Muhammad bin Salman, Saudi Arabia’s deputy crown prince and the country's defence minister, spoke to The Economist on January 4th. As part of a five-hour conversation, he gave his first on-the-record interview, which we have transcribed below. Our briefing includes quotations from both this and the broader discussion. Our cover leader is available here and more analysis on a possible Aramco listing is here.
The Economist: Let’s focus first on the recent executions. Why did they take place now, so many years after the terrorist attacks in Saudi Arabia? And why did you include a prominent shia cleric?Muhammad bin Salman: First of all, these were sentenced in a court of law with charges related to terrorism and they went through three layers of judicial proceedings. They had the right to hire an attorney and they had attorneys present throughout each layer of the proceedings. The court doors were also open for any media people and journalists, and all the proceedings and the judicial texts were made public. And the court did not, at all, make any distinction between whether or not a person is Shi’ite or Sunni. They are reviewing a crime, and a procedure, and a trial, and a sentence, and carrying out the sentence.
But these executions have provoked violent reactions in Iran. Your embassy was attacked, you’ve broken off diplomatic relations, as have Bahrain and Sudan. What will be the consequence of this escalation of regional tensions?We view them as a strange thing, that there are demonstrations against Saudi Arabia in Iran. What is the relationship between a Saudi citizen who committed a crime in Saudi Arabia, and a decision made by a Saudi court. What has this to do with Iran? If this proves anything it proves that Iran is keen on extending its influence over the countries of the region.
Did you not unfairly escalate tensions by breaking off diplomatic relations?On the contrary, we fear that they will be further escalated. Imagine if any Saudi diplomat, or one of their families or children are attacked in Iran. Iran’s position then will be much more difficult. So we prevented Iran from having to undergo such an embarrassment. The Saudi mission was set ablaze and the Iranian government is watching. If a child, or a diplomat, or their families are attacked, what could happen? Then we will have the real conflict and the real escalation.
Are you suggesting conflict between Iran and Saudi Arabia, outright conflict, is a possibility?Because of this procedure?
And the consequences thereof.If it’s because of this procedure I don’t believe that this could be a cause to further any tension between Saudi Arabia and Iran. Because Iranian escalation has already reached very high levels and we try as hard as we can to not escalate anything further, we only deal with the procedures and steps taken against us.
Is war between your two countries, direct war, possible?It is something that we do not foresee at all, and whoever is pushing towards that is somebody who is not in their right mind. Because a war between Saudi Arabia and Iran is the beginning of a major catastrophe in the region, and it will reflect very strongly on the rest of the world. For sure we will not allow any such thing.
Do you consider Iran to be your biggest enemy?We hope not.
One area where there might be considered to be what you might call proxy conflict between you is Yemen. You are the architect of the war in Yemen; when will it end?First of all I’m not the architect of the Yemen operation. We are a country of institutions. The decision to proceed with the operation in Yemen, this is a decision to do with the Ministry of Foreign Affairs, the Ministry of Defence, with the intelligence, the council of ministers, and the council of security and political affairs, and then all recommendations are submitted to His Majesty, and the decision to go forward is with His Majesty. My job as the minister of defence is to implement whatever decision his majesty has ordered. And I will submit any threats that I see. And to make preparations for any threats.
The decision was taken soon after you became defence minister. When do you expect the operation to finish?Regarding the fact that the decision was made after I became minister of defence, why did we forget the fact that Houthis usurped power in the capital, Sana’a, after His Majesty became king? This has nothing to do with the fact that I became minister. It has everything to do with what the Houthis did. I have surface-to-surface missiles right now on my borders, only 30-50 km away from my borders, the range of these missiles could reach 550km, owned by militia, and militia carrying out exercises on my borders, and militia in control of warplanes, for the first time in history, right on my borders, and these war planes that are controlled by the militia carry out activities against their own people in Aden. Is there any country in the world who would accept the fact that a militia with this kind of armament should be on their borders? Especially that they dealt with total disregard of UN Security Council resolutions, and posed a direct threat to our national interests. And we had a previous experience, a bad experience with them back in 2009. The operations carried out were supported and upheld by the UN Security Council, without any opposition.
