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).
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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