Current Economic Issues Facing Saudi Arabia

Saudi Arabia is a developing country in the Arabian Gulf region that has been growing dramatically over the past two decades. Saudi Arabia's 2011 population has grown tremendously and is estimated to now be about 26.1 million, including about 5.6 million resident foreigners. Until the 1960s, most of the population was nomadic or semi-nomadic but now due to rapid economic and urban growth, more than 95% of the population is settled now.
Out of that 26 million people in Saudi Arabia, is has been found that the annual per capita income is anywhere from $11,500 to 24,500. This sounds kind of ridiculous because the country is known to the world to be oil rich. At first glance, one would view economic statistical indicators and convey the fact Saudi Arabia is a developed nation. However, close analysis of political and social statistical indicators would suggest that their standard of living and individual freedoms are severely suppressed. Believe it or not, this 'developed' nation has abnormalities in its statistical indicators which are similar to those that characterize third world nations.
As a person who was born into this culture and is originally of Saudi Arabian descent, I find these statistics hard to believe. During my time there I never witnessed despair or poverty. These indicators and information is why I chose to research this topic and see for myself what this once wealthy nation is in fact doing now.

Economic Success
Saudi Arabia was a poor country until oil was discovered beneath the eastern deserts in the late 1930's. The country suddenly found itself very wealthy as it became an important exporter of oil in just a few years. The price of the oil increased very dramatically from just $3 a barrel to over $40 a barrel. This economic success ensured that the leaders became very wealthy. The GNP per capita is economically sound. However, this figure is misleading. A large proportion of GNP is channeled towards the leaders while a disproportionate sum is filtered to the citizens. A large amount of construction was initiated using the revenues earned.
However, most of the workforce consisted of cheap foreign labor while the Saudi Arabian citizens suffer an enormous 25% unemployment rate compared to the United States 5% unemployment. This economic success dropped somewhat as oil prices dropped tremendously in 1998-1999. Large amounts of construction work were halted and social programs were cut to reduce costs.
However, since late 1999, the oil producers cartel agreed to lower the production rate of oil so that the price of oil would rise. Their move was very successful and oil rose from US$10 per barrel US$31 per barrel. Recently, at a meeting of the oil cartel, the rate of production was increased in order to reduce the price of oil to a stable level (US$25 per barrel) and satisfy the western world-- this shows the politics of oil. ECONOMY The fact of the matter is that oil was only discovered in Saudi Arabia by U.S. geologists in the 1930s, although large-scale production did not begin until after World War II. Oil wealth has made possible rapid economic development, which began in earnest in the 1960s and accelerated spectacularly in the 1970s, transforming the kingdom.

Saudi oil reserves are the largest in the world, and Saudi Arabia is the world's leading oil producer and exporter. Oil accounts for more than 90% of the country's exports and nearly 75% of government revenues. Proven reserves are estimated to be 263 billion barrels, about one-quarter of world oil reserves. 

More than 95% of all Saudi oil is produced on behalf of the Saudi Government by the parastatal giant Saudi ARAMCO. In June 1993, Saudi ARAMCO absorbed the state marketing and refining company (SAMAREC), becoming the world's largest fully integrated oil company. Most Saudi oil exports move by tanker from Gulf terminals at Ras Tanura and Ju'aymah. The remaining oil exports are transported via the east-west pipeline across the kingdom to the Red Sea port of Yanbu.

Due to a sharp rise in petroleum revenues in 1974 following the 1973 Arab-Israeli war, Saudi Arabia became one of the fastest-growing economies in the world. It enjoyed a substantial surplus in its overall trade with other countries; imports increased rapidly; and ample government revenues were available for development, defense, and aid to other Arab and Islamic countries. 

