the breakdown of the Soviet Union used it also, while Moscow’s Tsar Putin sees it as a major instrument whenever opposition parties or businessmen are getting too much a distraction or threat.
Financial analysts at present are not taking into account the possible local and regional political consequences of MBS’ strategy. However, the majority is convinced that used in a rational way, the outcome will be much more positive than at the start was expected. Not only is the government overhauling its economy to reduce its reliance on oil revenue, it’s also imposing social changes, which includes allowing women to drive. Prince Mohammed is spearheading the reforms after a plunge in crude prices helped expose the issues that have curbed economic growth. The situation of Saudi’s finances also should not be underestimated.
A large group of analysts has been stating that the anti-corruption move was also meant to refill the coffins of the government. Well, looking at these ‘small coffins’, the bottom has not been reached by far. While the kingdom’s foreign reserves have fallen $260 billion since reaching a high in August 2014, Saudi Arabia still has $478 billion in its coffers. Last months even showed a resurgence in reserves.