When the operations began, many expected it to be quick. Now, ten months on, are you in a military quagmire?No, there were different objectives. The first objective of the Decisive Storm was to disable the main capabilities of this militia. The air capabilities, their air defence capabilities, to destroy 90% of their missile arsenal. And then we started the process of a political solution in Yemen, which is a whole different stage. All of our efforts are to push for the political solution. But this does not mean we will allow for the militia to expand on the ground, they must realise that every day they do not get closer to the political solution, they lose on the ground.
How long will it take?Nobody can predict that in a war, not from the greatest of generals to the smallest of generals. We could see Daesh today and nobody could predict when they’re going to be defeated. But what I could say was ten months ago half of Aden was not in control of government, and now over 80% of Yemeni lands are under the control of the legitimate government. And I want to emphasise that the world today has uncovered the games played by the Houthis, especially the games that they’ve been using regarding humanitarian aid.
You’re also in charge of the economy. Let’s now turn to the budget. The price of oil is $35 a barrel, your deficit last year, 2015, was 15% of GDP. Does Saudi Arabia face an economic crisis?
We’re too far from it. We are further than the ’80s and the ’90s. We have the third-largest reserve in the world. We were able to increase our non-oil revenues this year alone by 29%. We were able to come out with more positive things than what most people thought about the economy of Saudi Arabia, regarding deficit and regarding spending. And we have clear programmes over the next five years. We announced some of them, and the rest we will announce in the near future. In addition to this, my debt-to-GDP is only 5%. So I have all points of strength, and I have the opportunities to increase our non-oil revenues in many sectors, and I have a global economic network.
How will you increase non-oil revenues? Will you introduce VAT? Will you introduce income taxes?
There are going to be no income taxes, and no wealth taxes. We’re talking about taxes or fees that are supported by the citizen, including the VAT and the sin tax. They will create good revenues, but not the only revenues. We have many opportunities in mining, we have more than 6% of world reserves of uranium, we have many unutilised assets. We have four million square metres in Mecca alone of unutilised state-owned lands. The value in the market is very high; we have many assets that could be transformed into investment assets. We believe we could reach a point of non-oil revenues reaching $100 billion over the next five years.
When will you introduce the VAT?
We’ll try to do that by the end of 2016 or 2017, and we’ll try to expedite it.
And what will you privatise to raise revenues?
Health care, educational sector, some military sectors such as military industries and some state-owned companies. It will decrease some of the pressure that the government has, and some of them may create good profit.
Can you imagine selling shares in Saudi Aramco?
This is something that is being reviewed, and we believe a decision will be made over the next few months. Personally I’m enthusiastic about this step. I believe it is in the interest of the Saudi market, and it is in the interest of Aramco, and it is for the interest of more transparency, and to counter corruption, if any, that may be circling around Aramco.
You have said that one of the challenges is to diversify the Saudi Arabian economy away from oil. What sectors will be priority sectors in that diversification?
Mining, subsidy reforms. We have only 20% of those middle classes and lower who benefit from subsidies. We target the 80% and we try to keep the interests of the middle classes and lower; they will generate good revenues. And as I told you there are unutilised assets: expanding religious tourism, like increasing the numbers of tourists and pilgrims to Mecca and Medina will give more value to state-owned lands in both cities.
You have done some price increases in this budget—electricity, gasoline—but you still have many subsidies. Do you aim to get rid of subsidies completely?We want to reach free energy markets, but with subsidy programmes for those with low income, and not to have the subsidy in the form of lowering the energy prices, but through other programmes. And also some of the most important assets that we’re working on: We have a very magnificent area north of Jeddah, between the cities of Umluj and Wuj, there are almost 100 islands there, in one atoll. The temperature is ideal, five to seven degrees cooler than Jeddah. It’s virgin land, I spent the last eight holidays there. I was shocked to discover something like this in Saudi Arabia, and there were steps taken to preserve this land, 300km by 200km. This is one of the assets that we target, and we believe it has an added value other than generating income for state funds. So we have many unutilised assets. In Mecca, Medina, in rural areas and in urban areas. Jeddah for example: there is a land, total area about five million square metres, right on the beach front, in the heart of Jeddah, it’s owned by the air defence. The value of the land itself is about $10bn. The cost of transferring all the structures and buildings is about $300m. So this is a big waste. So to utilise the unutilised assets will create profit and generate development, this is massive work that we’re addressing. We are targeting to introduce new assets into the state-owned funds that are equivalent to $400bn, over the next few years.
