Given everything that has happened in Saudi Arabia since Crown Prince Mohammed bin Salman became the country’s effective ruler nearly four years ago, the alleged murder of the journalist Jamal Khashoggi is little surprise.

I say little because the widely touted "reform" MbS has been undertaking hasn’t just been about economics, but about perversely transforming Saudi Arabia from a traditional monarchy into a modern dictatorship.

In the process, the kingdom has rapidly evolved from a country that had little room for dissent into a country that tolerates none at all.

The only surprise is that MbS would push the envelope of oppression so far. It’s one thing to arrest women activists, shake down billionaires in a purported corruption crackdown or engage in a diplomatic hissy fit when Canada criticized the Saudi human rights record.

Murdering and dismembering a dissident in the confines of a consulate, as allegedly happened,stands out as a particularly gruesome act. It suggests that either MbS is clueless about political red lines, or that he is the victim of a conspiracy by his domestic opponents aimed at embarrassing him and forcing him out of power.

The alleged killing was done in such a ham-fisted way that the perpetrators seemed to be asking to be exposed. By comparison, when Putin sought to dispose of an enemy, he ensured a plausible measure of deniability by sending agents to administer the nerve agent to Sergei Skripal at his home. He didn’t, of all things, invite Skripal to the Russian embassy to be murdered.

The result of this debacle is that a key laudable part of MbS’ reform drive, namely his efforts to wean the economy off oil exports, is now under threat.

Death and statistics

The global businesses that MbS hopes will play a key role in transforming the Saudi economy have ignored the carnage in Yemen. They have ignored the kingdom’s worsening human rights record.

But, as Joseph Stalin is reputed to have said, when one man dies it's a tragedy, when a million die it's a statistic. Khashoggi’s killing has reverberated around the world in a way that 17,000 Yemini casualties did not.

As the fallout from Khashoggi's disappearance scatters, businesses have had no choice but to somehow express their disapproval with the Saudis. Fortunately for them, MbS is staging the big Future Investment Initiative conference later this month, which conveniently gives them a high-profile but largely symbolic opportunity to express disgust by not attending or by cancelling their sponsorships.

And then what? The real question is what they will do in the long run.

Stalin might have added that the death of one person is a tragedy as long as anyone remembers it. My guess is that Saudi Arabia’s corporate partners won’t give up on the kingdom and will return to business as usual once the outrage over Khashoggi had faded away.

That’s not because they believe in MbS’ reform drive. There may have been an initial flush of enthusiasm about his Vision 2030 program to turn the kingdom into a high-tech, globally competitive economy, but I think it has given away to skepticism. The Saudi Aramco IPO isn’t happening, foreign investment is falling and, far from developing into a high-tech wonder, there’s nothing to show for the projected desert city of Neom except a collection of half-built royal palaces.

Open gallery view A protest at the U.S. Embassy of Saudi Arabia in Washington about the disappearance of Saudi journalist Jamal Khashoggi, Oct. 10, 2018 Credit: Jacquelyn Martin/AP

Fat of the desert land

But if global business doesn’t believe in MBS’ reforms, it does believe in the promise of fat contracts and investment in Western companies.

Trump has touted (with some exaggeration) the $110 billion of defense contracts Riyadh is committed to, and the budget for building the Neom high-tech megacity is $500 billion. Meanwhile, the Saudi Public Investment Fund, PIF, has emerged as a major investor in companies like Uber, SoftBank, Blackstone and Virgin Galactic.

It isn't all smoke and mirrors, but businesses should rein in their dreams. Reform or no, oil is what makes the Saudi economy run. Even if the price of crude has jumped 70% since June 2017, the kingdom isn’t the moneybags it once was.

The government has been running huge budget deficits for the last few years. Saudi economic growth was negative in 2017 and even the government’s own rosy forecasts don’t see it growing fast enough in coming years to whittle down the country’s 12.9% jobless rate.

The PIF, which is supposed to be Saudi Arabia’s main conduit for the investments MbS envisions transforming the country, is smallish by the standards sovereign wealth funds and scrambling to raise enough cash to fulfil its mission. It’s even considering borrowing money – something the Saudis would never have contemplated in the good old flush days.

Even in the unlikely scenario that it realizes its goals, MbS’ reform drive isn’t going to generate anything like China-like growth rates for the Saudi economy. Saudi Arabia doesn’t have the comparative advantages that could translate the economic diversification the crown prince envisages into a booming economy. It doesn’t enjoy low labor costs or a highly skilled, highly educated workforce. It has no tradition of entrepreneurialism or of effective government.

On Sunday, Riyadh issued a threat to take revenge on anyone who imposes economic sanctions over the Khashoggi affair, a reaction typical of the aggressive foreign policy stance the kingdom has adopted in the MbS era. Businesses should ignore the bluster: The Saudis are not the economic power they once were and never will be.