Saudi Economic "Problems" Would Be the Envy of Most Other Countries

By Richard H. Curtiss

The one thing Saudi Arabia's government economists won't discuss, almost three years after the end of the Gulf war, is the total cost of that war to their country. Journalistic estimates range as high as $63 billion. These include the cost of Saudi subsidies to Iraq during its eight-year war with Iran, the cost of Saudi military mobilization, and costs of extremely generous Saudi hospitality to tens of thousands of Kuwaiti refugees in 1990 and 1991.

Most of all, this immense sum reflects reimbursement to some 30 countries, including the United States, of their costs in transporting to Saudi Arabia and the Gulf more than half a million soldiers and thousands of tons of military equipment and of setting up the military commands from which were launched the air and ground attacks that liberated Kuwait from Iraqi occupation.

Some Saudis stress the fact that their government in the past had paid the costs of preparing the airbases, the network of superhighways and the extensive warehouses, office space and individual housing that made the liberation go so smoothly, and then also paid the lion's share of costs run up by individual countries to carry out the military operation. These observers claim that other Gulf countries, who benefited equally from removal of the Iraqi threat, did little more than pay the costs of air, naval and other military forces temporarily based on their soil, while Saudi Arabia paid for virtually everything else.

As a result, Western media report, for the first time in years the government of Saudi Arabia has been borrowing money to launch infrastructure-creating projects. Financial pages also have reported a three year slump in the Saudi economy. There even have been reports that, for the first time since the oil boycott of 1973, Saudi Arabia is facing unemployment problems, in that it no longer can provide government jobs for all who want them among its annual crop of 20,000 male and female university graduates.

Such claims seem to amuse rather than anger Saudi government economists. Although interviewed separately by the Washington Report, several pointed out that in a free-market economy such as that of Saudi Arabia, business cycles are inevitable. Said one, "what are described as our 'problems' would be seen as the best of times, or unlimited opportunities, in many parts of the world." Another said such reports actually serve the purpose of forcing Saudi government ministries to curb or stretch out large and expensive projects.

Said a third, "we are forced to put a definite end to the waste and excess that colored the world's perception of Saudi Arabia in the early days of our oil boom." Concluded one of the economists with a smile, "To paraphrase Mark Twain's reaction to a report of his death, reports of our difficulties are somewhat exaggerated."

Fundamental Strengths

Rather than discussing pessimistic press reports, Dr. Abdulaziz N. Al Orayer, deputy minister of finance and national economy, points to the fundamental strengths of the Saudi economy. Saudi Arabia earns some $50 billion per year from its oil production and from public and private investments.

"Our private sector is not only one of the most dynamic in the Middle East, but in the world," he said. "When, for example, Japan exports $100 billion in goods, the value added for Japan is only 20 or 30 percent of the sale price. When we export oil, virtually the full value in foreign currency is added to our economy, giving the economy strength and expanding and widening it."

Further, he pointed out, because Saudi Arabia's private sector has spent so much on diversifying the national economy with production and export of agricultural as well as petrochemical products, "we will never become as dependent on oil for revenues as the industrial world is dependent upon oil for energy."

One of the reasons for present Saudi strength, according to Dr. Al Orayer, is the country's emphasis on development through its "very dynamic private sector." After the rise both in oil prices and in Saudi production of the 1970s and into the 1980s, the Saudi government launched the breakneck development of a national infrastructure ranging from first-rate national universities to a network of modern highways, air terminals, and efficient electrical, water and sewage facilities.

Now with the bulk of this work completed, Saudi Arabia increasingly looks to its private sector for further development, even privatizing some of the industries and utilities initially created by the government. Among the results are a tremendous increase both in exports and in national consumption of locally produced byproducts of the oil industry, ranging from a vast array of plastic products to miles of telephone cables and pipes for transportation of water and petroleum.

Exploitation of fertilizers made from the byproducts of oil production and of the aquifers underlying the vast Arabian peninsula also has resulted in an almost embarrassing excess of wheat production. Both fertilizers and wheat are major Saudi exports and also are components of Saudi Arabia's extensive aid programs for underdeveloped countries in Africa and in Asia. Saudi Arabia also exports fresh-cut flowers and vegetables to Europe, and is seeking to develop similar markets in Asia for its non-petroleum exports.

In 1990, the year Iraq's invasion of Kuwait touched off a military buildup in all of the Gulf countries, the Saudi economy expanded by 8.9 percent in real terms. In 1991, the year the brief air and even briefer (100 hours) ground war were completed, the economy grew by 6.6 percent. In 1992, growth slowed to 4.3 percent, indicating that the effects of the Gulf war continued to be felt. Dr. Al Orayer believes, however, that the lesser growth recorded in 1993 no longer results primarily from lingering effects of the Gulf war, but instead from recession abroad and resulting dips in petroleum consumption.

"Globally, Saudi Arabia is in a much better situation than other countries," Berkeley-educated Al Orayer maintains. "Eighty percent of Saudi borrowing is local, and we borrow for projects, not for current consumption. Those projects, in turn, create wealth.

"We have taken as our model the East Asian economies where the government's role is to help guide pioneer projects. The government is handing back to the private sector such companies as are profitable."

He dismissed reports of white collar unemployment and a lack of entry-level opportunities in the public sector. "We still need the university graduates," he explained. "Private sector employment is proving to be very profitable, and in fact many Saudis leave the government for attractive private sector positions."

"We still have four million jobs for non-Saudis, so there will be places for all those male and female university graduates who wish to enter the job market each year."

Although it already is the world's leading oil producer, Saudi Arabia's oil reserves, which still are being discovered seem virtually inexhaustible. The Kingdom therefore is expanding its production capacity from 10 million barrels per day to 12 million barrels because over time it expects world demand to increase.

For example, 400 million bicycles still are used as a principal form of transportation in China. Many eventually will be replaced by motorscooters or automobiles. Meanwhile, oil production is declining in other parts of world due to oil field depletion.

Commenting on predictions of inevitable depletion of Saudi Arabia's groundwater supplies, which may be an irreplaceable relic of past ages when rainfall was abundant, Dr. Orayer said that there is "controversy over the amount of water underlying the Arabian peninsula." Although there have been recent reports of untapped aquifers in the north of the country, Saudi Arabia nevertheless is concentrating on introducing improved water conservation technology. This involves working closely with the large-scale agricultural companies producing wheat, and the small farmers responsible for rising Saudi vegetable production, as well as Saudi exports of dairy products and eggs to neighboring Gulf countries.

"We are lucky that we built a lot of infrastructure when income was high," Dr. Orayer adds. "The big push was in the '70s, and what we created then is providing income or cutting costs now. For example, until the 1970s and '80s, when we began building hospitals throughout the kingdom, Saudis went abroad for specialized medical care. The British press was full of stories of Saudi patients arriving for costly treatment. Now, however, we have the best medical facilities in the Mideast.

"In fact," Dr. Orayer concludes with a smile, "we may even have benefited from our late start compared to the West and some neighboring countries. Our hospitals were planned by physicians and designed by architects with the latest diagnostic and surgical equipment under one roof. Now patients, recently including prime ministers of neighboring countries, come from all over the Middle East to our hospitals."