But higher oil prices led to development of more oil fields around the world and reduced global consumption. The result, beginning in the mid-1980s, was a worldwide oil glut, which introduced an element of planning uncertainty for the first time in a decade. Saudi oil production, which had increased to almost 10 million barrels per day (b/d) during 1980-81, dropped to about 2 million b/d in 1985. Budgetary deficits developed, and the government drew down its foreign assets. Responding to financial pressures, Saudi Arabia gave up its role as the "swing producer" within OPEC in the summer of 1985 and accepted a production quota. Since then, Saudi oil policy has been guided by a desire to maintain market and quota shares and to support stability in the international oil market.

 Saudi Arabia was a key player in coordinating the successful 1999 campaign of OPEC and other oil-producing countries to raise the price of oil to its highest level since the Gulf War by managing production and supply of petroleum. That same year saw establishment of the Supreme Economic Council to formulate and better coordinate Saudi economic development policies in order to accelerate institutional and industrial reform.

In response to increasing international demand for oil, Saudi ARAMCO engaged in an expansion of its oil production capacity and raised its capacity from 11 million barrels/day (mb/d) to 12 mb/d in 2009. Saudi ARAMCO is also increasing production of associated and non-associated natural gas to feed the expanding petrochemical sector. Notably, Saudi Arabia has awarded contracts to foreign companies to conduct gas exploration in selected regions of the country--the first such foreign participation in the petroleum sector upstream since the nationalization of ARAMCO began in the 1970s.

Saudi Arabia continues to pursue rapid industrial expansion, led by the petrochemical sector. The Saudi Basic Industries Corporation (SABIC), a parastatal petrochemical company, is now one of the world's leading petrochemical producers, and the government promotes private sector involvement in petrochemicals. The government also plans new investments in the mining sector and in refining,

After Saudi Arabia announced its intention to join the World Trade Organization (WTO), negotiations focused on increasing market access to foreign goods and services and the timeframe for becoming fully compliant with WTO obligations. In April 2000, the government established the Saudi Arabian General Investment Authority to encourage foreign direct investment in the country. Saudi Arabia signed a Trade Investment Framework Agreement with the U.S. in July 2003, and joined the WTO in December 2005.

Through 5-year development plans, the government has sought to allocate its petroleum income to transform its relatively undeveloped, oil-based economy into that of a modern industrial state while maintaining the kingdom's traditional Islamic values and customs. Although economic planners have not achieved all their goals, the economy has progressed rapidly. Oil wealth has increased the standard of living of most Saudis. However, significant population growth has strained the government's ability to finance further improvements in the country's standard of living. Heavy dependence on petroleum revenue continues, but industry and agriculture now account for a larger share of economic activity. The mismatch between the job skills of Saudi graduates and the needs of the private job market at all levels remains the principal obstacle to economic diversification and development; foreigners made up about 80% of the work force in 2010.

Saudi Arabia's first two development plans, covering the 1970s, emphasized infrastructure. The results were impressive--the total length of paved highways tripled, power generation increased by a multiple of 28, and the capacity of the seaports grew tenfold. For the third plan (1980-85), the emphasis changed. Spending on infrastructure declined, but it rose markedly on education, health, and social services. The share for diversifying and expanding productive sectors of the economy (primarily industry) did not rise as planned, but the two industrial cities of Jubail and Yanbu--built around the use of the country's oil and gas to produce steel, petrochemicals, fertilizer, and refined oil products--were largely completed.

In the fourth plan (1985-90), the country's basic infrastructure was viewed as largely complete, but education and training remained areas of concern. Private enterprise was encouraged, and foreign investment in the form of joint ventures with Saudi public and private companies was welcomed. The private sector became more important, rising to 70% of non-oil GDP by 1987. While still concentrated in trade and commerce, private investment increased in industry, agriculture, banking, and construction companies. These private investments were supported by generous government financing and incentive programs. The objective was for the private sector to have 70% to 80% ownership in most joint venture enterprises.

The fifth plan (1990-95) emphasized consolidation of the country's defenses; improved and more efficient government social services; regional development; and, most importantly, creating greater private-sector employment opportunities for Saudis by reducing the number of foreign workers.

