RIYADH, 29 July — The American economy suffered heavily owing to the horrifying attacks at the World Trade Center on Sept. 11, 2001 in which nearly 2,800 innocent people of 50 countries died. The attacks solidified the American nation. However, many Americans abandoned air travel for fear of hijacking and it resulted drastic cut in air travel, hotel accommodation and related industries. The demand for fuel oil also declined by 10 percent. The total loss owing to the destruction of Sept. 11 could have been within $200 billion, but the subsequent media glitz, fear of anthrax and terrorist horrors resulted in an economic loss over trillions of dollars. Secondly, being panicked and to have public support, President George W. Bush launched a full-scale war on Afghanistan. As fear of terrorist attacks divert public attention from bread and butter issues and at times, enhances politicians’ ratings, President Bush may continue to drumbeat such fear. Unfortunately, marketing fear may cause further economic slowdown. Therefore, instead of promoting and marketing fear, one should devote more resources to develop a just foreign policy to combat terror, both home and abroad.

Since Saudi Arabia is the second largest trading partner of America in the Middle East and North Africa after Israel and more importantly, the largest exporters to the US in the region, fear and apprehension was heightened that the Saudi economy would be hard hit owing to 9/11 attacks. In fact, a wide range of pessimistic forecasts was made. For example, the Saudi American Bank (SAMBA) promptly suggested that the Saudi Arabian oil revenue, the nerve of its economy would decline at least by $10 billion with a budget deficit of $5 billion. More importantly, it predicted that the Saudi asset value abroad would decline by $50 billion in 2001 owing to 9/11 (SAMBA, Oct. 7, 2001). The National Commerce Bank joined hands with the SAMBA and predicted a 39 percent decline in oil revenue, a $6 billion budget deficit and a 6.3 percent decline in GDP in 2002. The Riyad Bank predicted a flat real GDP growth of 0.2 percent in 2001, a 5.4 percent oil revenue decline and a decline of 2.2 percent in real GDP in 2002. It also predicted that the liquidity in the economy would be tightened causing interest rates to go up (Saudi Economic Review, 3rd/4th Quarter, 2001). Their report further asserted that the budget deficit for 2001 and 2002 would be SR12 billion and SR26 billion respectively. Basically, everyone was expecting serious economic slowdown in the Kingdom after the 9/11 attacks.

The Arab media predicted that because of relentless hostile media campaign and few cases of harassment against Saudis in the US after 9/11, billions of Saudi investment in America would be withdrawn and repatriated to the Kingdom. However, the available statistics do not support such contention yet. Rather, the available statistics show that the Saudi investment in foreign securities has gone up by nearly SR8 billion in the last quarter of 2001 immediately after 9/11 and another SR11 billion in the 1st quarter of 2002, an increase of 9.5 percent (SAMA. 1st Quarter Report, 2002). Instead of repatriation, even the commercial banks’ investment abroad has further increased…it went up from SR28.2 billion in 3rd quarter to SR31.1 billion in the 4th quarter in 2001 and then by another SR5 billion to SR36.1 billion in 1st quarter of 2002.

Moreover, neither the oil revenue dramatically reduced as predicted. In fact, it increased from the budgeted SR169 billion in 2001 to SR184 billion, a 9 percent increase and the economy had a positive real GDP growth rate of 1.5 percent in 2001. The scenario for 2002 is also not as bleak as predicted. However, the asset value of Saudi investment abroad have gone down significantly not because of 9/11 alone but as the US stocks and bonds markets have been generally undergoing downward trend throughout 2001 and even now.

Neither the exports of petrochemicals nor the imports from the major Western countries declined owing to 9/11 attacks. In fact, except foodstuff, they showed positive signs. For example, the exports of petrochemicals and plastics, the major non-oil exports went up by 11 and 62 percent respectively in 2001. Even the re-exports have gone up by 58 percent. In addition, the import price index instead of a rise declined in most categories. Moreover, the Saudi imports from US instead of a decline, went up by 18 percent in 2001. In contrast, during 1999 and 2000, it declined by -17 percent and -11 percent respectively. The US is still the top exporting country to the Kingdom followed by Japan, Germany and UK.

