Saudi Arabia is moving at its fastest pace in years to overhaul the economy, and this time there isn’t even the crunch of lower oil prices. Last year’s effort to tackle unemployment, and a recent and long-expected mortgage law designed to help solve the housing problem, should help shore up stability in the absolute monarchy. These are tentative steps so far. But they go in the right direction.
Change, at least by design, is always slow in the kingdom. But this week’s surprise approval of the first mortgage law, a sharia-compliant piece of legislation debated for over a decade, seems to confirm a trend. One year ago, Saudi tightened its labour laws in a bid to address the problem of the massive unemployment of nationals. In the peculiar time zone that is Saudi Arabia, this amounts to the beginning of reform.
Home loans amount to 60 to 70 percent of GDP in developed economies but no more than 2 percent in the kingdom. That proportion could rise to more than a third if the mortgage law, as expected, lowers borrowing costs and protects lenders better.
The Arab spring seems to have ended the old correlation between oil prices and the kingdom’s reform drive, which used to wane when money flowed in. The last significant period coincided with Saudi Arabia’s entry into the World Trade Organization in 2005, after years of rising government debt. That period ended in 2008 when Saudi granted foreigners limited access to the stock market.
Kingdom watchers gave up hope of meaningful reform early last year when King Abdullah pledged $130 billion of extra spending to limit contagion from regional revolts. The introduction of an unemployment benefit paying more than the average private sector income epitomised the kingdom’s apparent willingness to throw oil money at its problems.
Now Riyadh is going for spend and reform. It’s too early to assess and more needs to be done but in a country where half the population is under 23, Saudi cannot afford to let the money do all the talking. Foreign investors insist on unrestricted access to the kingdom’s stock market, which could be granted this year. But internal reform is the right place to start.