(MEBG) – Although for many decades Saudi Arabia has basked in the knowledge that it is home to the world’s largest proven supply of oil, it would be wishful thinking to believe that this will guarantee the kingdom prosperity in the 21st century as well.
To expand its horizons, Saudi Arabia is, for the first time, opening its doors to Western oil companies to explore for gas, and so reduce dependency on oil, which accounts for the greatest portion of its exports and government revenues. It is encouraging both local and foreign investment in other industries, ranging from specialty chemicals to telecommunications, as a means to regain the hundreds of billions of dollars lost to Saudi investments offshore.
And just as imortant, at least in terms of outside exposure, Saudi Arabia is today encouraging foreign tourists to visit the once-secluded country. In addition, it has applied to join the World Trade Organization—a move that will first require them to cease illegal software usage as well as opening up banking and securities brokerage to foreign companies.
Such changes are vital if the country wants to keep up with the fast-accelerating global economy. Although the oil boom in the 1970’s provided the government with capital to build roads, airports and its telecommunications system, the kingdom is falling behind in the start-up and technology driven 21st century economy.
The real hindrance lies in a bureaucratic system that hampers foreign investments, although there has been a shift toward increased leniency on the part of the younger members of the ruling royal family. Their aim is to attract foreign investors not only for their capital, but also for their know-hows in terms of management and technology. Undoubtedly, the voice of the new technocrats will drive the country’s economy forward, narrowing its gap with the Western world.
The new direction in which Saudi Arabia is headed is likely to influence the entire region. If the country succeeds in creating a true reform, it can become a source of capital and an economic generator that drives the often sluggish Arab world ahead. Failure, however, could bring Saudi Arabia into yet another successive period of instability and stagnation.
Crown Prince Abdullah, who today effectively holds the reigns of executive power, was a man whose views were rather traditional when he stepped into role. Then, reform seemed quite the unlikely. In fact, certain government rules were tightened, such as those regarding to women working and those relating to the mixing of sexes. Abdullah apparently realizes that he cannot afford to guide his country along the same path in the new century.
Change, however, is likely to come slowly. Saudi society is among the world’s most conservative, and its leaders are quite possibly fearful that too dramatic and painful a period of change could lead to an Islamic-led uprising.
The country is still recovering from the oil crisis of 1998, where prices fell to nearly $10 a barrel, and the government was forced to spend close to $9 billion in foreign currency reserves to prevent speculation. And, although the price of oil has climbed back–getting above the $30 a barrel-mark—the kingdom’s years of economic stagnation took a heavy toll. Unemployment rose to devastatingly high rates and, according to the National Commercial Bank in Riyadh, growth averaged a sparse 0.2 percent per year in the years 1980 to1998. Saudi per capita income, that was once on par with that of Americans, fell to just $6,972 – less than a quarter of the United States.
Meanwhile, Saudi Arabia’s young population is one of the fastest growing in the world. As reported by Newsweek, Brad Bourland, the chief economist at Saudi American Bank in Riyadh, says that only 36 percent of the 110,000 Saudis entering the workforce each year actually find jobs. He estimates that the Saudi unemployment rate currently stands at 14 percent overall and at 20 percent among Saudis in their 20s.
Saudi Arabia is the second wealthiest country in the region after the United Arab Emirates.Wealth is apparent in the capital of Riyadh, and can be judged by the vast numbers of imported goods, exclusive restaurants and extravagant homes, which are still much in demand. However, in terms of economic performance, the country cannot compete with the Western world, and even with many developing countries. Saudi Arabia’s low level of investment—6.7 percent of GDP versus an average of 27 percent of all developing countries—is a key reason for the country’s faltering economy.
The question is how open an economy do the Saudis really want? Most officials agree that the country would benefit greatly from Western investment and technology. But more is necessary.
The first step towards economic betterment for the kingdom ought to be the privatization of the state-controlled monopolies that presently dominate key industries, from oil to power generation to telecommunications. Moves have been made. J.P. Morgan was recently employed to privatize the local telecom monopoly–a deal that could yield as much as $10 billion.
And, provided that the new generation of leadership is ready to move boldly into the modern era, the best solution for the kingdom would be to allow full-fledged competition. This could become the key driving force toward a stronger and healthier economy, for a country with so much potential yet to be discovered and harnessed.