A GUIDE TO THE SAUDI ARABIAN ECONOMY

By the same author

EUROPEAN MONETARY INTEGRATION (with Peter Coffey) CURRENCY AREAS: Theory and Practice (with G. E. J. Dennis) ROBERTSONIAN ECONOMICS PIONEERS OF MODERN ECONOMICS IN BRITAIN (co-edito

with D. P. O'Brien)

A GUIDE TO THE SAUDI ARABIAN

ECONOMY

John R. Presley Reader in Economics

Loughborough University

Consultant Economist Saudi British Bank

M MACMILLAN

© John R. Presley 1984 Softcover reprint of the hardcover 1st edition 1984 978-0-333-30469-3

All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means,

without permission.

First published 1984 by THE MACMILLAN PRESS LTD

London and Basingstoke Companies and representatives

throughout the world

ISBN 978-1-349-05743-6 ISBN 978-1-349-05741-2 (eBook)DOI 10.1007/978-1-349-05741-2

To John Robert Ralph

may he grow to share our affection and regard for Saudi Arabia

To Cissie Martha and the memory of John Bob

with much love and gratitude

Contents

Preface xiii

List of Tables, Maps, Graphs and Diagrams xvi

Gregorian and Hijrah Equivalent Dates xix

AN INTRODUCTION TO SAUDI ARABIA l Historical Background l Population, Geography and Climate 3 Government and the Law 6

2 THE MACRO ECONOMY: PERFORMANCE, STRUCTURE AND PROBLEMS 9 Introduction 9 Economic Performance l 0 Structural Changes 12 The Public and Private Sectors: An Overview 15

The public sector 15 Oil revenues and government expenditure into the 1400s 22 Changes in the allocation of government Spending and economic development 26 The non-oil private sector 27

Oil, Gas and Minerals 34 Oil production, prices and reserves 36 Organisational structure of the oil sector, 1972 onwards 38 Minerals 40

Major Macroeconomic Development Problems 41 Inflation 41 Manpower 44

viii Contents

3 THE NON-OIL SECTOR: THE INDUSTRIALISATION PROCESS 49 Introduction 49 Industrial Policy 51 Responsibility for Industrialisation 53 Encouragement for Industry 56

The Saudi Industrial Development Fund 56 Other financial incentives 60 The Saudi Arabian Basic Industries Corporation 63 Yanbu and Jubail 67

Transport and Communications 70 Commerce 74 Problems of Industrialisation 75 Agriculture, Water and Fishing 80

4 TRADE AND FOREIGN AID 86 Introduction 86 Trade Policy 87 The Growth, Composition and Direction of Trade 89 The Balance of Payments 92 Foreign Aid 94 The Disbursement of Foreign Aid 94 The Reasons for Aid 96

5 FINANCING ECONOMIC DEVELOPMENT 100 The Changing Financial System: An Overview l 00 The Role of the Saudi Arabian Monetary Agency (SAMA) 102 Commercial Banking: The Nature of Growth in Recent Years 104 The Future of Commercial Banking l 06 Government Funding ll 0 Conclusion 112

6 EDUCATION, HEALTH, YOUTH WELFARE, SOCIAL SERVICES AND JUSTICE 114 Education, Vocational Training and Adult Literacy 114

Structure and progress of education and training 115 Technical education and vocational training 117 Major problems in the education sector 118

Youth Welfare Health

Ccmtents

Social Services, Religion and Justice

ix

120 122 124

7 THE REGIONS 126 Agriculture and Industry 126 Industrial Establishments, Industrial Estates, the SIDF Loans, Industrial Licences- Regional Profiles 128 Regional Employment 131 Industrial Employment 132 Regional Populations 133 Construction Activity in the Regions 133 Regional Profile: Summary 135 Regional Policy 135

Appendix I BUSINESS INFORMATION 141 Introduction 141 Foreign Investment Code 141 Recommended Procedures for Licensing Industrial (Manufacturing) Projects and Joint Ventures 142 Contents of a Feasibility Study 142 Joint Ventures 143 Agents 143 Certification 144 Bills of Lading 145 Consultancy 145 Advertising 145 Commercial Registration 146 Settlement of Commercial Disputes 146 Joint-Stock Company Accounts 146 Company Taxation 147 Personal Taxation 147 Labour Law 147 Social Insurance 148 Work Permits 148