The sixth plan (1996-2000) focused on lowering the cost of government services without cutting them and sought to expand educational training programs. The plan called for reducing the kingdom's dependence on the petroleum sector by diversifying economic activity, particularly in the private sector, with special emphasis on industry and agriculture. It also continued the effort to "Saudiize" the labor force.

The seventh plan (2000-2004) focused more on economic diversification and a greater role of the private sector in the Saudi economy. For the period 2000-04, the Saudi Government aimed at an average GDP growth rate of 3.16% each year, with projected growths of 5.04% for the private sector and 4.01% for the non-oil sector. The government also set a target of creating 817,300 new jobs for Saudi nationals.

The eighth plan (2005-2010) again focused on economic diversification in addition to education and inclusion of women in society. The plan called for establishing new universities and new colleges with technical specializations. Privatization as well as emphases on a knowledge-based economy and tourism would help in the goal of economic diversification.

The ninth plan (2010-2014) aspires to eliminate poverty and increase development in infrastructure, medical services, educational capacity, and residential housing. The plan also aims to increase real GDP by 15% over 5 years and calls for substantial government investment in human resource development, in order to decrease Saudi unemployment from 9.6% to 5.5%.

Political Structure
There are no formal democratic institutions in Saudi Arabia. Only a few of the wealthy and politically empowered have a voice in the choice of leader or change of political system. The King rules on civil and religious matters and appoints all of the ministers of the government. They in turn appoint subordinate officials with cabinet concurrence. This means the ordinary citizen have no voice at all in how their Government is run.

In theory, any male citizen or foreign national may express an opinion or air a grievance to the Consultative Council. However, this rarely occurs as the Government has a high intolerance of any oppositional group. For example, The Committee for Defense of Legitimate Rights (CDLR) was established in 1993. The Government acted almost immediately to repress it.

Women play no formal role in government and politics and are actively discouraged from doing so.

The government severely limits the freedom of speech and press. They do not allow any criticism of Islam, the ruling family or the government. If criticism does occur even implications through editorial comments and cartoons, the party/s involved are subject to arrest and detention until they confess to a crime and or sign a statement to cease criticism. Strict censors remove, blacken or glue pages containing any offending articles referring to any religion other than Islam, or criticism from the foreign press.

The citizens are therefore unable express or encounter any views other than those approved by the Government of Saudi Arabia. Civil liberties are not respected.

Religious Structure
Freedom of religion does not exist. Islam is the official religion and all citizens must be Muslims. The Government prohibits the public practice of other religions. No non-Muslim religious material is allowed such as a traveler wearing a crucifix necklace and no peaceful assembly of a non-Muslim church permitted. Every part of Saudi Arabian life is guided by its religion. It is one of the more conservative countries of the Muslim faith. There is substantial prejudice based on ethnic or national origin. Although the Quran did give women a clear legal status as independent human beings who are allowed to control their own money long before this was allowed in Britain, discrimination is still evident in their interpretation of the holy book. The Islamic Law states that 'daughters receive half the inheritance awarded to brothers' and 'the testimony of one man equals that of two women'.
There are greater restrictions on women than on men regarding marriage to non-Saudi's and non-Muslims. The conversion of a Muslim to another religion is considered apostasy which is a crime under the Shari'a law which is punishable by death.

Cultural Structure
Although discrimination of women is very prevalent, most of it is actually not part of the original beliefs of Islam. It has been enforced more because it is a tradition. Physical spousal abuse and violence against women are common problems. However, the government considers these issues to be a family matter and rarely intervenes. Women cannot leave their home without the accompaniment of a male escort. They are not permitted to drive at all and cannot use pubic transportion or be hospitalized without the consent of a male relative. Segregation of women occurs everywhere and women make up only 5% of the formal workforce. However, as a Saudi born woman, I do not look at it like that. Instead, I look at it as a way for men to help us women do certain things. As a woman it is our duty to look after the home and our husbands and in turn, it is there duty to work outside the home and make the money for us to live off of.

Women must demonstrate legally specified grounds for divorce yet men may divorce without giving cause.

