State-Business Relations in the Reform Era: Growing Pressures and Diverging Economic Policy Agendas

Faris Al-Sulayman

Large fiscal deficits brought about by the precipitous decline in oil prices in late 2014 and long-standing challenges concerning youth unemployment have been two of the dominant underlying themes driving economic policy in Saudi Arabia in recent years. These challenges, though not unique in the region, loom particularly large when compared to those of some of the Kingdom’s “super-rentier” neighbors, and they have engendered a sense of urgency at the policy-making level.

These trends have also formed the backdrop against which significant domestic political change has taken place, with new leadership that is attempting to undertake a series of transformational economic reform programs, most notably the Vision 2030 plan and the more detailed National Transformation Program.

These changes taken together, however, have precipitated the early stages of transformation in the social contracts between the state and the various constituencies in the Kingdom. Perhaps most interesting for scholars of oil-rich states in particular, however, have been attempts to transform the relationship between the state and public sector employees, as well as the relationship between the state and the business sector.

This paper focuses on the changing dynamics of state-business relations in particular as it attempts to analyze the challenges this might pose to the broader reform agenda. By exploring the dual pressures being exerted on the state by high levels of unemployment on the one hand and large fiscal deficits on the other, the resulting, seemingly contradictory, policy outcomes can be identified, examined, and contextualized.