This Article is From Jan 09, 2018

What Saudi Arabia Could Learn From South Korea About Fighting Corruption

In the whirlwind of headlines about Saudi Crown Prince Mohammed bin Salman and his highly visible campaign against corruption, one might forget that barely a week earlier, he was courting titans of global industry, technology and finance at an investment conference that was also the launch of NEOM, a gleaming futuristic metropolis. As Dave Eggers writes in "A Hologram for the King,"in which an American salesman travels to Saudi Arabia to visit a similarly promising marvel, "There were people in the world for whom the world and its people were subjects on which to cast spells."

The spell was broken when dozens of royals, along with current and former senior officials, were interred at the Ritz Carlton, accused of corruption. A few have been released after reportedly paying billions in what looks increasingly more like a shakedown than a legally-grounded pursuit of justice. More recently, there are rumors that the state will place some private companies under the custody of the government's Public Investment Fund, further entangling business and government, preventing the Saudi economy from realizing its full potential. Shares of Kingdom Holding, the principal holding of Prince Waleed bin Talal, declined more than 21 percent ($2.8 billion) after his arrest. Such strong-arm tactics deter foreign investors who wonder, "If the government goes after such prominent Saudi citizens, what might they do to us?"

As a Saudi journalist starting my career right after the oil boom of the 1970s, I witnessed the phenomenal growth and expansion of Saudi businesses and the pivotal role the leaders of these firms played in building the modern Saudi economy. They were inextricably connected with the Saudi government, which provided access to capital, and other forms of legitimate support that accelerated their growth. There were other consequences of this rapid development, including rampant corruption that touched every aspect of society, including members of Saudi Arabia's ruling family, the Al-Saud. Now, as the deeply flawed anti-corruption campaign targets royals and notable business leaders, what has been lost is an appreciation for this generation of business pioneers and, more critically, their role in growing and diversifying the economy to employ millions of Saudi youth.

The story of close cooperation between entrepreneurs and government officials is not unique to Saudi Arabia. The stunning fall of President Park Geun-hye last year exposed a similar system in South Korea. As the Korean War ended, her father and former President Park Chun-hee enticed businessmen and capitalists with cheap credit and exclusive privileges to rebuild the nation, and in return, shared in the company profits. This strategy led to the emergence of giant family-owned businesses (Chaebols), many of which have become household names such as Samsung and Hyundai. These businesses rebuilt South Korea and made it an industrial giant on the world stage.

South Korea handled corruption much differently. The presidential trial played out in public with a court delivering the verdict. The businesses involved were insulated from the ousting of President Park and her government. Their day-to-day financial operations and profitability were not impacted. Following the ousting of President Park, South Korea's top regulator even issued a statement stating Park's departure would not impact market stability.

The opposite is occurring in Saudi Arabia. One Arab businessman told me, "Saudi Arabia is at a crossroads. For Vision 2030 to succeed, transparency, justice, and equal opportunity - as called for by MbS - are prerequisites. The events to fight corruption over the past year, specifically from November 4th onwards have created uncertainty and a lack of clarity . . . For businesses and inward investments to thrive inside the Kingdom, the norms of the rule of law must be observed and transparency maintained . . . It is also important to remember that most of the merchants of Saudi Arabia have made their wealth through relationships with those in power at one time or another. It would be prudent for MbS to offer a one-off deal - for example on late taxes due on their wealth - to all merchants, without exception or preference."

Instead of a hastily formed "Supreme Committee" tackling corruption, the campaign could be prosecuted with transparency and fair application of the law to all Saudi citizens regardless of family name or "wasta" (privilege, connection). That would be a radical and dramatic departure from past practice.

Let Saudi Crown Prince Mohammed bin Salman take what he wants from the princes. They add nothing to the national economy. The princes constitute a financial and moral burden on the state. Yet it is critical that he distinguish between the wealth attained by legitimate businessmen and the wealth that pervades the royal family. The aggressive entry of the royal family in the business sector in the last three decades has led to disastrous effects for the general population and economy.

Royals and their agents have received grants of millions of square meters of lands, which raised the cost of the housing for the poor. They obtained licenses to dig deep wells to obtain water for unjustifiable wheat farms, to sell at a subsidized price. They destroyed water reservoirs for upcoming generations. The royal family contributed in creating a corrupt class of businessman who served as nothing more than a front for their greed, tainting the entire business community unfairly.

If Mohammed bin Salman wants to deal properly with corruption, he must preserve two elements vital to the Saudi economy: trust in the state and the role of national companies. If a businessman loses trust in the state, he will not continue investing. Instead, he will take his capital and expertise elsewhere. Second, Mohammed bin Salman must consider the enormous contracting companies and commercial agencies as national treasures. These institutions have gained immense experience and huge international and domestic reputations. They possess institutional memory that is irreplaceable.

New laws must be drafted that both define and prevent corruption from reoccurring, especially laws that will keep Royals away from business, unless they give up their titles, stipend and, more importantly, their government positions. Fighting corruption is complicated, but it is essential that Mohammed bin Salman's actions be more transparent, for the sake of Saudi Arabia.

- Khashoggi is a Saudi journalist and author.

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