There is quite a low literacy rate where as only 72% of males are literate and a low 50% of females are literate. Even when compared to the suppressed developing country of Cambodia, these figures are low. This causes a difficulty in job placement among Saudi Arabians, which is possibly another reason why foreign labor is so predominant.

Whilst the country is economically rich in oil and related industrial infrastructure, it is 'capital poor' in general education and skills. All these factors will have a major effect on the nation when the oil reserves are depleted.

The high infant mortality rate of 55 deaths per 1000 births is another indicator of Saudi Arabian's statistics similar to that of a developing country. This rate is high possibly because women need the consent of a male relative to go to the hospital and the men may not want their wife to go to the hospital because they may 'lose face'. This is truly very sad. The newly delivered baby may not get the medical attention that it may require until it is too late. It may well be that family or clan midwives are used in preference to a hospital birth. The birth rate of 34.30 births/1000 is very high. This is a characteristic counteraction of developing countries with a high infant mortality rate.

Some Recommendations:
The fact is that no one solution will be able to eradicate the problems of Saudi Arabia. Most of their way of life has been imbedded too deeply, that even those disadvantaged by the system accept it as right. Many 'solutions' have already been implemented but have failed to achieve their goals. The law that abolished slavery may have 'looked good on paper; as an exercise in international public relations. However, this law has not been enforced as many workers are forced to work long hours without pay. Some employers have confiscated workers passports and also refused to grant exit visas to foreign workers who wish to return to their own nation. These actions intimidate foreign workers who fear to complain. I have unfortunately seen this type of behavior occur in front of my eyes.

The following criteria need to be considered when devising a solution to the nations social and economic contradictions:
- Education levels need to be raised to develop an increase in intellectual activities and skills which can be used for future employment.
- Birth control and family planning programs should be introduced to curtail population growth. This high growth (my own mother is from a family of 11) is seriously affecting the country's ability to provide adequately for all its citizens social and economic needs.
- Observance of genuine human rights in accordance with the United Nations Charter to ensure equality in race, creed and gender.
- A redistribution of wealth needs to be implemented through the introduction of job creation programs to ensure that the wealth is more evenly distributed amongst the people . The ruling family and the dominant oil sheiks presently control the vast oil wealth of the nation and any 'trickle down' effect that now occurs is not only minimal and relies totally on patronage.
- The infant mortality rate of 55 deaths per 1000 births needs to be lowered.
- A balance must be struck between Saudi Arabia's military expenditure and education expenditure.

Idea #1 on how to do this:
The literacy rates in Saudi Arabia have to be improved. This could be achieved by making schooling less expensive for the ordinary citizen. Therefore, the government could make schooling compulsory for children aged between 6-14. This system is similar to that of Australia's system where children between 6-15 have to go to school. Australia's system have attained a 100% literacy rate in both male and female literacy. This system should perform just as well in Saudi Arabia. To allow the government to make school less expensive, or even free, subsidies to the school should be given. However, these subsidies cost money. Therefore, some of the capital used for military expenditure should be used to offset the cost.

Idea # 2:
Saudi Arabia exists in a very volatile area of the world. As a result, a high percentage of their Gross National Product (GNP) is used towards military activities and equipment. If the volatility of the area could be decreased, then less capital could be used on military expenditure. This extra capital could then be used to implement solution 1 above. To lower the volatility of the area, a treaty could be made between those nations. As these countries are enemies, they would not trust each other to abide by the treaties and would therefore not lower its military expenditures 'just in case'. The help of the United Nations or the United States of America could be involved to assist in enforcing the abidement of the treaties.

Idea # 3:
The government could try to institute a change in traditional beliefs on issues including birth control, equality between men and women and the need for an education. This could be achieved using propaganda, allowing issues involving these topics to arise in discussion and foreign press. If both the men and the women of a family being to work, then the family would have an increased income which could be used for better living conditions and lifestyle and to educate the children. However, this is very unlikely, as it is the government who holds onto the strict traditional beliefs of the country more than most citizens.

