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Feb 19, 2018 | 19:49 GMT

3 mins read

Saudi Arabia: The Kingdom Sharpens Its Business Sense

(Stratfor)
Forecast Update

In Stratfor's 2018 Annual Forecast, we said that Saudi Arabia would pursue some of the Middle East's boldest economic reforms this year. The reforms, which include a recently announced bankruptcy law and a decision to allow women to independently start businesses, will be a lot for older Saudis to come to terms with. But Crown Prince Mohammed bin Salman will not pull back from his ambitious Vision 2030 plan, which he hopes will completely revitalize the country economically and socially. 

The Kingdom of Saudi Arabia has taken key steps toward building a more entrepreneur-friendly economy. On Feb. 18, Riyadh's Cabinet approved the country's first-ever bankruptcy law, and the government later declared that it would soon allow women entrepreneurs to start businesses without male guardianships. Both actions help to unshackle Saudi talent as the government banks its economic future on cultivating a vibrant private sector.

The proposals, whose full details and pace of implementation remain unclear, underscore two key aspects of Saudi reform strategy. First, these reforms are among several delayed necessities for the country's financial health. The country has suffered from a lack of formal bankruptcy regulations for years, as businesspeople in disputes with creditors often skipped the country to avoid possible jail sentences. And Saudi women have been taking on jobs and managing businesses under the radar, especially in rural areas, for decades. Second, the proposals indicate that the government is more willing than ever to shake off old restrictions that enormously benefited traditional social influencers, particularly creditors and men.

The newly unveiled bankruptcy law aims to make investment less risky in the kingdom, allowing businesses to rely less on personal connections and more on transparent laws. Investors were at the mercy of their creditors. Business relationships resembled a patronage system where the creditor's personality served as an extra element of risk. Thus, investors have typically been either quite conservative or, alternatively, more willing to flee the country and abandon their debts. Both outcomes compromised the Saudi economy, limiting the pursuit of risky but potentially innovative ideas. This new bankruptcy law will shift the mentality away from such risk aversion, while allowing creditors who are still owed money to recover some of their losses.

Meanwhile, the announcement about female Saudi entrepreneurs marks another step toward encouraging economic independence for women. Though women informally run businesses throughout the kingdom, they always run the risk of being punished by religious authorities, male guardians or rival businesses. Implementing the new change will help Saudi society shift away from the patron-dependent model that has long slowed women's advancement. Details of the new proposal remain scarce, but the imperative of employing more women is clear: Female unemployment in the country is nearly double that of men. Of course, Saudi conservatives who have up to now kept quiet about the pace of social change may consider a female boss to be a bridge too far. By refusing to take certain jobs or escalating their complaints to the national stage, these conservatives may compel the Saudi government to reflect on the challenges it is creating for itself.

With all its new reforms, Riyadh is surely keeping in mind the rapid social changes of the 1970s — which contributed to the assassination of King Faisal in 1975 and the Grand Mosque siege in 1979. But Saudi Arabia will endure the risk as Vision 2030 unfolds, embracing potential pain in the hope of making powerful gains.

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