Assets that you will privatise?These will go to the funds, and then will turn into projects, and into companies, and then will be offered on IPOs to the public.
This is a Thatcher revolution for Saudi Arabia?
Most certainly. We have many great, unutilised assets. And we have also special sectors that can grow very quickly. I’ll give you one example. We are one of the poorest countries when it comes to water. There’s one Saudi company that’s an example among many companies, like Amarai dairy company, their share in the Omani market is 80%. Their share in the Kuwaiti market is more than 20%. Their share in the Emirati market than 40%. In Egypt, where there is the Nile, their share is 10%. One Saudi company. We have other dairy, agricultural companies, and you can also do the same with the banking sector. The mining sector. The oil and petrochemical sector. There are many enormous opportunities to expand and develop.
This will require tremendous investment. One estimate I read said $4 trillion between now and 2030. Where will this money come from?
This is a report from McKinsey, not from the Saudi government. We try to be optimistic in some parts even more, and in some parts we try to be conservative. Anyway, McKinsey participates with us in many studies, but these investments we’ll try to attract from many sources: the Saudi investor, the state-owned funds, the GCC [Gulf Cooperation Council] funds, and the international funds.
Why would a foreign investor want to invest in Saudi Arabia now?
Profitability is the question, and this is what we’re trying to offer in order to attract investment. And this happens at the same time while having good regulations, and that could guarantee the safety of their investments. And we’re not a country new to foreign investment. The largest of international companies are present in the Saudi market: Boeing, Airbus, GE, GM, Sony, Siemens; all the large players are in the Saudi market. And all the major and key banks are opening branches in Saudi Arabia. So I’m not just opening up to the world; I’m already open to the world. I’m only giving out opportunities.
One challenge we haven’t discussed yet is the youth of the Saudi population: 70% of your country’s population is aged 30 and under. How will you create jobs for these people?We have great opportunities to create jobs in the private sector. The mining sector will help us a great deal in creating jobs, the programme addressing the pilgrims and the visitors will also generate many jobs, the investments will also create jobs. We do not expect that our unemployment will grow, we believe it will decline over the next few years, to a good extent. At the same time I have reserves now, ten million jobs that are being occupied by non-Saudi employees that I can resort to at any time of my choosing. But I don’t want to pressure the private sector, unless this is the last resort.
You would prevent the hiring of foreigners?
We’re trying to resort to creating jobs, if we cannot cover all, then we’re forced to exert pressure on the private sector, like what was done, the Saudisation programme.
The shift you’re describing: introduction of non-oil tax revenue, reduction of subsidies, move towards private sector employment; it suggests the remaking, in many ways, of the Saudi economy and the Saudi social contract. Won’t that force broader change in what is still a very conservative society?
This one thing is not at all related to the other. We have our values: it is important to us, the participation in decision making; it is important to us to have our freedom of expression; it is important to us to have human rights. We have our own factors and values and principles as the Saudi society and we try to make progress according to our own needs. Our situation today is not the same as it was 50 years ago. Fifty years ago we did not even have a legislative body. Today we have women with good representation at the parliament, and women do vote and nominate themselves for elections, and today we are making progress. According to our own needs, according to our own pace, and not as a response to any other model.
But you believe you can have more taxation without more representation?
There are no taxes.
But you are introducing taxes.
We’re talking about different forms of taxes. We’re talking about VAT, it will not be applied to any of the basic products; it will be on accessories.
The VAT will not be on basic products.Such as water, dairy, milk…
They will be excluded?No doubt. If they will influence the price.
I see. But you can have that kind of taxation without an increase in representation?
Again, one thing is not related to the other. This is not a decision from the government against the people. This is the decision of Saudi Arabia. With the government that represents the people. Before any decision to reform, we work on many workshops that represent many people.
What about broader social reform? How can you create a high-productivity modern economy with a vibrant tourist industry, a vibrant health-care sector, a vibrant education industry, if women can’t drive, if women can’t travel without permission.