Appendix II INFORMATION FOR VISITING BUSINESSMEN AND EXPATRIATES WORKING IN SAUDI ARABIA 149 Entry and Exit Visas 149

X Contents

Availability of Consumer Goods Cost of Living

Food Clothing Consumer Durables Accommodation Electricity, Water, Gas

Radio, Television and Newspapers Education Travel

Driving Taxis, Buses Inter-city Travel

Prohibited Products Hotels and Restaurants Recreation Religion Post and Telephone Health Regulations Medical Services Social Practices Business Meetings Language Public Holidays The Working Week Currency Payment Foreign Exchange

Appendix III SELECT BIBLIOGRAPHY The Macro Economy and Development Problems

Official government publications Other publications

Industry Official publications Other publications

150 150 150 150 150 151 151 152 152 153 153 153 153 154 154 154 155 155 155 155 156 156 156 157 157 157 157 158

159 159 159 159 160 160 160

Contents xi

More General References relating to Living and Doing Busi-ness in Saudi Arabia 161 Miscellaneous 162

Official publications 162 Other publications 162

Postscript: The Current State of the Economy 163

Index 166

Preface This book is a simple guide to the Saudi Arabian economy, not an abstract theoretical work on economic development in that country. It is written as an introduction to Saudi economic life for businessmen, politicians and for visitors to Saudi Arabia -whether they be the export or sales director on a one-week business trip, the expatriate working on a one- or two-year contract, or a member of a government trade delegation.

In assembling the information and analysis contained within these pages, I have had the assistance of a great many people. I would particularly like to thank Suliman Olayan, Chairman of the Saudi British Bank, and the Board of Directors of that bank for encouraging me to study the economy whilst acting as consultant economist to the bank. My association with the bank now stretches over several years. I am grateful to David Parker for introducing me to the bank, to John Kelly, Peter Fletcher and more recently to Ian Paton. I sincerely appreciate their enthusiastic support for all that I have attempted to do. A special word of thanks must go to Michael Odell, who was a tremendous help in the working out of my Businessman's Guide to Saudi Arabia and the sectoral studies which accompany it (Saudi British Bank Publications). Appendices I and II in this book are extracted from that publication and I am grateful to the bank for allowing me to use them.

My real baptism to Saudi Arabia came during 1979 when I worked as economic adviser in the Ministry of Planning, assisting on the prepar-ation of the Third Development Plan.

My thanks go to many people within the Ministry at that time. I express my gratitude to H. E. Hisham Nazer and to H. E. Dr Faisal Bashir for allowing me the opportunity of studying development in Saudi Arabia. I gained much from discussions with H. E. H. Sajini, Dr Y. Malaika, Dr A. Ulfat, Dr H. AI Ali, Mr F. Rayner, Dr H. Mansour, Mr A. Ohali, Javvid Bhati, Mohammed AI Shaffi and Yaseen Siddigi. I would especially like to thank Mohammed AI Ghanimi, a very good friend, who gave enormous encouragement, and equally Dr 0.

xiii

xiv Preface

Katsiaouni, who shared many debates in the assembly of this book. I cannot thank them too much.

Members of Stanford Research Institute during 1979 also made me think more clearly on development problems in Saudi Arabia; in particular I wish to thank Ray Kelly, Dr Roland Wolfram, Alan Gowers, Michael Gillibrand and Martyn Kebbell; the latter, now a Director of Maxwell Stamp Associates, continues to offer sound advice and we currently share a research project on the Saudi Arabian financial system.

Several members of the Saudi Industrial Development Fund, past and present, have improved my knowledge of industry in Saudi Arabia. I would especially like to thank Clifford Lees, Leonard Dobson, Brian McMaster, Bill Davey and Dr Robert Edwards; I am also grateful to David Middleton, Colin Edwards and many more.

On matters relating to finance in Saudi Arabia I am not only grateful to members of the Saudi British Bank, but also to the ex-governor of SAMA, H. E. Abdul Aziz al-Quraishi, and to its Director of Economic Research and Statistics, Dr Mohamed A. Jamjoom.

