The Saudi economy

The Saudi economy is oil-based, with the petroleum sector accounting for around 75% of state revenue, 45% of Gross Domestic Product and 90% of export earnings. The government has a strong level of control over the economy, with only around 40% of GDP coming from the private sector as much of the oil industry is state-owned. Recent developments have seen the government encouraging private investment in the country and seeking to privatise certain state-run services such as the electricity board and the telecommunications company.

The oil boom

The discovery of oil prompted interest in the region from Western investors from the beginning of Saudi Arabia’s state formation process. However, for much of its earlier history the country remained relatively poor, with the largest source of revenue brought in each year through the Hajj pilgrimage.  With the establishment of the Arabian American Oil Company (Aramco) in 1944 and the development of Saudi Arabia’s industrial infrastructure for the exploitation of oil, things began to change rapidly.

The 1970s oil boom led to the transformation of Saudi Arabia into one of the richest and most powerful states in the region. It is in this period that it became what many term a rentier or distributive state, in which the citizens pay no form of tax in return for the state provision of free services in education, healthcare, housing and local authority administration. This period also saw the growth of urban centres such as Riyadh, Jeddah and Dammam, with many Saudi families moving to the larger cities to take advantage of the new opportunities financed through the export of oil.

Infrastructure development

During the 1970s and 80s, Saudi Arabia invested heavily in developing its industrial infrastructure, seeking to build on the vast resources of oil and increase state revenue from related industries. The country developed the oil-refining and petrochemical industries as well as natural gas production in order to do this. The country therefore became more self-reliant than other nations which exported unrefined crude oil. This was possible given the huge revenues generated in this period because of rising oil prices and the gradual takeover of Aramco by the Saudi state, leading to it being renamed Saudi Aramco in 1980. 

There was also heavy investment in related infrastructure such as roads, airports, seaports, hospitals, schools, housing, water, telecommunications and the military. A comprehensive subsidy programme was set up to promote non-oil related industry development and investment from Saudi citizens. This was further enhanced through cheap loans, technical assistance, industrial and agricultural incentives and preferential buying of domestic produce.

Some commentators claim it was the establishment of the distributive state in this period that ensured social and political stability in the absence of overt forms of political participation and influence. Many of the modern-day Saudi elite are those whose families were powerful in the period preceding the oil boom, and who enjoyed good relations with the Al-Saud ruling family due to historical or political allegiances.

Whatever the source of relative social and political stability in this period, one socio-political factor has influenced the position of the Saudi state more than any other – population growth.

The population boom:

The population of Saudi Arabia grew rapidly through the years of the oil boom, and continues to grow today. It is estimated that the Saudi population has grown from roughly 6 million in 1970 to 23 million in 2004. This creates a complex societal change as the lifestyles of the current generation do not reflect those of their parents’. It also strains the patron-client relationship developed between state and society as a result of the development of the distributive state. There are not enough jobs to satisfy this growing population, especially given the huge influx of foreign labour and the general unwillingness, or lack of necessity, for ordinary Saudis to seek employment in lower-paid positions. The current generation has also grown up in the environment of the Saudi distributive state, and so have different expectations.  This puts pressure on the government and reduces its ability to curb subsidies in the face of growing budget constraints.

 Unemployment in Saudi Arabia

Unemployment is widely estimated to be around 25%. Saudi per capita income fell from an estimated $18,000-$20,000 in the early 1980s to just $6,000-$7,000 in 1999, although it has risen again in recent years to around $10,430 according to World Bank figures. 

Saudiisation

The government has for a number of years been implementing a system of Saudiisation aimed at increasing the number of Saudis working and decreasing the state’s dependency on foreign labour.  However, this programme has met with problems due in part to the Saudi education system that produces a lack of graduates in technical specialities that can be easily absorbed into the labour market.  Between 1995 and 1999, only 10,000 of 120,000 graduates had degrees in technical subjects, accounting for only 2% of the total number of Saudis entering the job market.

OPEC

The Organisation of Petroleum Exporting Countries was set up in 1965 and has its international headquarters in Vienna, Austria.  The organisation consists of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. The main aim of the group is coordinating the petroleum policies of member states in order to safeguard their interests and ensure the stabilisation of oil prices on the international markets, taking into account the needs of producers and consumers as well as investors in oil-related industries.

Saudi Arabia has a major role in OPEC as the largest oil exporter in the world, with the greatest capacity to change its output.

Economic indicators and useful statistics:

GDP: purchasing power parity - $310.2 billion (2004 est.)

GDP – real growth rate: 5% (2004 est.)

GDP – per capita: US $10,430 (World Bank, 2005)

GDP – composition by sector:

 agriculture: 4.2%
industry: 67.2%
services: 28.6% (2004 est.)

Labour force: 6.62 million
note: more than 35% of the population in the 15-64 age group is non-national (2004 est.)

Labour force (by occupation): agriculture 12%, industry 25%, services 63% (1999 est.)

Unemployment rate: 25% (unofficial estimate, widely quoted) (2004 est.)

Budget: revenues: $104.8 billion
 expenditures: $78.66 billion, including capital expenditures of NA (2004 est.)

Public debt: 75% of GDP (2004 est.)

Agricultural products: wheat, barley, tomatoes, melons, dates, citrus; mutton, chickens, eggs, milk

Industries: crude oil production, petroleum refining, basic petrochemicals, ammonia, industrial gases, sodium hydroxide (caustic soda), cement, construction, fertilizer, plastics, commercial ship repair, commercial aircraft repair

Industrial growth rate: 2.8% (2004 est.)

Exports: $113 billion f.o.b. (2004 est.)

Export commodities: petroleum and petroleum products 90%

Export partners: US 19.3%, Japan 16.4%, South Korea 8.7%, China 5.8%, Singapore 4.5% (2004)

Imports: $36.21 billion f.o.b. (2004 est.)

Import commodities: machinery and equipment, foodstuffs, chemicals, motor vehicles, textiles

Import partners: US 9.3%, Germany 6.8%, Japan 6.7%, UK 5.4%, China 5% (2004)

Economic aid (donor): pledged $100 million in 1993 to fund reconstruction of Lebanon; since 2000, Saudi Arabia has committed $307 million for assistance to the Palestinians; pledged $240 million to development in Afghanistan; pledged $1 billion in export guarantees and soft loans to Iraq

Currency (code): Saudi riyal (SAR)

Exchange rate: Saudi riyals per US dollar - 3.745 (2004)

Fiscal year: 1 March - 28 February

Oil production: 9.021 million bbl/day (2004 est.)

Oil consumption: 1.55 million bbl/day (2003)

Oil exports: 7.92 million bbl/day (2003)

Oil imports: 0 bbl/day (2003)

Oil reserves (proven): 261.7 billion bbl (2004 est.)

Natural gas production: 56.4 billion cu m (2002)

Natural gas consumption: 56.4 billion cu m (2002)

Natural gas exports: 0 cu m (2002)

Natural gas imports: 0 cu m (2002)

Natural gas reserves (proven): 6.339 trillion cu m (2004)