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Economy of Saudi Arabia

Oil was discovered in Saudi Arabia by U.S. geologists in the 1930s, although large scale production did not begin until after World War II. Oil wealth has made possible rapid economic development, which began in earnest in the 1960s and accelerated spectacularly in the 1970s, transforming the kingdom.

Saudi oil reserves are the largest in the world, and Saudi Arabia is the world's leading oil producer and exporter. Oil accounts for more than 90% of the country's exports and nearly 75% of government revenues. Proven reserves are estimated to be 263 billion barrels, about one-quarter of world oil reserves.

More than 95% of all Saudi oil is produced on behalf of the Saudi Government by the parastatal giant Saudi ARAMCO. In June 1993, Saudi ARAMCO absorbed the state marketing and refining company (SAMAREC), becoming the world's largest fully integrated oil company. Most Saudi oil exports move by tanker from Gulf terminals at Ras Tanura and Ju'aymah. The remaining oil exports are transported via the east-west pipeline across the kingdom to the Red Sea port of Yanbu.

Due to a sharp rise in petroleum revenues in 1974 following the 1973 Arab-Israeli war, Saudi Arabia became one of the fastest-growing economies in the world. It enjoyed a substantial surplus in its overall trade with other countries; imports increased rapidly; and ample government revenues were available for development, defense, and aid to other Arab and Islamic countries.

But higher oil prices led to development of more oil fields around the world and reduced global consumption. The result, beginning in the mid-1980s, was a worldwide oil glut, which introduced an element of planning uncertainty for the first time in a decade. Saudi oil production, which had increased to almost 10 million barrels per day (b/d) during 1980-81, dropped to about 2 million b/d in 1985. Budgetary deficits developed, and the government drew down its foreign assets. Responding to financial pressures, Saudi Arabia gave up its role as the "swing producer" within OPEC in the summer of 1985 and accepted a production quota. Since then, Saudi oil policy has been guided by a desire to maintain market and quota shares and to support stability in the international oil market.

Saudi Arabia was a key player in coordinating the successful 1999 campaign of OPEC and other oil-producing countries to raise the price of oil to its highest level since the Gulf War by managing production and supply of petroleum. That same year saw establishment of the Supreme Economic Council to formulate and better coordinate Saudi economic development policies in order to accelerate institutional and industrial reform.

In response to increasing international demand for oil, Saudi ARAMCO engaged in an expansion of its oil production capacity and planned to raise its capacity from 11 million barrels/day (mb/d) to 12 mb/d by 2009. Saudi ARAMCO is also increasing production of associated and non-associated natural gas to feed the expanding petrochemical sector. Notably, Saudi Arabia has awarded contracts to foreign companies to conduct gas exploration in selected regions of the country--the first such foreign participation in the petroleum sector upstream since the nationalization of ARAMCO began in the 1970s.

Saudi Arabia continues to pursue rapid industrial expansion, led by the petrochemical sector. The Saudi Basic Industries Corporation (SABIC), a parastatal petrochemical company, is now one of the world's leading petrochemical producers, and the government promotes private sector involvement in petrochemicals. The government also plans new investments in the mining sector and in refining,

After Saudi Arabia announced its intention to join the World Trade Organization, negotiations focused on increasing market access to foreign goods and services and the timeframe for becoming fully compliant with WTO obligations. In April 2000, the government established the Saudi Arabian General Investment Authority to encourage foreign direct investment in the country. Saudi Arabia signed a Trade Investment Framework Agreement with the U.S. in July 2003, and joined the WTO in December 2005.

Through 5-year development plans, the government has sought to allocate its petroleum income to transform its relatively undeveloped, oil-based economy into that of a modern industrial state while maintaining the kingdom's traditional Islamic values and customs. Although economic planners have not achieved all their goals, the economy has progressed rapidly. Oil wealth has increased the standard of living of most Saudis. However, significant population growth has strained the government's ability to finance further improvements in the country's standard of living. Heavy dependence on petroleum revenue continues, but industry and agriculture now account for a larger share of economic activity. The mismatch between the job skills of Saudi graduates and the needs of the private job market at all levels remains the principal obstacle to economic diversification and development; about 4.6 million non-Saudis are employed in the economy.