I must record my deep-felt thanks to virtually all of the Ministries in Saudi Arabia and the government agencies. All have given freely of their time on my research visits to Saudi Arabia and have provided all of the data used in this volume. In this respect I would particularly like to thank H. E. Hussein Mansouri, Minister of Communications, H. E. Dr Fouad AI Farsy, Deputy Minister oflndustry and Electricity, Abdulaziz M. Ghaith, Director, Data Center, Education Ministry, Dr Yaseen Inder Keri, Ministry of Social Affairs, Mohammed A. Bakr, Director-General, Ports Authority, and Marmoud Qutub, Saudi Consulting House.

During the summer of 1982 I was a visiting scholar at the Center for Middle East Studies, Harvard University; I extend my thanks to Professor A. J. Meyer for providing this period of research and for allowing me to use the Center's library facilities. Dr R. Wilson at Durham University has also talked with me about Saudi Arabia and helped me gain access to the excellent library facilities at the Durham University Middle East Centre. Sinclair Road, Director of the Committee for Middle East Trade, has commented upon various topics in this book, and the Middle East Association has kindly allowed me to use its library. Of course, my thanks go to all the library staff who have searched for references for me, but I must emphasise my gratitude to my good friend Abbass,librarian at the Ministry of Planning, who keeps the best library on the Saudi Arabian economy that I have yet encountered.

Colleagues at the University of Loughborough have continued to

Preface XV

assist my researches; in particular I would like to thank Professor D. Llewellyn, Professor D. Swann, Chris Milner, A. J. Westaway and Dr T. Weyman-Jones. I have also benefited from discussions with the Saudi British Bank short-course participants - Adel Khalid, Abdullah Suraikh, Saeed AI Khurami, Khalid Abo Obaid, Ahmed Abo Yabes, Aziz AI Nass, Mahdi Bahanah and Abrahim AI Abdullah -my thanks also go to them. I have gained, in addition, from discussions with Hamdi Kenanah, Ahmed Alawi, Suliman AI Amro, Ahmed AI Aey, Abdulmuhsen Askar, Saleh AI Sukate, Abdulrahman AI Hujaili, Adel AI Mudaiheem, Abdullah AI Kaydi, Hasan Osta, Abdullah Khanfoor, Tahsen AI Badrah, Abdulrahman AI Hajri, and Abdulrahman AI Shemeisi.

In an indirect way financial support for my research on Saudi Arabia has come from both the British Academy and the Wincott Foundation. This book is a by-product of research projects which they are both financing; these research projects relate to comparative banking, but this includes an examination of Middle East financial systems. I am most grateful to them for the grants they have given me.

My affection and regard for Saudi Arabia and its people grew out of my work in Riyadh in 1979. This affection is shared by my wife, Barbara, and children, Joanne and Catherine. We all extend our best wishes to our Saudi friends and hope that this book in some way repays their hospitality. I would like, in turn, to thank my family, particularly my wife, for sharing this experience with me and for suffering the many extra burdens during the preparation of this book without even the smallest of complaints. Thank you also to Hazel, Louise, Shelley, Nina, Barbara, Samira, Mohamed Nadzim, Khaloud, Khalouk, John-Richard, Marie and countless others for making ours such a pleasant stay; how grateful we are also to Jeanie and Kate for making the long journey to Riyadh.

I would also like to record my gratitude to Tim Farmiloe, who over the last fourteen years has encouraged me to write books for Macmillan and has always given me sound advice.

Last, but by no means least, Su Spencer deserves much praise for putting up with my illegible handwriting and for making an excellent job of the typescript.

