Clock ticking for Saudi Arabia's new finance minister as oil kingdom teeters closer to recession
Mohammed al-Jadaan is a touted reformist who reportedly has the backing of King Salman Bin Abduzlaziz to help realize Saudi's ambitious economic reform plan
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For 20 years, Ibrahim al-Assaf presided over one of the world’s fastest-growing economies. Buoyed by Saudi Arabia’s unparalleled supply of oil, which accounts for nearly a fifth of the world’s reserves, the former finance minister only needed to worry about one thing: the price of a barrel of crude on the world markets.
His dismissal last week — which follows the departure of veteran oil minister Ali al-Naimi in May — therefore offers further evidence that Saudi’s economic landscape is changing. Replacing al-Assaf is Mohammed al-Jadaan, a leading commercial lawyer and chairman of the country’s capital markets regulator, touted by many as a reformist.
Backed by King Salman Bin Abdulaziz to help realize Saudi’s ambitious economic reform plan, it is thought that al-Jadaan’s expertise will be used to help diversify the country’s economy away from hydrocarbons and into other industries such as financial services. But as it teeters ever closer to recession in the face of another year of low oil prices, and with some economists predicting a US$87 billion budget deficit this year, how will al-Jadaan fare in the face of unprecedented change?
What are his qualifications?
The founder of Al-Jadaan and Partners Law Firm, he has extensive experience in capital market transactions, including structuring and negotiating international project financings and advising on equity and debt public offerings, mergers and acquisitions.
From 2015 until his recent appointment, al-Jadaan ran the Capital Market Authority, where he oversaw the loosening of Saudi’s regulatory framework and the opening of the Tadawul Stock Exchange to foreign investors in June last year.
He has also acted as a special adviser to the board of Morgan Stanley Saudi Arabia. His promotion coincides with Saudi’s first sovereign bond sale, which attracted a record-breaking US$67 billion in investor orders. It is thought al-Jadaan will be likely to continue the rapid expansion of the country’s bond market.
Does he have political clout?
Al-Jadaan’s appointment is part of an extensive reshuffling of the Al-Saud inner circle. Since the death of King Salman’s predecessor, King Abdullah, many of Saudi’s big ministries have undergone upheaval, most notably with the absorption of various bodies into the new energy, industry and natural resources ministry.
Deputy Crown Prince Mohammed bin Salman, second in the line of succession, is responsible for spearheading much of the overhaul. The 31-year-old’s rapid centralization of power has not gone unnoticed by his rival contenders for the throne. Many suspect he is preparing to oust cousin Mohammed bin Nayef as choice successor, a sentiment also shared in Washington, which is now building relationships with both men amid the current uncertainty.
Fortunately al-Jadaan finds himself on the right side of the ambitious Prince, who successfully lobbied King Salman for his promotion. A key proponent of the reform measures, the new finance minister will be likely to prove a crucial ally for Mohammed.
Will he enjoy more autonomy than his predecessor?
Although he is held in high regard, al-Jadaan’s arrival is unlikely to alter the country’s tight fiscal policy, which rests almost entirely in the hands of Mohammed, the architect of the Vision 2030 reform package.
His role will focus primarily on the overhaul of the public sector, the expansion of a nationwide sovereign wealth fund, the partial privatization of Saudi Aramco, the huge state-owned oil company, and the cutting of energy subsidies.
In the meantime, expect greater centralization of power, further cuts to the state budget, the continued freeze on government contracts and reductions in civil service pay. Austerity remains very much part of the plan.
What are his immediate priorities?
Al-Jadaan doesn’t have much time to get used to his new office. While shifting from oil dependence is a long-term priority, the immediate focus is on alleviating current market conditions.
First and foremost, al-Jadaan will play a key role in ongoing discussions with Iran, as OPEC members continue to lobby for a reduction in exports. Should the two nations reopen private negotiations, his success will be measured in the concessions achieved — if any.
Without any notable movement in the price of oil, Saudi’s current budget deficit will continue to grow, with the IMF forecasting that foreign exchange reserves could be exhausted as early as 2020.
The second priority will be preparing Saudi Aramco’s accounts for public consumption, ahead of the oil company’s planned IPO in 2018. Al-Jadaan’s prior experience will prove crucial to making the offering a success, ensuring that all information meets the international standards required by foreign investors.
Finding a suitable market is also important, as opting for an Asian bourse, with less stringent disclosure requirements, would give the company greater breathing room.
With the implementation of a 5 per cent sales tax due at the beginning of 2018, al-Jadaan now has the opportunity to impose income and wealth taxes. If Saudi Arabia is really serious about raising new forms of revenue, such measures should be seen as the logical progression.