Saudi Arabia's first two development plans, covering the 1970s, emphasized infrastructure. The results were impressive--the total length of paved highways tripled, power generation increased by a multiple of 28, and the capacity of the seaports grew tenfold. For the third plan (1980-85), the emphasis changed. Spending on infrastructure declined, but it rose markedly on education, health, and social services. The share for diversifying and expanding productive sectors of the economy (primarily industry) did not rise as planned, but the two industrial cities of Jubail and Yanbu--built around the use of the country's oil and gas to produce steel, petrochemicals, fertilizer, and refined oil products--were largely completed.

In the fourth plan (1985-90), the country's basic infrastructure was viewed as largely complete, but education and training remained areas of concern. Private enterprise was encouraged, and foreign investment in the form of joint ventures with Saudi public and private companies was welcomed. The private sector became more important, rising to 70% of non-oil GDP by 1987. While still concentrated in trade and commerce, private investment increased in industry, agriculture, banking, and construction companies. These private investments were supported by generous government financing and incentive programs. The objective was for the private sector to have 70% to 80% ownership in most joint venture enterprises.

The fifth plan (1990-95) emphasized consolidation of the country's defenses; improved and more efficient government social services; regional development; and, most importantly, creating greater private-sector employment opportunities for Saudis by reducing the number of foreign workers.

The sixth plan (1996-2000) focused on lowering the cost of government services without cutting them and sought to expand educational training programs. The plan called for reducing the kingdom's dependence on the petroleum sector by diversifying economic activity, particularly in the private sector, with special emphasis on industry and agriculture. It also continued the effort to "Saudiize" the labor force.

The seventh plan (2000-2004) focused more on economic diversification and a greater role of the private sector in the Saudi economy. For the period 2000-04, the Saudi Government has aimed at an average GDP growth rate of 3.16% each year, with projected growths of 5.04% for the private sector and 4.01% for the non-oil sector. The government also has set a target of creating 817,300 new jobs for Saudi nationals.

The eighth plan (2005-2010) again focuses on economic diversification in addition to education and inclusion of women in society. The plan calls for establishing new universities and new colleges with technical specializations. Privatization as well as emphases on a knowledge-based economy and tourism will help in the goal of economic diversification.

GDP (2008 est.): $527 billion.
Annual growth rate (2008 est.): 6.1%.
Per capita GDP (2008): $21,062.
Natural resources: Hydrocarbons, gold, uranium, bauxite, coal, iron, phosphate, tungsten, zinc, silver, copper.
Agriculture: Products--dates, grains, livestock, vegetables. Arable land--1.76%.
Industry: Types--petroleum, petrochemicals, cement, fertilizer, light industry.
Trade (2008 est.): Exports--$364 billion: petroleum and petroleum products. Imports--$103 billion: manufactured goods, transportation equipment, clothing and textiles, processed food products. Major trading partners--China, France, Germany, Italy, Japan, Singapore, South Korea, Taiwan, U.K., U.S. (2006).

Geography of Saudi Arabia

Area: 1,960,582 million sq. km. (1,176,349 mi.), about one-fourth the size of the continental United States. Cities (2001 est.): Capital--Riyadh (pop. 4.3 million). Other cities--Jeddah (2.25 million), Makkah, (1.2 million), Dammam/Khobar/Dhahran, (1.6 million). Terrain: Primarily desert with rugged mountains in the southwest. Climate: Arid, with great extremes of temperature in the interior; humidity and temperature are both high along the coast.