Loughborough, England JOHN R. PRESLEY

List of Tables, Maps, Graphs and Diagrams

TABLES

2.1 2.2 2.3

2.4 2.5 2.6

2.7 2.8

2.9

2.10 2.11 2.12 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9

3.10 3.11 4.1

Output by sector 1395-1400 Changes in the sectoral composition of non-oil GOP Gross fixed capital formation, government consump-tion and gross domestic product 1389/90-1400/1 Government expenditure 1392/3-1402/3 Government revenues 1392/3-1402/3 Breakdown of anticipated government expenditure 1400-5 Gross fixed capital formation by sector The number of industrial licences and operative factories end-1395 and end-1400 Saudi Arabia, OPEC and world oil production and Saudi Arabian oil reserves 1972-81 Crude oil production Inflation rates in Saudi Arabia Civilian employment in the non-oil sector Number of SIOF projects by sector SIOF-financed manufacturing projects 1394-1401 Value of SIOF-approved industrial loans by sector Industrial estates (cities) in Saudi Arabia SABIC projects to mid-1981 Progress at Jubail and Yanbu Secondary product links Commerce: contribution to GOP 1399/1400 Saudi Arabian petrochemical products and world supply /demand Incentives for agricultural production Agricultural area and production Balance-of-payments summary 1973-81

xvi

13 14

19 21 23

25 29

30

37 39 42 45 56 57 59 62 64 68 69 75

79 81 82 93

List of Tables, Maps, Graphs and Diagrams xvii

5.1 Indicators of the growth of commercial banking 105 5.2 Credit disbursements by government lending mstitutions Ill 6.1 Number of students enrolled 1394/5, 1395/1400 and

projected 1404/5 117 7.1 Distribution of regional GOP by major activity

1396/7 127 7.2 Employment size of establishments by region ( %) 128 7.3 Industrial estates (cities) by region 129 7.4 Licensed firms already producing by region: to end-1400 130 7.5 Construction in Saudi Arabia: regional shares ( %) 134 7.6 Distribution of national, regional and district centres 138 A-11.1 Household prices: selected items !51

MAPS

1.1 Kingdom of Saudi Arabia 4 2.1 Oilfields in Saudi Arabia and the Saudi -Kuwait divided

zone 35 3.1 Airports and seaports 71 3.2 Major roads 73 7.1 Regional location of SIDF-approved loans 1394-1400 130 7.2 Kingdom of Saudi Arabia: national, regional and district

centres 137 7.3 Regional characteristics: percentage distribution of

employment, population, value-added, non-oil sector and non-Saudi population in each region 140

GRAPHS

2.1 Government expenditures and revenues 1392/3-1402/3 24 2.2 Number of licences issued in major sectors up to end of

third quarter 1402 33

DIAGRAMS

1.1 Government structures: major ministries and organisations 7

2.1 Indicators of productivity and the standard of living 1395-1400 II

xviii List of Tables, Maps, Graphs and Diagrams

3.1 The industrialisation process 3.2 Oil and gas industrial utilisation 5.1 The structure of finance in Saudi Arabia 6.1 The structure of education in Saudi Arabia

53 66

103 116

Gregorian and Hijrah Equivalent Dates

Commencement Saudi fiscal year date Hijrah year Commences

1390-1 9/1970 1390 3/1970 1391-2 8/1971 1391 2/1971 1392-3 8/1972 1392 2/1972 1393--4 7/1973 1393 2/1973 1394-5 7/1974 1394 1/1974 1395-6 7/1975 1395 1/1975 1396-7 6/1976 1396 1/1976 1397-8 6/1977 1397 12/1976 1398-9 6/1978 1398 12/1977 1399-1400 5/1979 1399 11/1978 1400-1 5/1980 1400 11/1979 1401-2 5/1981 1401 11/1980 1402-3 4/1982 1402 10/1981 1403--4 4/1983 1403 10/1982 1404-5 4/1984 1404 10/1983 1405-6 3/1985 1405 9/1984 1406-7 3/1985 1406 9/1985

Hijrah months: Muharram, Safar, Rabi I, Rabi II, Jumad I, Jumad II, Rajah, Shahan, Ramadhan, Shawwal, Dhul-Qi'dah, Dhul-Hijjah.

The Hijrah year is normally eleven days shorter than the Gregorian year. No attempt has been made to convert data from one calendar to the other. Official statistics are normally given in Hijrah calendar, but there are exceptions; the oil sector statistics are perhaps the most notable. As an approximation, however, it can be seen from the table above that 1395 corresponds to 1975; 1400 begins in November 1979.

xix