Muhammad bin Salman (MBS) is one of the most powerful and entrenched autocrats in the world. He has no need to buy elections or pay off rivals.
However, by 2030, his government is expected to have spent nearly $3 trillion on Vision 2030, the giant plan to transform Saudi Arabia's economy.
Officials are backing the construction of artificial islands, luxury hotels and electric car factories. “They will fund any project that has even the slightest chance of generating economic growth, even if the results come decades later,” says one megaproject executive, “even if they are fantasies or failures.”
MBS is just one of several authoritarian leaders focused on economic growth. Gulf monarchs, East African leaders, and statesmen in semi-democratic countries have been inspired by China and Singapore, which have managed to combine authoritarian rule with rapid economic development. Many of them are willing to pursue sound macroeconomic policies.
They see growth as a source of legitimacy, aiming to increase the well-being of the population as a whole, not just the elites.
To this end, they hire skilled technocrats, promise stability to attract investors, and implement costly industrial policies. However, despite this commitment, they are facing difficulties in meeting their declared objectives.
China and Singapore are exceptions. Most autocrats in the past have pursued economic development in a disorganized manner.
According to Kevin Grier of Texas Tech University and Michael Munger of Duke University, from 1950 to 2006, rulers who stayed in power for more than a decade achieved an average of only 1% growth per year. Many used politics for personal enrichment.
Others, like Suharto in Indonesia or the military junta in Myanmar, appeased elites by distributing profits among allies and oppressing the population.
The new generation
A new generation was identified in 2015 by Hilary Matfess of the Council on Foreign Relations, who called them “developmental authoritarians.” Paul Kagame in Rwanda has attracted investors by liberalizing the financial market, offering subsidies, and promoting the country at international trade fairs.
In Ethiopia, Abiy Ahmed lifted capital controls and allowed the national currency to float. In the Persian Gulf, royal families are trying to reduce their dependence on oil. Vietnam, already Southeast Asia’s most dynamic economy, under To Lam seeks to accelerate growth even further.
The historical pattern of inspiration is clear: under the rule of Park Chung-hee (1963–1979), South Korea's income rose from the level of sub-Saharan countries to that of Eastern Europe.
In China, Deng Xiaoping achieved rapid economic growth without transitioning to democracy, consolidating Communist Party rule. Today, from Kagame to Indermit Gill, the World Bank's chief economist, many openly admit to admiring the achievements of China and Singapore.
In the 2000s, there was talk of “authoritarian deals”: despots offered economic aid in exchange for a lack of political rights. But today’s populations are too large and young for such deals. The Persian Gulf is facing a run on oil; Ethiopia’s population is expected to grow by 90 million by 2050.
From Kennedy School in Kuwait
Merging growth-supporting policies with an authoritarian political economy requires surrendering some control. The Rwandan government has financed everything from dairy farming to peat extraction and exploitation through venture capital, then sold shares in successful ventures to private investors (a portion was recently sold to T-Mobile).
In Vietnam, To Lam exempted small businesses from corporate income taxes. Bahrain eliminated almost all red tape for foreign investors bringing in more than $50 million. MBS's latest reforms, unveiled in February, aim to bring employment practices closer to those of the United States.
Well-managed state-owned conglomerates attract foreign capital. Investors prefer stability, and a young, popular leader is seen as more stable than elected politicians in democratic countries. As state representatives promoting the country at investment conferences point out:
“Why risk it?” Abiy is 48 and MBS is 39; they plan for decades. Saudi Arabia has Vision 2030 (2016), Bahrain, Vision 2030 (2008), Ethiopia, Growth and Transformation Plan by 2030.
Although the offer seems attractive, problems have become apparent. Foreign businessmen complain of micro-management.
State-owned firms often suppress private initiative: in Saudi Arabia, government plans have caused shortages of construction materials; in Ethiopia, according to the IMF, banks are so focused on financing the state that they fail to support local businesses.
When targets are not met, officials often manipulate statistics to avoid punishment. An IMF official has suggested that Rwanda's real GDP growth is several percentage points lower than the official figure. Ethiopia is also likely to have inflated its wheat production figures.
Although many plans are long-term, they have already been in place long enough to be judged. There are four key indicators: foreign investment and economic growth as the main ambitions; GDP per capita and health spending as indicators of the distribution of benefits. Most regimes are not achieving their stated goals.
In 2000, Kagame announced that by 2020, Rwanda would become a middle-income country, a goal that has yet to be achieved.
The non-oil sectors of the Gulf economies are growing more slowly than the average for upper-middle-income countries. Since 2015, average incomes in countries ruled by growth-obsessed authoritarians have grown by just 14%, compared with 23% in comparable countries.
However, there are exceptions. Ethiopia’s economy grew by over 7% last year, four percentage points faster than the African average. Rwanda reported similar figures. Saudi Arabia was seen as the slowest, but on August 4, the IMF revised its estimates and raised its estimate of non-oil growth in 2023 from 3.8% to 5.8%.
In most cases, growth relies on public finances. Saudi Arabia’s Public Investment Fund generates a tenth of non-oil GDP. In Rwanda, more than half of last year’s investments came from state-owned companies.
Private foreign investment would indicate a real capitalist boom, but last year, Saudi Arabia attracted less capital, as a percentage of GDP, than the regional average, and Bahrain less than Nicaragua. Trade balances have barely improved; Saudi Arabia imports three times as many non-oil goods and services as it exports.
Growth has not been enough to cope with a rapidly expanding population, nor to increase fiscal revenues. In 2023, Saudi Arabia collected less tax, as a percentage of GDP, than the average low-income country.
Fiscal pressure is mounting, with the IMF predicting that Saudi Arabia's non-oil sector growth will remain below 3.5% for the next two years. Meanwhile, Rwanda's debts will force Kagame to cut spending.
Although technocratic policies have yielded better results and brought some popularity, these leaders will soon face a difficult choice: to truly open the economy, use harsher methods to maintain citizen obedience, or try to buy popularity with bonuses, under more difficult fiscal conditions.
It remains to be seen whether their commitment to economic change is real or simply rhetoric to maintain power./Monitor.al/