Government of Saudi Arabia

The central institution of Saudi Arabian Government is the monarchy. The Basic Law adopted in 1992 declared that Saudi Arabia is a monarchy ruled by the sons and grandsons of King Abd Al Aziz Al Saud, and that the Holy Qur'an is the constitution of the country, which is governed on the basis of Islamic law (Shari'a). There are no political parties or national elections; however, the country held its first municipal elections in 2005. The king's powers are limited because he must observe the Shari'a and other Saudi traditions. He also must retain a consensus of the Saudi royal family, religious leaders (ulema), and other important elements in Saudi society. In the past the leading members of the royal family chose the king from among themselves with the subsequent approval of the ulema. In November 2006, King Abdallah established an Allegiance Commission that will select future crown princes, a step designed to help formalize the selection process.

Saudi kings gradually have developed a central government. Since 1953, the Council of Ministers, appointed by and responsible to the king, has advised on the formulation of general policy and directed the activities of the growing bureaucracy. This council consists of a prime minister, the first and second deputy prime ministers, 20 ministers, two ministers of state, and a small number of advisers and heads of major autonomous organizations.

Legislation is by resolution of the Council of Ministers and the Shura Council, ratified by royal decree, and must be compatible with Shari'a. Justice is administered according to Shari'a by a system of religious courts. A 2007 law created a new Supreme Court to replace the Supreme Judicial Council (SJC) as Saudi Arabia’s highest court authority. The same law transfers powers that the Ministry of Justice formerly exercised to the SJC, such as the authority to ability to establish and abolish courts, and name judges to the Courts of Appeal and First Instance. The independence of the judiciary is protected by law. The king has the authority to hear appeals and has the power to pardon in cases where the punishment is not ordained in the Qur'an. Access to high officials (usually at a majlis, or public audience) and the right to petition them directly are well-established traditions.

The kingdom is divided into 13 provinces governed by princes or close relatives of the royal family. All governors are appointed by the King.

In March 1992, King Fahd issued several decrees outlining the basic statutes of government and codifying for the first time procedures concerning the royal succession. Fahd's political reform program also provided for the establishment of a national Consultative Council, with appointed members having advisory powers to review and give advice on issues of public interest. It also outlined a framework for councils at the provincial level.

In September 1993, King Fahd issued additional reform decrees, appointing the members of the national Consultative Council and spelling out procedures for the new council's operations. He announced reforms regarding the Council of Ministers, including term limitations of 4 years and regulations to prohibit conflict of interest for ministers and other high-level officials. The members of 13 provincial councils and the councils' operating regulations also were announced in September 1993. In February, March, and April 2005, Saudis voted in the country's first municipal elections in more than 50 years. Women and male members of the military were not permitted to vote.

In July 1997, the membership of the Consultative Council was expanded from 60 to 90 members, and again in May 2001 from 90 to 120 members. In 2005, membership was expanded to 150 members. Membership has changed significantly during expansions of the council as many members have not been reappointed. The role of the Council is gradually expanding as it gains experience.

In November 2006, King Abdallah announced the formation of an Allegiance Commission which, in the future, will select crown princes upon the death or incapacitation of the king or crown prince. A December 2007 royal decree named the initial members of the Commission, all of whom are sons, grandsons, or great-grandsons representing each branch of the descendants of the Kingdoms' founder, King Abdul Aziz. Only direct male descendants of Abdul Aziz are eligible to become crown prince or king.

Principal Government Officials
King, Prime Minister, Custodian of the Two Holy Mosques--King Abdallah bin Abd al-Aziz Al Saud
Minister of Foreign Affairs--Prince Saud al-Faisal bin Abdul Aziz Al Saud
Ambassador to the U.S.--Adel al-Jubeir

The Embassy of the Kingdom of Saudi Arabia is located at 601 New Hampshire Avenue NW, Washington, DC 20037; tel. 202-342-3800.

Type: Monarchy with Council of Ministers and Consultative Council.
Unification: September 23, 1932.
Constitution: The Holy Qur'an (governed according to Islamic Law), Shari'a, and the Basic Law.
Branches: Executive--King (chief of state and head of government; rules under the title Custodian of the Two Holy Mosques). Legislative--a Consultative Council with advisory powers was formed September 1993. Judicial--Supreme Court, Supreme Judicial Council, Islamic Courts of First Instance and Appeals.
Administrative divisions: 13 provinces.
Political parties: None.

