The Suez Canal axes, Neom and the Silk Road initiative an alliance between Egypt, Saudi and China for a century’s project in formation

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We followed with great interest the visit of the Saudi Crown Prince Mohammed bin Salman to Egypt, a visit that extended for three active days. President Abdel Fattah El- Sisi accompanied Prince Salman in inspecting several Egyptian national projects, we will analyze here the nature of the Egyptian/Saudi relationship, past and future prospects and how it emerged since 2013 into a new economic, political and military alliance in the Middle East. We will try to understand the nature of it, its objectives, strengths and weaknesses and predict future moves and obstacles facing this alliance.

 

When President Abdel Fattah El-Sisi took over the country’s responsibility by mid-2014, one of the main challenges he faced was the challenge of a crumbling economy, a challenge he faced by forming the first package of reforms in 40 years and announcing a tough and promising macroeconomic program, to restore the Egyptian economy towards its proper course among the growing world's economies.

At the same time on the eastern bank of the Red Sea, the journey of the falling oil prices started, a resource on which the Gulf States relied entirely upon. Research and think tanks within the Gulf countries started to tackle solutions to face the collapse of the country's main resource and source of income.

 

In the midst of calculating risks of revenue collapsing, King Abdullah bin Abdulaziz passed away and was succeeded by King Salman bin Abdulaziz, with his son Prince Mohammed bin Salman ascension journey began, with oil’s continued down-fall to $30 per barrel, when Prince Mohammed became the Kingdom’s Crown Prince in 2015.

 

In the dialogue between Prince Mohammed with his economic team and 5 journalists from Bloomberg in April 2016, Journalist asked “How much was lost?” Mohammed Al-Sheikh, a senior adviser to Prince Mohammed (a Harvard graduate and former World Bank employee) poked his eyes on the table before saying, "Can I stop this?" Prince Mohammed intervened saying "No, you cannot say that publicly." Al-Sheikh said in answering the question "The most likely guess is that there was an inefficient spending estimated between $80 billion and $100 billion" a year, equivalent to a quarter of the entire Saudi budget. Prince Mohammed intervened and lead the interview by asking: "How close is Saudi Arabia to a financial crisis?" Al-Sheikh​​ responded “Today's situation is much better, but if you asked me the same question exactly one year ago, I might have been close to a nervous breakdown”.

 

He then narrated a story that was never heard before from outside the Kingdom's inner sanctuary. He said: Last spring, when the International Monetary Fund (IMF) and others predicted that Saudi reserves would help save the country for at least five years from falling oil prices. The Prince's team discovered that the kingdom would quickly become insolvent if the spending situation remained at the levels of April of past year (2015) the Kingdom was exposed to "total bankruptcy" in just two years (2017).

 

Al-Sheikh said that in order to avoid a disaster, the prince reduced the budget by 25%, and re-applied strict spending controls and resorted to debt markets, also he developed the VAT and other fees, that all lead to reducing the rate of depletion of Saudi Arabia's monetary reserves, which reached 30 billion dollars a month during the first half of 2015.

 

 

 

 

Vision 2030

The Kingdom has further planned to diversify its economy almost completely and radically change its composition and stop relying on oil as​​ its main source of revenue, all of which can be summarized under the prince’s Vision 2030.

 

A vision that relies on parallel reforms and procedures to be carried out constituting of 3 main axes. A Public Investments Fund Program, A Financial Balancing Program and a National transformation Program. A vision that centralises a vibrant society (which explains the current liberation of women's rights within the kingdom while preserving the country’s traditions and values). A diversified thriving economy (which explains the current wave of diversification and the shift from oil to new investments and raising competitiveness) and developing an ambitious effective government and responsible citizens.

 

 

 

 

 

Egypt has already seen several reforms previously, yet the government will lacked the ability to commit neither in enforcing its application nor going the distance in achieving its target. Recently and from our modern history there was a golden opportunity for Egypt’s economic reform after the Gulf War, when most of Egypt’s debt was dropped in the early nineties, yet the​​ government regressed a thousand steps after completing ten important steps ahead in reducing subsidies, and managing the budget.

In 2016, the OPEC negotiations to reduce oil production succeeded, leading to reducing quantities produced to retrieve its original rates, after the OPEC deal Oil price per barrel went up to $70.00 from $35.00, and despite the success of this agreement, the Saudi government did not back down from its harsh reforms set

 

This position grabbed the attention of many institutions and investors that the government is serious and strict in implementing the reform plan and that oil prices will not change the set vision and plans of reform.

 

NEOM is the century project for the Kingdom of Saudi Arabia

NEOM, is the largest project in its history in terms of value, content, transformation and impact it will have on the economy, society and politics and is the crown of the 2030 vision and most obvious example of the radical transformation that the Kingdom aims to achieve by transforming itself from an oil economy to a diversified industrial and touristic economy.

 

 

 

The project is located in the far northwestern part of Saudi Arabia and overlooks the Red Sea, where the geographical and economic ties with Egypt represent a foundation for this partnership.

The geographical link is targeted to be developed by the construction of a bridge that includes tracks of cars and rail between the two countries above the sea, that starts from South Sinai to Neom.