After decades of risk-averse octogenarian kings, Saudi Arabia’s young, ambitious Crown Prince Mohammed bin Salman’s (MBS) recent purge of senior figures in the Kingdom and promotion of the bold Vision 2030 reform plan represents an unprecedented effort at economic and social transformation. The success or failure of the reform plan for the world’s largest oil exporter has consequences for not only the Kingdom’s internal stability, but also for global energy markets and Middle East security. Conventional wisdom says it will be difficult for MBS to transition Saudi Arabia into a more diverse, dynamic economy with a larger private sector that will attract foreign investment and build new domestic industries. Nonetheless, MBS’s initiative and youthful energy is spurring hopes among Saudis and foreign observers that he might succeed despite the odds.

Reforming an oil-based economy is notoriously difficult so in trying to forecast Saudi Arabia’s chance of success, we can look for similar countries in modern history and assess the successes of their large-scale economic reforms. Using Koto’s Analogy Engine (KAE) to quantitatively crunch all the data, it seems pessimism is likely appropriate.

What is a good analogy for Saudi Arabia today?
Koto’s Analogy Engine searched through over 100,000 possible comparisons based on over 50 years of country-level monthly data and identified the countries that most resemble present-day Saudi Arabia. To represent Saudi Arabia’s current state, the KAE factors in per capita GDP, months of imports covered by foreign reserves, oil revenue as a percentage of GDP, level of corruption, level of democracy, population, military spending as a percentage of GDP, and level of civil conflict. According to the KAE algorithm the situation in the Kingdom resembles some Middle Eastern, Caspian, and African autocracies that are mostly financially stable, have an absence of domestic conflict, and are energy producers during times of moderate to high oil prices (except Azerbaijan and Angola, which match Saudi Arabia during lower oil price environments).

The past can be instructive and if Saudi Arabia is unable to execute the Vision 2030 reforms, then the outlook for Saudi economic growth in the near term appears poor.

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Nearly all of these countries did attempt some form of economic or political reform--though not necessarily on the same scale and ambition as Vision 2030--but they all largely or completely failed. Even Oman (2010), Libya (2001), and Kazakhstan (2007), which implemented important economic reforms around the time they analogized with contemporary Saudi Arabia, have not experienced any lasting systemic change and all remain heavily dependent on oil revenues.

The past can be instructive and if Saudi Arabia is unable to execute the Vision 2030 reforms, then the outlook for Saudi economic growth in the near term appears poor.

  • Among analogous countries in the decade after they matched closely with present-day Saudi Arabia, most experienced slow growth, and several had significant economic volatility.
  • The only two exceptions that showed sustained GDP growth were Libya post-2001 and Kazakhstan post-2007, which is likely more related to the opening of foreign direct investment (Libya) and expanded investment in the oil sector (Kazakhstan) rather than dividends from their limited reform projects. Neither Libya nor Kazakhstan have been able to diversify their economies away from oil and within a decade the Libyan regime was violently toppled and Kazakhstan remains an authoritarian state wholly dependent on oil revenues to maintain power.

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Obviously every country is different and all the variables are hard to quantify but using the Koto Analogy Engine gives us a way to identify potential key drivers and frame the possible cone of outcomes in a rigorous way. For Saudi Arabia to move from resembling its current group of non-reformist peers to countries that have implemented transformative economic reform it would need to execute multiple parts of Vision 2030 nearly perfectly.

What if Vision 2030 gains traction?
We can use the KAE to find good examples of countries similar to Saudi Arabia if the Vision 2030 reforms were more or less successful. If we keep most of the features the same but minimize areas that Vision 2030 aims to fix like increasing trade as a percentage of GDP and reducing oil dependency and corruption, the top non-oil-exporter analogy is China in 2009--just behind Libya (1998), Oman (2001), and Qatar (2010). This suggests although oil producers tend to be analogous even when oil wealth is not explicitly used as a criteria for matching, a non-oil producer alternative does exist.

  • This was when China was coming out of the global financial crisis relatively unscathed and during Beijing’s full embrace of state capitalism in which the government encouraged “national champions” (state-backed enterprises) that became increasingly important in the global economy.

The China model is likely appealing to the Saudi elite as it suggests economic reform is possible without political reform--and MBS would undoubtedly like to see a more resilient Saudi economy in which the state oil behemoth Aramco acted as a national champion rather than just a cash machine. But the Chinese comparison also demonstrates just how much Saudi Arabia must change.

  • Oil revenues and patronage derived from that revenue are fundamental to the modern state of Saudi Arabia.
  • Never an oil producer, China dramatically shifted its economic course, but over a 30-year period and at a time of limited external threats and a largely supportive international community.
  • Unlike China in 2009, Riyadh’s foreign currency reserves are plummeting, its population is restive and yearning for social progress but fears abrupt economic change, and the challenge posed by rival Iran is greater than it has ever been.

While the thought of a Saudi Arabia not dependent on oil revenues creates intriguing future possibilities for the region, a rigorous comparison of the Kingdom to all other countries over the last 50 years suggests that Riyadh will continue to resemble its fellow autocratic petro-states.

David Bender

Quantitative Geopolitical Analyst at Koto. Middle East, energy and security expert. Previously political risk analyst at Eurasia Group and threat analyst at Chevron. MA in Middle Eastern Studies (NYU)