Women today can travel. They work in the business sector…
But with the permission of their family members.
This is different. When you’re talking about permission, you’re talking about women who do not reach a certain age. Not a woman who’s responsible for herself. This has its own social criteria and religious criteria. Some of them are things we can change, and some things even if we want to change we cannot do that. But I guarantee to you that there are no obstacles in the way of women furthering their participation and working in the…
So why is Saudi Arabia’s rate of women in the workforce, 18%, one of the lowest in the world?Culture of women in Saudi Arabia; the woman herself. She’s not used to working. She needs more time to accustom herself to the idea of work. A large percentage of Saudi women are used to the fact of staying at home. They’re not used to being working women. It just takes time.
Do you think having a greater proportion of women in the workforce would be good for Saudi Arabia?
No doubt. A large portion of my productive factors are unutilised. And I have population growth reaching very scary figures. Women’s work will help in both of these issues.
You are one of the 70% of Saudi Arabians who are aged thirty and under. You are in charge of the country’s defence and its economy, you epitomise in many ways the new generation of Saudi Arabia. What kind of Saudi Arabia do you want to create?
The Saudi Arabia that I hope for, as well as the other 70%: a Saudi Arabia that is not dependent on oil; a Saudi Arabia with a growing economy; a Saudi Arabia with transparent laws; a Saudi Arabia with a very strong position in the world; a Saudi Arabia that can fulfil the dream of any Saudi, or his ambition, through creating enticing incentives, the right environment; a Saudi Arabia with sustainability; a Saudi Arabia that guarantees the participation of everyone in decision-making; a Saudi Arabia that is an important addition to the world and participates in the production of the world, and participates in facing the obstacles or the challenges that face the world. My dream as a young man in Saudi Arabia, and the dreams of men in Saudi Arabia are so many, and I try to compete with them and their dreams, and they compete with mine, to create a better Saudi Arabia.
You lay out a very positive vision for Saudi Arabia, yet we are living in a time, one of the most dangerous times in the region for many, many years. How do you juxtapose those two visions?
You’re from Britain, and I am a fan of Churchill. And Churchill said that opportunities come during crises. And I recall Churchill’s statement whenever I see the obstacles or the crises in the region. So this is how I view the challenges or the crises in the region.
And has the crisis in the region become more difficult with the United States’ disengagement from the region?
We understand the work carried out by the United States. America is carrying out many efforts. We try to assist with all the efforts carried out by the United States. We try to express our point of view and I can tell you that work between us and the United States is very strong and very magnificent. But the United States must realise that they are the number one in the world and they have to act like it.
Have they not been acting like it?
We are concerned that something like this may happen.
Do you feel let down by them?We understand. We realise that we are part of the problem of not putting our own perspective through to them. We did not put enough efforts in order to get our point across. We believe that this will change in the future.
Is Saudi Arabia stepping up to a new kind of leadership role in the region?
In the region we are dealing with all of our allies on an equal footing. And we’re all dealing with facing the challenges of the region. We and the GCC countries, Egypt, Turkey, Sudan, the countries in the Horn of Africa, the countries of north Africa, west African countries, east Asian countries, Malaysia, Indonesia, etc., Pakistan. We try to collectively face these challenges. Because these challenges pose threats to us all, and we must face them as one team. And we try to do positive work.
Five years ago, the Arab spring began. It’s been a pretty grim five years in many ways in the region. Will the next five years be better or worse?First of all I can say that the Arab spring was the real test that put to the test the authoritative form of government and non-authoritative form of government, and the regime that represents its people versus the regime that does not represent its people. Any regime that did not represent its people collapsed in the Arab spring, and the other regimes we saw what happened to them.
The House of Saud represents its people?
We are part of a national process; we are part of the local tribes of the country; we are part of the regions in the country; we have been working together for the past three hundred years.
Your Royal Highness, thank you very much.
Thank you. I’m very glad to have you here today, I’m happy to receive these questions. We always take criticism from our friends. If we are wrong, we need to hear that we are wrong. But if we are not wrong, we need to hear support from our friends. What I request is that the thing you actually believe, to say it.
We always do. Thank you.