Ali Shihabi breaks down Saudi Arabia’s anti-corruption drive on CNBC’s Squawk Box
Saudi Arabia detained elites in order to send a very strong message that the Kingdom can no longer afford individuals who leverage their connections to profit off of government contracts. Shock therapy of this kind is disruptive and will have short-term negative implications for the economy. In the long-term, however, it will dramatically improve Saudi Arabia’s business climate. Prince Al-Waleed bin Talal was included in the clampdown because he, like many in his position, profited from this mode of doing business, and because detaining such a high-profile individual communicates to all that no individual is above the law. At this point, ninety percent of those detained have settled, are in the process of settling, and/or have been released. Those that do not reach a settlement agreement soon will be indicted and enter a formal legal process. At the end of this process, the government will need to clearly demonstrate, to the extent that is permitted under Saudi law, that this crackdown was a once-in-a-generation event in order to assuage international markets and investors. Finally, it is important to distinguish between patronage and corruption. Under Saudi law the King has a budget and can dispense money and land to whomever or for whatever he wishes. Inflating government contracts two to three times their real value and pocketing the difference, which is what these elites were doing, was costing the Kingdom’s treasury billions that the country no longer has and had to stop.