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History of Saudi Arabia

Except for a few major cities and oases, the harsh climate historically prevented much settlement of the Arabian Peninsula. People of various cultures have lived there over a span of more than 5,000 years. The Dilmun culture, along the Gulf coast, was contemporaneous with the Sumerians and ancient Egyptians, and most of the empires of the ancient world traded with the states of the peninsula. The Saudi state began in central Arabia in about 1750. A local ruler, Muhammad bin Saud, joined forces with an Islamic reformer, Muhammad Abd Al-Wahhab, to create a new political entity. Over the next 150 years, the fortunes of the Saud family rose and fell several times as Saudi rulers contended with Egypt, the Ottoman Turks, and other Arabian families for control on the peninsula. The modern Saudi state was founded by the late King Abd Al-Aziz Al-Saud (known internationally as Ibn Saud). In 1902, Abd Al-Aziz recaptured Riyadh, the Al-Saud dynasty's ancestral capital, from the rival Al-Rashid family. Continuing his conquests, Abd Al-Aziz subdued Al-Hasa, the rest of Nejd, and the Hijaz between 1913 and 1926. In 1932, these regions were unified as the Kingdom of Saudi Arabia. Boundaries with Jordan, Iraq, and Kuwait were established by a series of treaties negotiated in the 1920s, with two "neutral zones"--one with Iraq and the other with Kuwait--created. The Saudi-Kuwaiti neutral zone was administratively partitioned in 1971, with each state continuing to share the petroleum resources of the former zone equally. Tentative agreement on the partition of the Saudi-Iraqi neutral zone was reached in 1981, and partition was finalized by 1983. The country's southern boundary with Yemen was partially defined by the 1934 Treaty of Taif, which ended a brief border war between the two states. A June 2000 treaty further delineated portions of the boundary with Yemen. The location and status of Saudi Arabia's boundary with the United Arab Emirates is not final; a de facto boundary reflects a 1974 agreement. The border between Saudi Arabia and Qatar was resolved in March 2001. The border with Oman also is not demarcated. King Abd Al-Aziz died in 1953 and was succeeded by his eldest son, Saud, who reigned for 11 years. In 1964, Saud abdicated in favor of his half- brother, Faisal, who had served as Foreign Minister. Because of fiscal difficulties, King Saud had been persuaded in 1958 to delegate direct conduct of Saudi Government affairs to Faisal as Prime Minister; Saud briefly regained control of the government in 1960-62. In October 1962, Faisal outlined a broad reform program, stressing economic development. Proclaimed King in 1964 by senior royal family members and religious leaders, Faisal also continued to serve as Prime Minister. This practice has been followed by subsequent kings. The mid-1960s saw external pressures generated by Saudi-Egyptian differences over Yemen. When civil war broke out in 1962 between Yemeni royalists and republicans, Egyptian forces entered Yemen to support the new republican government, while Saudi Arabia backed the royalists. Tensions subsided only after 1967, when Egypt withdrew its troops from Yemen. Saudi forces did not participate in the Six-Day (Arab-Israeli) war of June 1967, but the government later provided annual subsidies to Egypt, Jordan, and Syria to support their economies. During the 1973 Arab- Israeli war, Saudi Arabia participated in the Arab oil boycott of the United States and Netherlands. A member of the Organization of Petroleum Exporting Countries (OPEC), Saudi Arabia had joined other member countries in moderate oil price increases beginning in 1971. After the 1973 war, the price of oil rose substantially, dramatically increasing Saudi wealth and political influence. In 1975, King Faisal was assassinated by a nephew, who was executed after an extensive investigation concluded that he acted alone. Faisal was succeeded by his half-brother Khalid as King and Prime Minister; their half-brother Prince Fahd was named Crown Prince and First Deputy Prime Minister. King Khalid empowered Crown Prince Fahd to oversee many aspects of the government's international and domestic affairs. Economic development continued rapidly under King Khalid, and the kingdom assumed a more influential role in regional politics and international economic and financial matters. In June 1982, King Khalid died, and Fahd became King and Prime Minister in a smooth transition. Another half-brother, Prince Abdullah, Commander of the Saudi National Guard, was named Crown Prince and First Deputy Prime Minister. King Fahd's brother, Prince Sultan, the Minister of Defense and Aviation, became Second Deputy Prime Minister. Under King Fahd, the Saudi economy adjusted to sharply lower oil revenues resulting from declining global oil prices. Saudi Arabia supported neutral shipping in the Gulf during periods of the Iran-Iraq war and aided Iraq's war-strained economy. King Fahd played a major part in bringing about the August 1988 cease-fire between Iraq and Iran and in organizing and strengthening the Gulf Cooperation Council (GCC), a group of six Arabian Gulf states dedicated to fostering regional economic cooperation and peaceful development. In 1990-91, King Fahd played a key role before and during the Gulf war. It was his early, formal request to President Bush for military assistance on August 6, 1990, that allowed U.S. troops to deploy in time to avert possible moves by Iraq's Saddam Hussein into Saudi Arabia. King Fahd's action also consolidated the coalition of forces against Iraq and helped define the tone of the operation as a multilateral effort to reestablish the sovereignty and territorial integrity of Kuwait. Acting as a rallying point and personal spokesman for the coalition, King Fahd helped bring together his nation's GCC allies, Western allies, and Arab allies, as well as non-aligned nations from Africa and the emerging democracies of Eastern Europe. He used his influence as Custodian of the Two Holy Mosques to persuade other Arab and Islamic nations to join the coalition. King Fahd suffered a stroke in November 1995. From 1997, Crown Prince Abdullah took on much of the day-to-day responsibilities of running the government. Upon King Fahd’s death on August 1, 2005, Abdullah assumed the throne as King. Prince Sultan, Minister of Defense and Aviation, became Crown Prince and First Deputy Prime Minister. Since ascending to the throne, King Abdullah has continued to pursue an incremental program of social, economic, and political reforms.

