Thanks to high oil prices, the Kingdom is experiencing a new boom, one that promises to be even more dramatic for the country’s development than the one in the 1970s and early 1980s. That is because what is happening now is not development from scratch. There is a massive base on which to build — infrastructural, educational and economic. But lessons should be learned from the 1970s and 1980s. There were great strides forward then but there was also waste, corruption, inadequate planning and economic naiveté.
Gone, thankfully, are the days of imagining that Saudi Arabia must be self-sufficient in everything, or that it can import its way to prosperity. Spending the country’s precious oil wealth on massive imports of goods and services delighted the industrialized world but it was foolish economics.
Today the Kingdom, the largest market in the Middle East, knows what it needs. It knows where it is going. Today’s economic philosophy, the result of 30 years of experience, is not just development — it is sustainable development. That means the Kingdom’s assets are used wisely. It means investment in projects that are economically viable. There is no point in trying to compete in agriculture with Egypt or Turkey; they both have an abundance of free water. Or with China or India as a manufacturer of everything and anything; they both have cheap labor. Those are their comparative advantages.
The Kingdom has two principal assets, its hydrocarbon and mineral wealth and its people. So far the idea of sustainable development has largely focused on the former. Hardly a week goes without the announcement of some new mega project. The guiding principle is supposedly diversification away from reliance on oil, although in fact that is not strictly true. Saudi Arabia is diversifying away from relying on oil exports. It is still going to rely, however, on oil (and gas) as a prime earner, but as feedstocks for downstream petrochemical industries producing cheap plastics, chemicals, synthetic fibers and the like for export — and now that the Kingdom is in the World Trade Organization, for export with lower tariffs in importing countries. That is sustainable development. Oil and gas are being used to Saudi Arabia’s best advantage.
They will bring vast changes, most of them in the Eastern Province where it is estimated that 200,000 jobs will be created in new petrochemicals industries over the next 10 years and as many again in the wider services sector which supports them. To those numbers should be added the expansion that will occur as the GCC economies grow and integrate. The Eastern Province is a hub for the GCC states. There is going to be a massive inflow of knowledge-based businesses there in order to service the GCC economy. Investors and developers have already spotted the potential and are moving in. The next five years will see a dramatic transformation all the way from Alkhobar to Jubail. An industrial and commercial megalopolis is in the making.
Sustainable development is meaningless, however, if there is no sustainable work force. The task ahead must be to provide young Saudis, women as well as men, with the skills that the economy needs. That includes a genuine and internationally-recognized work ethic.
This is a challenge as much for the private sector as it is for the public one. Private industry needs trained and enthusiastic employees to operate and flourish. It is in its interest therefore, as much as it is in the government’s, to ensure that the skills are there. One or two companies, such as Abdul Latif Jameel Co, have set up training programs which give skills to school leavers — and not only for young men who will end up working for the business; some go on to set up their own businesses. But not all companies are big enough to undertake such philanthropy or have the same sense of social responsibility. Maybe the time has come for chambers of commerce to set up vocational academies and colleges on behalf of the private sector.
Also needed are far more educational institutions. There are 16 million Saudis but only eight universities; seven more and 50 higher education academies are being planned under the recently unveiled Eighth Five-Year Plan. But that is still not enough to create the competitive knowledge-based economy that Saudi Arabia hopes to become. Taiwan, with a similar population and no material assets — and a strong work ethic — has 159 universities and further education colleges with over a million students. The result of that country’s investments is that it is now a world leader in IT.
The lesson of the 1970s and 1980s race for growth have been taken on board, certainly by the government. There is very careful planning of projects, very careful evaluation — which will go a long way in ensuring that whatever is decided will be sustainable. That cannot be said to the same degree of the private sector as the countrywide proliferation — some would say infestation — of shopping malls shows. The other big difference between the earlier period of development and the present is that today the responsibility for investment is on the private sector’s shoulders. The just-announced Eighth Five-Year Plan is not so much about government investment as it is about where the government wants the private sector to invest. The government’s role is increasingly as an enabler.
The past three years have been a period of economic liberalization as rules were changed and barriers lifted in preparation for WTO membership. Membership has now been achieved. Investment is beginning to flow in. Interest in Saudi Arabia is heating up, particularly in the petrochemicals sector. Jobs will be created. But much more still has to be done. The pace of privatization is slow. Saudi Arabia is moving ahead, but potential rivals are moving there faster. Good times are with us again thanks to high oil prices, but we cannot afford to rest on our laurels. We must seize the opportunities we have today and move the economy forward for tomorrow’s Saudi Arabia.