Saudi Arabia is dominated by oil. Since the early 1970s, when oil began to tower over all other sources of revenue, the country has changed dramatically, but oil-fueled growth has failed to remedy every social ill, and in some cases, has created new ones. Saudi Arabia’s revenue per barrel of oil quadrupled from US 22 cents in 1948 to US 89 cents in 1970 - a period of 22 years. From then it took just three years, to 1973, for the figure to nearly double, to $1.56. A year later it had soared more than six-fold, to $10. In 1982, the average export price per barrel of oil reached well above $30, and between 1973 and 1980 the government’s oil revenues climbed from $4.3 billion to $101.8 billion, and it was this unprecedented largesse that bankrolled the country’s ambitious development program. Today, with a barrel of oil fetching $60, Saudi Arabia can continue to count on a revenue stream large enough to absorb the costs of its attempts to modernize cities such as Mecca and Medina. But what helped Saudi Arabia to soar has also caused it to slip, and in hindsight it is now possible to see that development was too hasty and that not enough attention was paid to the rapidly growing population and the problems the baby boom would bring. A survey of the early development period shows that efforts were concentrated on a few cities and that even here much of the planning was shortsighted. The result is that by the early 1990s much of the new infrastructure had become obsolete. Some facilities, built for their own sake, have become wasteful white elephants, demanding steep maintenance costs. Other projects have fueled the perception among ordinary Saudi Arabians that the limitless supply of money tended to crowd out forethought and contingency planning - for example, the Jeddah and Riyadh airports that reportedly cost $5 billion and $3.2 billion respectively. The King Abdul Aziz International Airport that services Jeddah, and at which millions of pilgrims arrive every year, resembles a small town bus station in everything but scale. Its enormous Hajj Terminal, meant only for pilgrims during the Hajj season, has only one attractive feature, which is the architecture in the shape of tent tops. Otherwise, it has yet to register a favorable comment from those who must pass through it. Meanwhile, in that city, there is scarcely a district that does not suffer from a shortage of water. The vast majority of people have to squeak by on the 40 riyals ($10.66) worth that must be draw from a water tanker every two or three days. Been here before. Fatin Bundagji, a management and business development expert who founded the women’s section of the Jeddah Chamber of Commerce and Industry (JCCI) in 1999, told TRENDS: “The primary objectives of the development plans are to improve the standard of living and the quality of life of citizens. From a citizen’s perspective I can say that today, as we approach the end of the Eighth Development Plan, we find ourselves still focusing on issues that were identified and documented in our First Development Plan nearly 40 years ago.” Bundagji said that if the plans had been based on a forward looking strategy founded on accurate data, and supported by alternative scenarios to anticipate unexpected demographic and economic changes, the current, eighth, plan would be concerned with the creation of a knowledge based economy, manned by a competent and creative labor force, and driven by a vibrant private sector. “The fact that we are still planning for ways in which to complete our basic infrastructure; to diversify our economic base; to reduce our dependency on the production and export of oil; to support the growth of the private sector; to develop our human resources … all prove that the planning process was not scientifically based nor was it strategically forecast. The fact that we are not including critical emerging issues of concern such as poverty reduction, public transportation means and solutions [to] the illegal immigration problem, all indicate that we are still not engaged in a future-driven strategy,” she said. Bundagji, who was elected as a member of the JCCI’s Labor Union Committee with the highest possible number of votes - 64, conceded that development has been impressive: Saudi Arabia has grown from a desert land to a modern high-tech nation. However, she said, the growth of some its cities has been at the expense of others. That has encouraged migration, which has, in turn, taken its toll on the host city’s infrastructure, as in the case of Jeddah, which was never meant to accommodate the 2 million residents it does today. “Chronic traffic jams, bumpy roads, unsystematic public transportation systems, overflowing sewage and drainage systems, and ever increasing pollution… all testify to this phenomenon,” she said. Caught out. According to Walid Saifaddin Ashoor of Saudi Economic Survey, the weekly economics and business magazine, there have been shortcomings in the provision of infrastructure, education and healthcare. He said political events such as the Gulf wars have hindered development. The cost of the war for the liberation of Kuwait in 1990 is among the reasons he cited. Ashoor said planning didn’t take the baby boomers into account. “More than 60 percent of the population is under 30 years of age. There was not proper planning foreseeing the requirements of