BOOKS on economics tend to be drab and dreary compilations of statistics that excite only economists and are relegated to library reference sections. Dr. Mohamed A. Ramady’s “The Saudi Arabian Economy” is an exciting book that uses complex material to weave an interesting narrative of Saudi Arabia’s economic reforms, policies, achievements and challenges.
The book draws upon classroom notes from the course he teaches on the Saudi economy at the Kingdom’s King Fahd University of Petroleum and Minerals (KFUPM) as well as his experience working in the Gulf financial sector. Ramady worked as vice president with Citibank as well as assistant general manager with Saudi American Bank in Jeddah and Riyadh in the early 1980s. In the 500-page book, he presents a cohesive picture of what has taken place over the last three decades while emphasizing aspects of human and social development. Equally important, he explains how the Kingdom’s economic systems are opening up and evolving, “faster than some would want, slower than others hope for.”
Saudi Arabia, as Ramady mentions early on, conjures up different images to different people, ranging from a romantic idealism of the purity of desert life to a place of unchecked commercialization. Saudi society, he says, is still imbued with the dignity of traditional desert hospitality, warmth and a noble culture. At the same time, it is part of a fast-moving consumer-oriented and impersonal world.
According to Saudi Aramco, the Kingdom sits on 260 billion barrels of oil, or a quarter of the world’s total known reserves. If one adds the little-known fact that the Kingdom also has the world’s fourth largest gas reserves at 230 trillion cubic feet, one can more fully comprehend the strategic importance of the Kingdom in meeting the world’s energy needs.
Ramady examines the development of the Kingdom’s financial sector and how the Saudi Arabian Monetary Agency (SAMA) has assumed broad regulatory powers despite being constrained in the use of more traditional central bank policy tools, such as discount and interest-rate instruments. This agency, he writes, has evolved into a full-fledged central bank with relative independence. He also provides some interesting details about the agency and its managers since its inception in 1952 with technical assistance from the United States.
“The current SAMA governor, Hamad Saud Al-Sayari, has been in that position since his appointment in 1983 — making him one of the longest-serving governors in the world. Previous SAMA governors served for various periods — George Bowlers (1952-1954), Ralph Standish (1954-1958), Anwar Ali (1958-1974) and Abdul Aziz Al-Quraishi (1974-1983). All of them brought different management styles and professional backgrounds, mostly drawing upon Western Central Bank and International Monetary Fund philosophies.”
Ramady also details the evolution of the banking industry. The first branch of a foreign commercial bank, the Netherlands Trading Society (today, the Saudi Hollandi Bank) was established in 1927, he writes and adds: “These banks were initially unpopular, as due to social and religious stigma there was strong resistance to paying and receiving interest. The result was effectively a cash-oriented society until the early 1970s. Moneychangers, who carefully avoided the word bank, flourished and provided strong competition to foreign banks.”
Money changers were the oldest financial institutions in Saudi Arabia, originating in the effort to serve pilgrims who came to Makkah with different currencies from all over the world. “As the economy developed in the 1950s, more money exchanges sprung up, such as Al-Mukairn, Al-Subaeii, Kaaki, Bamoada, Baghlaf, Amoudi, Al-Roumaizan and Al-Omary. The most prominent exchangers are the Al-Rajhi family.”
Ramady writes that in 1937, the Mahfouz and Kaaki families successfully petitioned King Abdul Aziz to establish the Kingdom’s first locally owned bank, “but it was not until 1953 that the Mahfouz-Kaaki Company was transformed into what became the National Commercial Bank (NCB). In 1957, a second locally owned bank, Riyad Bank, was established.”
On Saudization, Ramady writes that the government is making “copious attempts” to ensure that more jobs are found for nationals, either through creating new jobs or replacing foreigners through an invigorated Saudization program. “However, in the final analysis,” he writes, “Saudis with the appropriate market-driven skills will be employed. Others seeking jobs will realize that it is necessary to change their mindset and to accept positions previously deemed to be either too menial or socially unacceptable.”
When writing about Saudization, he mentions the SAMA figure of private remittances and transfers sent from Saudi Arabia for the period 1970-2002. It amounted to SR979.3 billion ($261.2 billion). Ramady rightly mentions that such figures prompt, from time to time, heated debate in the local media about the need to speed up Saudization or to impose curbs on remittances. But his take on Saudization is unambiguous: “The process of Saudization should not take place at the expense of efficiency and productivity in the national economy.”
Ramady mentions the 2003 Saudi government decision to reduce foreign workers in the Kingdom. “Interior Minister Prince Naif, as head of the Manpower Council, announced that three million expatriates were to be phased out within a decade and that the total number of expatriates must not exceed 20 percent of the Saudi population by 2013. The decision also stipulated a quota system for foreign nationalities in which no single nationality must exceed 10 percent of total expatriates.”
Ramady notes this system will hit the Asian expatriates particularly hard, “as they represent the largest component of the work force. The Egyptians, Filipinos and Yemenis will also be affected... Those least affected will be the small numbers of highly paid expatriates from the United States and Europe.”
The best part about each chapter is that it starts by telling the reader in bulleted points what they should expect to learn after the end of each chapter. It is very meticulously done and very easy to follow. It only enhances the interest of the reader. At the end of each chapter there is a summary of the key points followed by critical thinking questions. It is almost like a textbook; in fact, it has been adopted by some universities as a textbook.
The lessons that can be learned by reading this book are lessons needed well beyond the classroom or the campus. For people involved in business and investment, government and education or cultural preservation, the message of this book is clear. As with all nations, the Saudi economy is a part of the global economy, and the decisions we make today will determine the prosperity or lack thereof in the future. In “The Saudi Arabian Economy,” Ramady gives us a great tool to understand the complexities of the modern economy and to chart a wise direction for the years to come.
