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	Saudi Arabia		Info-Prod Country Guide
CHARACTERISTICS   INDICATORS   THE ECONOMY   INVESTMENT ISSUES   PROJECTS   PROSPECTS

Principal Commercial and Political Characteristics General In Saudi Arabia, the largest Gulf economy and the world's biggest oil producer and exporter, reforms are beginning to bear fruit. There are also clear signals of greater private sector productivity, increased industrial investment, continued positive performance in banking and a higher level of returns on investment. This has been accomplished in an economic environment of price stability, free enterprise, an open economy and an exchange system free of any restrictions. Saudi Arabia is the largest oil exporter in the world and has the largest oil reserves. Saudi Arabia has 26 percent of the world's proven oil reserves, some 300 billion barrels. The Kingdom has 25 percent of the GDP of all Arab states, some US$ 110 billion. Saudi Arabia has 60 percent of the population of the Arab Gulf states, some eighteen million people, and sixty percent of the population is less than sixteen years of age. It is also believed that the Kingdom is probably using extra oil revenue (the result of a sharp increase in the price of oil) to build foreign reserves, estimated to have grown to US$ 11.8 billion in 1996 from US$ 8.6 billion in 1995, pay debts to contractors and reduce the need for domestic debt to help finance its deficit. The Saudis also intend to alter the foreign capital law in order to introduce more incentives that will lure foreign investors. There is also concern, however, that the oil revenue may diminish the perceived need for continued economic reform. Commercial Outlook Saudi Arabia's economy grew by a 8.6 percent in 1996, but the private sector contributed only 3.5 percent to GDP. Higher oil prices in 1996 pushed up Saudi Arabia's revenues some US$ 12 billion over projections and enabled the Kingdom to catch up on most of its arrears payments. It is estimated that GDP for 1997 will reach US$ 131.9 billion, real growth of 2 percent over 1996, while per capita income will remain near US$ 6,800. Inflation will stay at 1 percent this year, compared to 0.9 percent last year. The 1997 budget projects a deficit of US$ 4.5 billion, steady at the actual 1996 deficit but below the US$ 4.9 billion spending-revenue gap forecast in January 1996. In a major policy change, the government early in 1995 began to cut subsidies and to impose charges for public services, belatedly hoping to trim its chronic budget deficit, to heal the erosion of foreign assets and to strengthen public finances. A new cabinet of young western educated technocrats, appointed by King Fahd in August of 1995 released its first budget on January 1 1996. It called for slightly lower revenues of US$ 35 billion in 1996, unchanged spending of US$ 40 billion and a deficit equal to about 3 percent of GDP. Political Outlook On June 25, 1996, a truck laden with explosives exploded alongside the US military compound in Dhahran, on the eastern coast of Saudi Arabia. Nineteen US soldiers were killed. It is believed that Islamic fundamentalists, most likely Saudi nationals, were behind the bombing, although no group has claimed responsibility On November 13, 1995, a similar attack was carried out against an American compound in Riyadh. Toward the end of April 1996, Saudi authorities announced that they had succeeded in apprehending the perpetrators, identified as four Saudi nationals. During their interrogation, the four claimed to be veterans of the war in Afghanistan and that the attack in Riyadh was part of a "jihad" (holy war) directed against the Saudi royal family and against the leading government-appointed religious clerics in the Kingdom. The funding behind these attacks stems from a network of Muslim millionaires, many of whom are also implicated in funding and equipping Muslim fighters in Afghanistan, Bosnia and Chechnya and in financing terrorist operations in Egypt, Algeria and Israel. As these bombings indicate, the opposition movement in Saudi Arabia is gaining force, and measures taken by the government following the attack in Riyadh have not helped in curbing it. Key to stifling this opposition, if not at least quieting it, will be the success of many of the political and economic reforms the Kingdom is considering. Of all the major players in the Arab world, Saudi Arabia's attitude towards the regional process has probably been the most ambivalent. On one hand, King Fahd was quick to endorse the December 1994 Alexandria declaration, which called on fellow Arab states to refrain from improving their relations with Israel, at least until a full Israeli peace accord with Syria had been reached. At the same time, the Saudi administration has made it clear that it fully supports recent steps towards Israeli-Palestinian reconciliation and in this spirit has expressed its willingness to jettison its long-standing position that Israel is an enemy state. The peace process, it seems, may not be in Saudi Arabia's immediate economic interest. Previous Chapter Contents Menu Next Chapter

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