these people - that over time they would need seats at universities, jobs when they graduate and homes when they marry,” he said. Ashoor, who graduated in economics from Sam Houston State University, Texas, added that the cities are expanding haphazardly because infrastructure lags behind. “Even in one city, some parts are properly planned, while other parts unfortunately are not. In certain areas one can find a decent neighborhood and across the street a neighborhood that was not planned for in the beginning,” said Ashoor. “Unfortunately, lopsided development is still taking place in major cities. So, those people need to go back to the drawing board and take into account the growth of population because it will almost double in the near future,” he said. He said migration from rural to urban areas has added to the haphazard growth of the cities. There is no proper planning to take account of this, and the result is the inadequate provision of water and electricity. “Now that from planning, the kingdom has turned to strategic planning, the problem will no longer exist with the building of cities in [the provinces of] Ha’il, Medina, and Jizan. These will go to make proper distribution of the population, provide jobs for Saudis - those that are young, as well as accommodation and other necessities of life,” he said. Jeddah is overpopulated now, but young Saudis will find jobs and homes in nearby Rabigh. That will reduce pressure on housing, municipal services, schools and medical care. Diagnostic tool. Bundagji, who is a member of the Shoura Council’s think-tank on labor law reform pertaining to women’s employment, believes that had Saudi Arabia estimated future income from oil revenue at its lowest sale value, instead of its highest, it might have been able to survive the collapse of the oil price in the 1980s and 1990s. Furthermore, she said, had the country lived modestly and realistically and planned for catastrophes such as the two Gulf wars, the country might have done better during times of economic hardship. “Using these tools would have enabled us to deliver promises made, no matter how small,” she said. In her view the creation of economic cities in rural areas is the way to tackle urban migration. These cities will not only create job and investment opportunities, they will also bring about equitable development in all regions of the kingdom. “This was promised decades ago in some of the earlier plans but never delivered,” she said. According to her, the first thing to do is to recognize the importance of accurate research as the diagnostic tool for all forms of development. The second thing is to create a public entity that focuses only on research and development. Asked about privatization, she said its aim is to facilitate services to citizens in a timely and cost effective manner. However, since this process is relatively new, its results have yet to be proven. The process is slow because Saudi citizens are not, by nature, used to holding people and businesses accountable for their actions, or inactions. “Until the concepts of responsibility and accountability are widespread and practiced, bureaucracies, red tape and corporate fiefdoms will prevail,” Bundagji said. “As for the sectors that need privatization as well as restructuring I will name only one for now - the municipalities,” said Bundagji. She added that the United States presents an interesting business model for this sector, one that functions like a corporation. In a telephone interview from Riyadh, Ehsan Bu-Hulaiga, an economist and a member of the Shoura Council, said that in any planning there is always a gap between promise and performance, but it is difficult to gauge how wide it is. “All indications are that the Eighth Development Plan, which is in its second year, will be fully implemented compared to the earlier plan,” he said. He said that in 2003 it was announced that 20 business sectors would be privatized, but since then not much has been made known about the program. “It would be a good idea to announce what is being implemented, and what remains to be done,” he said. Market too weak. Bu-Hulaiga said the purpose of the capital market is to make funds available for privatization, but the local market is not strong enough. He said the market has yet to graduate from mere speculation to studied investments in stocks. Ashoor said that there will be a need for foreign investment, expertise, know-how, and technology because growth is an ongoing thing. “There are other industries as well such as tourism, insurance and construction, and investment had been encouraged by the government itself with the establishment of the Saudi Arabian General Investment Authority. It will bring more prosperity to the kingdom and bring liquidity into the country. It will create jobs for Saudis and above all bring technological know-how in different fields,” he said. He added that despite the progress made toward diversification, the country was in all important measures still dependent on hydrocarbons. “We will not be less dependent on oil, but we will create other sources of revenue for the kingdom so that even if the oil price drops it will not tremendously affect the economy,” he said. According to a recent report by the Samba Financial Group, oil remains the anchor of the Saudi economy. The kingdom will likely see record oil