People of Saudi Arabia

Saudi Arabia's 2008 population was estimated to be about 28 million, including about 5.6 million resident foreigners. Until the 1960s, most of the population was nomadic or seminomadic; due to rapid economic and urban growth, more than 95% of the population now is settled. Some cities and oases have densities of more than 1,000 people per square kilometer (2,600 per sq. mi). Saudi Arabia is known as the birthplace of Islam, which in the century following the Prophet Muhammad's death in 632 A.D. spread west to Spain and east to India. Islam obliges all Muslims to make the Hajj, or pilgrimage to Makkah, at least once during their lifetime if they are able to do so. The cultural environment in Saudi Arabia is highly conservative; the country officially adheres to the strict Wahhabi interpretation of Islamic religious law (Shari'a). Cultural presentations must conform to narrowly defined standards of ethics. Men and women are not permitted to attend public events together and are segregated in the work place. Most Saudis are ethnically Arab. Some are of mixed ethnic origin and are descended from Turks, Iranians, Indonesians, Indians, Africans, and others, most of whom immigrated as pilgrims and reside in the Hijaz region along the Red Sea coast. Many Arabs from nearby countries are employed in the kingdom. There also are significant numbers of Asian expatriates mostly from India, Pakistan, Bangladesh, Indonesia, and the Philippines. Westerners in Saudi Arabia number under 100,000. Nationality: Noun--Saudi(s). Adjective--Saudi Arabian or Saudi. Population (July 2008 est.): 28 million (22.6 million Saudis, 5.6 million foreign nationals). Annual growth rate: (2008 est.): 1.9%. Ethnic groups: Arab (90% of native pop.), Afro-Asian (10% of native pop.). Religion: Islam. Language: Arabic (official). Education: Literacy--total 78.8% (male 84.7%, female 70.8%). Health: Infant mortality rate (2008 est.)--12.01 deaths/1,000 live births. Life expectancy--male 74 years, female 78 years. Work force: 6.49 million, about 35% foreign workers (2005 est.); industry--25%; services (including government)--63%; agriculture--12%.
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