SAUDI ARABIA: a BRIEF GUIDE to ITS POLITICS and PROBLEMS by Nimrod Raphaeli*

SAUDI ARABIA: A BRIEF GUIDE TO ITS POLITICS AND PROBLEMS By Nimrod Raphaeli* This article examines the familial structure of the Saudi ruling oligarchy and considers this regime’s performance given the economic and demographic challenges it faces. Oligarchy is a form of government where a billion in 1981 to $186.5 billion in 2001, few rule the many. In Saudi Arabia, the the average GDP per capita shrunk roughly few are predominantly royal male princes 2.5 percent per year.(2) In fact, the per who are all descended from the founder of capita GDP was worse in 1999 than it was the modern Saudi kingdom, King Abd al- in 1965 before the massive rise in the price Aziz who, upon his death in 1953, left of oil.(3) Even the Saudi press has noted behind 44 sons (and an uncounted number how, in nominal terms, GDP per capita of daughters) by 17 wives. Today, Saudi went from $10,330 in 1989 to $7,743 in Arabia’s ruling structure is capped by a 2001.(4) unique, almost unprecedented, form of Additionally, a review of the Saudi oligarchy, whose members are connected economy by the International Monetary through a bloodline to Saudi Arabia's Fund indicates that, with the exception of polygamous founder. The princes have the year 2000, in which the overall central treated the country's wealth of oil and government budget registered a sharp minerals as their personal domain and turnaround due largely to a rise in oil made themselves famous for their prices, "in every other year, the budget has extravagant life style. Some princes have run a deficit and the debt stock has run up accumulated enormous personal wealth; to $170 billion, which is equal to the size with King Fahd bin Abd al-Aziz, the of GDP."(5) (By comparison, in the reigning monarch, topping the list with a European Union, the ratio of public debt to personal fortune estimated at $20 GDP is restricted to 60 percent.) Given the billion.(1) lack of discipline by many princes and a This particular system has important bloated bureaucracy, these issues are not implications for Saudi society, politics, and likely to be solved quickly. policies. It is also a central consideration Beyond the poor financial management for pondering any future reform or by the ruling elite, this section examines development in the country. the major systemic problems of the Saudi economy, including its dependence on oil, ECONOMIC CHALLENGES AND its population explosion, and its massive PERFORMANCE unemployment. As the princes have grown richer, the people of Saudi Arabia have grown poorer. The Dependence on Oil While gross domestic product (GDP) grew Saudi Arabia is an oil-based economy at an average of 1.25 percent per year with strong government control over major between 1981 and 2001, from $155.1 economic activities. The petroleum sector Middle East Review of International Affairs, Vol. 7, No. 3 (September, 2003) 21 Nimrod Raphaeli accounts for roughly 75 percent of budget prices have already fallen roughly $5 per revenues, 45 percent of GDP, and 90 barrel.(9) percent of export earnings. Indeed, only about 25 percent of GDP comes from the The Economy’s Non-Oil Tax Base private sector. Saudi Arabia’s economy The non-oil government revenues are remains, despite attempts at diversification, constrained by a largely non-competitive heavily dependent on the production and market place where monopolies and export of oil. “exclusive dealerships” are dominated by A strong rebound in oil prices beginning members of the royal family and their in the latter part of 2002 and the beginning cohorts, and usually they do not generate of 2003 provided a little relief for the Saudi revenues for the government in the form of economy. According to a Saudi Arabia sales or income tax. While some Monetary Authority (SAMA) report, the monopolies and single dealerships control Kingdom’s revenues from oil in 2002 large segments of the market, they are reached $54.4 billion or 30 percent over the protected by the Shari’a (Islamic law) from budgeted revenues. However, actual paying taxes on their earnings. Rather, spending has also exceeded budgeted they are required to make a voluntary expenditures by 11 percent, reaching $60 contribution of 2.5 percent in the form of billion, up from a projected $53.9 zakat (religious charity) to organizations or billion.