revenues, and record trade and budget surpluses in an overall context of 20 percent growth and low inflation, which will go to strengthen the economic boom. “We still believe this boom is only beginning, with signs that strong oil prices and revenues will last many years, a government fiscal position that can support growth in spending for years, and mega projects just getting underway that will carry high growth through 2010 and beyond,” the report said. The oil revenues are not being spent as fast as they are being earned. Of the roughly $17 billion per month in oil export earnings, about $7 billion per month is accumulating as foreign assets at the central bank. The report forecast that oil prices will average $68 for the year, and the average price for Saudi crude oil will be $62.50 per barrel, well above the $38 per barrel needed to meet the budget’s revenue projection. Saudi oil production is likely to average 9.4 million barrels per day in 2006, the same as in 2005. Foreign investment. The stock market will play a greater role, the report said. Of late it has been fueled by initial public offerings (IPOs), so much so that, according to Hamad Al-Sayari, the Governor of the Saudi Arabian Monetary Agency (Sama), much of the growing foreign investments have come through the capital market, which offers additional channels to finance projects and new investment tools. At the end of June 2006, every IPO since 2003 remained profitable, some extremely profitable, from the offering price. Mega projects will continue to buoy employment. At least 37 major projects are underway or have a high likelihood of implementation over the next several years with a total value of $283 billion. Hydrocarbons - crude oil production, refining, and petrochemicals production - dominate, especially where private sector investment is concerned, but projects are spread across several sectors and widely dispersed across the kingdom. According to the just released 42nd annual state of the economy Sama report, the economy since 1999 has registered an average annual growth rate of 4.2 percent, exceeding the population growth rate of 2.5 percent. Continuous growth was witnessed by the private sector during the last six years, reaching an annual average of 4.6 percent. The kingdom posted a record budget surplus of $58 billion in 2005 based on surging crude prices while its gross domestic product grew by 6.5 percent. The budget surplus amounted to $58.1 billion last year; as a result, the currency basket rose by 11.6 percent. It is the third consecutive budget surplus. The surplus reached $26 billion in 2004 and $12 billion in 2003. GDP growth reached 6.5 percent in 2005 compared with 5.3 percent the previous year. The balance of payments surplus in current accounts rose to $90 billion in 2005 based on rising oil prices and non-oil exports, a leap from $52 billion the previous year. Braving criticism and eschewing kudos, the kingdom joined the World Trade Organization as its 149th member on December 11 after 12 years of intense negotiations. Al-Sayari described the accession as one of the major economic achievements of 2005. “It was an important step toward integrating into the global economy, attracting foreign investment, opening and expanding markets, and strengthening the competitiveness of the national economy,” he said. He said that the kingdom’s cost of living index grew by 2.1 percent as per statistics available for the last eight months. The figure is slightly higher than last year’s 1.7 percent. No trickle down. Because of the rise in the cost of living index, and despite the jump in oil revenue, wealth has not percolated to the lower strata of Saudi society. It was in recognition of this that Crown Prince Sultan bin Abdul Aziz al-Saud stated that the government planned to ensure fair distribution of wealth by establishing new development projects all over the kingdom. “For the first time, there will be distribution of wealth among all of the kingdom’s regions involving all cities and villages and covering all sectors,” he said. “Also, all state revenues and budget surpluses will be distributed for the coming years through the Eighth Development Plan and later through the Ninth Development Plan,” he said. Said Bu-Hulaiga: “I think the Saudi economy will continue to grow and the budget will enjoy record surplus, thus reinforcing the flow of new development projects as well as private investments.” Imports have grown from $7.46 billion by the middle of 2001 to $30.1 billion by the middle of 2006. Non-oil exports during the same period rose from $4.26 billion to $9.33 billion. Total exports increased by 43 percent in 2005 to reach $180.6 billion. Oil exports increased by 45 percent from $110.7 billion in 2004 to $161.6 billion last year. According to the Samba report, high oil revenues, stimulative fiscal policy, robust non-oil growth, low inflation, and surging investment in major projects - are likely to continue well beyond 2006. The challenges to emerge will be those associated with managing high growth - keeping inflation under control, ensuring that investment in fixed assets and government spending remain efficient, and keeping surging imports from overtaking exports. “Having such challenges, however, is the envy of many economies around the world,” it added.

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