In the area of inward FDI, it appears that overall investment climate and friendly regulations are more important and therefore, efforts are indeed needed to create such business friendly environment. The SAGIA has approved 905 projects worth SR42.5 billion since its inception and the US is the largest investor accounted for SR17.9 billion or 42 percent followed by Japan, Germany, UK and India. Crown Prince Abdullah, the regent, gas initiative of $25 billion has been delayed not because of 9/11 but reportedly owing to disagreements between parties on rates of return, fiscal terms, prospect of potential gas deposits, terms of exporting non-gas liquids and the equity contribution of Aramco and SABIC plus pricing regime of power and water.

The area that most hard hit owing to 9/11 is the Saudi travel abroad. The Saudi travel abroad has declined. For example, Saudis spent SR3.6 billion on travel in 2000. It dropped by almost SR700 million to SR2.9 billion in 2001. Travel expenses of expatriates also declined. Interestingly, while the personal remittance by expatriates abroad declined after 9/11, the Saudi remittance abroad gone up by an extra SR448 million.

The 9/11 attacks created a psychological warfare and mistrust and therefore, there may be reason for slowing of inward FDI. However, US Ambassador Robert Jordan stated that “America believes in business and it would prosper where price is right and climate is conducive”. Since the attacks, although many US officials visited the Kingdom, there was only one trade delegation from America. Good news is that, Crown Prince Abdullah’s recent visit to the US, the media handling by his representative in Washington DC and the 70-member Saudi delegation at the New York’s World Economic Forum are excellent initiatives to dispel mistrust and to bridge the gap. The US-Saudi Business Council’s initiatives are also praiseworthy. However, more is needed and more importantly, media in both ends need to play a positive role.

The impact of 9/11 on the interest rate has been very positive for business…. it went down from an average of 6.5 percent in 2000 to 2 percent as against a rise as predicted. The Saudi market index initially dropped 18 percent or nearly 400 points (from 2,608.58 to 2,206.33) after 9/11 but soon regained and now it is all-time high of 2,918.99. The reason that the economy did better than expected might be because of many factors of which the government’s prudent management of both fiscal and monetary policies especially maintaining an expansionary spending and money supply policy and convincing the non-OPEC members to have oil cut to maintain stable global oil prices are important.

As stated, a wide range of pessimistic forecasts was made. Amidst of these gloomy forecasts, Prince Abdullah ibn Faisal Al-Turki, governor of the SAGIA appears to be correct in his assessment that the “longstanding relationship of last 70 years between the Kingdom and the US would withstand all negative campaigns and therefore, the impacts of 9/11 would be short lived”. Supporting his views the Saudi Minister for Finance and National Economy Dr. Ibrahim Al-Assaf and the US Ambassador Jordan stated that the changes in the investment regulations would further solidify the bonds of business relationship between the countries. The US Deputy Secretary of Commerce Dr. Samuel Bodman said “there is no diminution generally of US investments in the Kingdom after Sept. 11”. Bodman’s assessment was echoed by Osama Kurdi, secretary general of the Council of Saudi Chambers of Commerce and Industry.

Saudi Arabia is still unknown in the West in its true perspective. Even the Muslim countries do not know much about the Kingdom specifically its success in industrialization. For example, a visiting Malaysian delegation was surprised when was briefed that it had achieved remarkable progress in basic industries and has developed an attractive infrastructure for inward FDI. They said, “we know it only for two reasons; first, for pilgrimage and second, for its oil wealth”. “We never knew that it has good industrial base” they added. Therefore, intensive but intelligent media campaign and public relationship is imperative to sustain a lasting growth and prosperity. However, such efforts only by government machinery may be less effective and less believable. Rather, it needs to open up its society. If one exposes the bad elements of the American society, none would give much credence. The reason is; many of you know through your personal visits that the American society, given its omissions, has so many good things and good people. In contrast, since Saudi Arabia is nearly unknown to the outsiders, any bad story on it by a partisan journalist may become believable. The lesson that the 9/11 saga imparts is that trade and investment policy cannot be successful in this globalize world in isolation.

(Dr. Abdul Momen is an American professor of economics and business management in Boston currently working in the Kingdom. The views expressed are explicitly his personal.)