KSA Opinion Piece - by Clemens Graf Von Luckner
Jumping 30 ranks from 92nd to 62nd in terms of the ease of doing business, passing more reforms than any other country, Saudi Arabia was recently awarded top improver in the World Bank’s 2020 Doing Business report. Especially in light of the country’s reputation as highly conservative and somewhat reform-immune, the current reform developments have taken many by surprise.
With Crown Prince Mohammad bin Salman’s (MBS) ambitious reform vision, the political will behind the recent development has become evident to the world’s development community. However, there remains a lack of understanding of how the will to reform translated into such vast efficiency in implementing the reforms. After all, countless countries around the world have ambitious reform aspirations. However only few achieve to put the aspired reforms in practice, so that evidence the World Bank collects from the private sector confirms the reforms’ impact.
What set the KSA apart from so many other governments seeking reform, is likely not to be monocausal. Rather, it seems that a combination of characteristics and strategic decisions taken by the KSA, together with the necessary means to bear the often-underestimated costs that arise from reform implementation were what allowed for Saudi Arabia’s exceptional reform efficiency.
Whilst often preferred not to acknowledge by academia, autocratic governments with decision making power concentrated in the hands of few, if not one individual, have remarkable means to enforce their reforms. Notwithstanding the foregoing, autocracies are often reform-averse, as, content with the status quo, autocratic leaders structurally avoid sweeping reform. In the case of the de-facto ruler of Saudi Arabia, MBS likely only became the youngest crown-prince in recent history, because he was found capable by the succession council (also referred to as allegiance council) to bring about desperately needed reforms. Thus, reform-shyness was never a viable option for the young leader. Often described as well-endowed with will-power and not shy to use any means available to bring his vision to reality, the autocratic power of the crown-prince is likely to have played a crucial role in enforcing the implementation of recent reforms.
Removing red tape is often costly. At least for the few. Whilst without a doubt removing inconveniences and costs is beneficial to businesses, those in charge of administering the red tape, especially in emerging markets, have been shown to turn excessive business regulations into sources of income, offering to allow for exceptions in exchange for bribes. Take for instance a customs office, who used to physically inspect the import documents, which would take a day, but could be done much faster, if the importer accepts to pay an informal express fee. With the new, fully digital single window for import documents that automatically processes the document revision within 10 hours at a fixed US$126 fee, such practices have become impossible. Thus, the regional customs office is likely to oppose practices rendering their tasks more efficient. It is hence crucial that the reform-enforcing agencies are well endowed with support from the top of the hierarchical pyramid to deter those benefiting from red tape to slow down or neutralize reform efforts. Moreover, having the financial means to compensate for possible losses from the reform could have played an equally important role.
Countless countries have received economic development consulting from McKinsey and other consulting firms. In numerous cases (e.g. Bahrain Vision 2030) they even shared the same name, and numerous common points of advice. Yet, only the KSA achieved implementing the proposed reforms within such a remarkably short time-period. To assure that the proposed reforms indeed translate into concrete changes in enforced business regulation, the kingdom made the strategic decision to constitute a command-structure, centering around the Strategic Management Office that acts as a steering committee with branches well-endowed with supervisory powers in every ministry relevant to the Vision 2030’s reform plan. This structural set up, though again financially costly and dependent on a strong leadership imposing new checks on priorly more independent ministers, has been a crucial instrument for the reform implementation.
As has become obvious from all the above however, the power and will to enforce implementation of reforms alone are unlikely to bring about the observed results, if the reforming government lacks the financial means to translate proposed reforms from within the Vision 2030 slide-deck into concrete changes on the ground. Reforms don’t come at a low price. Indeed, some of the reforms acknowledged by the World Bank, such as the improvement in port infrastructure in Jeddah, leading to faster off-loading and on-sight transportation evidently require significant investments. However, as has been shown above, the labor-intensive structural organization of the implementing agencies, as well as the cost for compensating those facing short-term losses because of the reforms (e.g. the customs offices described above, but also Mu’aqab service providers offering to gather all necessary documents/stamps/permits etc. for a business transaction) equally significantly benefit from the financial means of the KSA.
As has been put forward by the World Bank’s Senior Director of Development Economics, Simeon Djankov, there is a long way to go until Saudi Arabia’s business environment will reach the ease of doing business of leading countries in the field, such as Singapore or New Zealand. If the country achieves to follow its current trajectory, however, and achieves to avoid potential backlashes that many countries with equally ambitious reform plans have historically come to face, close to nothing is impossible. With the unique combination of characteristics and strategic decisions taken by the KSA to implement its reforms, and the necessary capital reserves to bear the often-underestimated costs that arise from reform implementation, Saudi Arabia’s exceptional reform efficiency is currently second to none. Whilst certainly capable of having the world revisit its current view of Saudi Arabia is backward and reform-averse, it will be upon time to show whether the well-constituted reform apparatus is able to maintain its momentum over time and achieve all the goals of the Vision 2030 and beyond.
********************* Clemens is a second year dual-degree MPP/MPA in International Finance and Economic policy candidate at Sciences Po Paris and Columbia University in New York. Prior to Graduate School, Clemens completed his Bachelor of Arts degree at Sciences Po Paris in France and worked for UNDP in Beirut, Lebanon. Originally from Germany, having lived in New Zealand and Lebanon, he is interested in development economics and the interplay of politics and economics in emerging markets, particularly in the Middle East. Clemens has worked for the World Bank, UNDP and is also co-founder of AidAnalytica, a pro-bono data consultancy for NGOs and humanitarian aid providers. He speaks English, German, French and Arabic.