(6) The rise in oil prices preceding groups or individuals of their choice. the war in Iraq was a temporary rise, This religious protection of the rich and however, and so will not dramatically alter the powerful deprives the government of the revenue figures, nor provide long- vital sources of income to address the lasting relief for burgeoning public debt. In social and economic needs of the majority other words, the long-term health of the of the people. The result is a skewed economy still requires a measure of fiscal income distribution and the growth of discipline, which the Saudis have so far extensive poverty and deprivation. Despite failed to exercise. growing social needs, Khalid al-Qusaibi, In fact, in the long-term, oil prices will the Saudi minister of planning has recently likely suffer as Iraq reenters the export confirmed that the Saudi Government will market at eventually higher levels than not introduce the income tax to reduce the during the period of UN sanctions, since it burden of the national debt or redistribute possesses the world’s second largest oil national wealth.(10) reserves. It could increase its exports from the two million barrels a day (mbd) Population Growth produced at the end of Saddam Hussein’s While GDP went from $155.1 billion in regime to 3.5 mbd within 18 months, and 1981 to $186.5 billion in 2001, the has a reasonable potential to produce 6 population grew from 9.9 million in 1981 mbd in 3 to 5 years.(7) While Saudi Arabia to 21.4 million in 2001, an increase of 54 produced 8.7 mbd in 2002 (11.8 percent of percent. Thus, while economic growth has the world market), total global production averaged 1.25 percent annually, the is only about 74 mbd.(8) And from the population has increased by about 3.67 Saudi perspective, even a reduction of $10 percent per annum.(11) The UN has in the price of a barrel of oil would mean a estimated that the rate of population growth loss of revenues of about $70 million a in Saudi Arabia in the years 1975-1999 day, or a loss of approximately $25 billion was at an even higher rate of 4.2 percent, on an annual basis. Since the beginning of making it one of the highest in the the war in Iraq until the end of May, oil world.(12) 22 Middle East Review of International Affairs, Vol. 7, No. 3 (September 2003) Saudi Arabia: A Brief Guide to its Politics and Problems According to Dr. Wadi’ Ahmad Fadhil, suggest, though this is not a popular idea in a professor of economics at King Abd al- Saudi Arabia, that some form of Aziz University, the kingdom has been “population rationalization” may become facing a population explosion since the inevitable. (19) early 1990s which will remain at about the same rate through the 2030s. At this rate, Unemployment the population will double every 20 years Unemployment figures in most from 20 million in 2000 to 40 million in developing countries are unreliable. There 2020.(13) are no official employment agencies which There are several causes for this register work seekers on a regular basis and tremendous population growth. The first is governments may be reluctant to make that infant death rates in the Kingdom have known the extent of the problem. Saudi plummeted over the past 20 years. From 65 Arabia is no exception. A Saudi newspaper deaths per 1000 live births in 1980, Saudi speculates that while the unemployment Arabia had dropped to 19 per 1000 by rate is estimated at 20 percent it could be as 1999--one of the lowest in the Arab world high as 30 percent. The irony of the and under half the regional average.(14) situation is that the Saudis employ 6 to 7 Likewise, life expectancy in Saudi Arabia, million foreign workers, including 3 which was 61 in 1980, had risen to 72 by million maids and drivers. 1999 (from two years under the world The foreign workers transfer, primarily average to six years above it).(15) to their home countries, 50 billion Saudi Clearly, these improvements are largely riyals ($13.3 billion) annually.(20) To the fruit of Saudi investment in the health reduce the number of expatriate workers, care system. The Kingdom currently the government has recently decreed that spends approximately $890 per person on 24 categories of employment will be health care expenses, the third highest in restricted to Saudi applicants.(21) Minister the region after Israel ($1,730) and the of Interior Prince Naif, who is in charge of UAE ($1,495), and is twice as high as the foreign labor, has decreed that foreign region’s fourth biggest spender (Lebanon workers and their family members should at $430).(16) However, as a portion of total not exceed 20 percent of the Saudi GDP (which tells what percent of the oil population in 2013.(22) revenue goes to health), Saudi Arabia was To deal with the problem of in the middle for the region with 8 percent unemployment the Saudi government has of GDP, following Lebanon (9.8 percent), allowed the civil service and the public Israel (9.5), Jordan (9.1), the PA (8.6), and sector to hire Saudis for nonexistent jobs, the UAE (8.2).(17) turning government agencies into a vast Despite all these improvements in social welfare system.

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