Idea # 4:
To distribute the wealth of Saudi Arabia evenly, the oil revenue that goes to the oil sheiks could be taxed. This capital could be used as an education supplement (see solution 1)

A combination of my ideas 1, 2 and 4 should be used. The extra money derived from the saving military expenditure of idea 2 and from the taxation of oil revenues of idea # 4 can be used to implement Idea # 1 for subsidizing schools. The improvement of education of all citizens of Saudi Arabia could possibly lead to a rise in the status of women through the empowerment of an education, a rise in the public opinion of challenging traditional accepted beliefs, a decrease in birthrate through teaching of birth control and the benefits of having less children and, a decrease in infant mortality as proper methods of looking after infants can be taught. All this would lead to a decrease in this nations characteristics of a third world nation, improve the development of Saudi Arabia and overall, increase in the quality of life of its citizens.

Possible Future
The future of Saudi Arabia lies in the hands of its leaders. Only they can change the system of government and its policies. However, the system of discrimination and suppression of individual freedom has been deeply imbedded in its lifestyle and tradition change in the near future. It would take a major upheaval in the political structure of the nation.
The prognosis for the development of democratic institution in Saudi Arabia observing basic human rights as covered by many aspects of the United Nations Charter is exceedingly poor.
Saudi Arabia is a basically feudal state where the power rests in the Royal Family and its delegates, the oil sheiks. It is a dictatorship similar to the former government of Iran but with one basic difference. The Shah of Iran did provide education and health services but antagonized the religious leaders. The rulers of Saudi Arabia have drawn the Sunni Islamic Religious into its daily operations so that the rulers are also the heads of the religion. Therefore there is no religion opposition to them as there was to the Shah of Iran.
The Royal Family of Saudi Arabia is synonymous with 'religious correctness'. To oppose the Royal Family is to oppose the state religion and vice versa. There would not appear to be any popular movement for change.
The western nations including the United States of America and the European Union would not move to insist on the democratization of Saudi Arabia. The reason for this is bound up in the politics of oil. Any move that threatens the West with oil problems would not be countenanced. The apologist would say 'don't rock the boat -- we want our oil'.
The truth of the matter is that education is the only solution to ensure the development of Saudi Arabia into a modern and potentially tolerant society. Education begets knowledge and hopefully wisdom. Wisdom begets tolerance and fulfills basic human ideals. Lack of education begets continued ignorance, which begets intolerance, injustice and inhumanity.

Bibliography:

1. Atlas Detail Statistics Output www.johnwiley.com.au/school/jacatlas/StatsDetail.cfm 2. Saudi Arabia
1cweb2.loc.gov/cgi-bin/query/r?frd/cdtdy:@field(DOCID+sa0038)

3. The Third World -- Development and Interdependence, Rex Beddis, Oxford University Press, 1995, pgs. 148 -- 155.

4. Britannica Book of the Year,
Nations of the World, pgs 568, 701, 735-738.

5. Embassy of Saudi Arabia, U.S.A. www.saudi.net/mainpage.html 6. The Hamlyn Illustrated Encyclopedia, pgs. 512-513, The Hamlyn Publishing Group, London, 1988
Ambah, Faiza Saleh. "Saudi Lawyer Takes on Religious Court System; Rights Cases Used to Press for Change." Washington Post, December 23, 2006.
Bronson, Rachel, and Isobel Coleman. "The Kingdom's Clock." Foreign Policy (September–October 2006).
Center for Democracy and Human Rights in Saudi Arabia (CDHR). http://www.cdhr.info. See suggested links.
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Federal Research Division. Country Profile: Saudi Arabia. Washington, DC: Library of Congress, September 2006. http://lcweb2.loc.gov/frd/cs/profiles/Saudi_Arabia.pdf.
Metz, Helen Chapin, ed. Saudi Arabia: A Country Study. Washington, DC: Library of Congress, Federal Research Division, 1992. http://lcweb2.loc.gov/frd/cs/satoc.html.