Читать книгу Business and Entrepreneurship in Saudi Arabia - Burton Edward - Страница 9

THE MODERN SAUDI ECONOMY AND THE NATIONAL DEVELOPMENT PLANS

From the moment Standard Oil of California (SoCal), through its subsidiary California-Arabian Standard Oil Company (CASCO), struck oil from famous well Dammam No. 7 in Dhahran in 1938, the trajectory of the Kingdom's development and fortunes has never strayed far from the flow of the black liquid gold. Throughout its modern history, oil revenues have allowed Saudi Arabia to achieve an unimaginable level of economic development within a seemingly fleeting period of time.

In 1945, before mass-generated and distributed electricity came to the Kingdom, before Saudi Arabia had a national monetary regulator and the country's official currency had been minted (just 10 years before), and before the nation's road systems were built, its finances were in disarray and the world's powers expected it to slide into bankruptcy. Through direct subsidies and revenues from oil production, the United States and the United Kingdom kept the Saudi Kingdom from economic ruin. It was the exceptional leadership of His Majesty, Ibn Saud, and that of his sons and a cadre of able advisors that formed the masonry substructure upon which all future national gains would be built. The careful, methodical, and prescient approach to managing the Kingdom's state and economic affairs is what helped transform the nation from a primarily agrarian and trading nation into the nineteenth-largest economy in the world that it is today. Before the discovery of oil, 90 percent of Saudi Arabia's population subsisted as nomads and peasant farmers.

To understand how the Kingdom's economic and financial affairs are managed today, one must grasp and appreciate the fiscally conservative approach its chief financial stewards have always taken. Insight in this regard comes from Dr. Mohammed Al-Jasser, the former minister of economy and planning (MoEP) and former governor of the Saudi Arabian Monetary Agency. Dr. Al-Jasser is now the secretary general of the Strategic Partnership Office of the Council of Economic and Development Affairs (CEDA). In a speech he gave at the Saudi Arabian General Investment Authority's (SAGIA) Seventh Annual Global Competitiveness Forum (GCF) on January 19, 2014, then economy and planning minister Al-Jasser stated:

I would not be divulging a secret when I tell you that Saudi policy making is a very patient process that takes a long-term view. Policy makers in this country first determine where the long-term interest of the country lies. Then they work diligently and patiently toward that goal. Short-term conditions may change from time to time and may put tremendous pressure on us to change course, but we generally try to keep our eye on the ball and resist short-term temptations. 5

Since the 1930s, the production of oil and its revenues to the Kingdom heavily influenced economic planning. In large measure, because of the underdevelopment of its infrastructure and regional political issues, the period between 1930 and 1970 saw inconsistent growth in the Kingdom's oil production and export capacity. World War II disrupted the development of the oil industry in Saudi Arabia. Until 1945, Saudi Arabia recorded total revenues of less than US$4 million per year. However, by 1949, revenues climbed to US$85 million, approximately 60 percent coming from the production and export of oil.6

In 1970, however, Aramco was still a foreign controlled company. It began to expand the production of oil several times greater than pre-1970s levels. As the industry's production and infrastructure began to take off and oil revenues grew at faster rates, the Saudi government moved to establish a formal strategic planning process to ensure the integration of all aspects of the Kingdom's human, natural, and fiscal resources, institutions, and its economic and social interests into the deliberative process in shaping the nation's medium and long-term development goals.

The first Five-Year Development Plan was approved in 1970. Since then, there have been a total of nine such plans adopted and implemented. See Table 1.1.

Table 1.1 Chronology: Kingdom of Saudi Arabia Five-Year Development Plans

*Tenth Development Plan is currently being considered by the Saudi government and is expected to be a new part of a 15-year transformational period for the Saudi economy.

G = Gregorian Calendar; AH = Islamic Calendar, also referred to as the Hijri Calendar.

Although economic planning in Saudi Arabia was given thoughtful attention by King Abdulaziz Al-Saud, it was his son, King Faisal Bin Abdulaziz Al-Saud, who brought a new level of depth, range, and analysis to bear on planning the growth of the nation. Having taken over complete management of a badly mishandled economy and virtually all aspects of governance from his half-brother Saud Bin Abdulaziz in 1964, King Faisal began an unprecedented period of carefully planned economic expansion and government growth. King Faisal acquired the expertise of imported Western technocrats and experts who assumed positions alongside Saudis in government entities around the Kingdom. The beginning of this period witnessed a dramatic increase in the number of expatriate workers in Saudi Arabia, a phenomenon that the Kingdom is still grappling with today. Correcting the imbalance of an over reliance on foreign labor in the place of a higher number of employed Saudis is one of the greatest economic and social challenges facing the country, in this century or the last.

The president of the Kingdom's central planning organization, Hisham Mohiddin Nazer, submitted the first Five-Year Plan to King Faisal on August 16, 1970 (13/6/1390 AH). The rationale, objectives, and goals of the current, Ninth Year Development Plan (2010–2015) are reminiscent and elementally similar to those articulated in President Nazer's submission to King Faisal in 1970. He stated the plan objectives as:

The general objectives of economic and social development policy for Saudi Arabia are to maintain its religious and moral values, and to raise the living standards and welfare of its people, while providing for national security and maintaining economic and social stability. The objectives will be achieved by:

1. Increasing the rate of growth of gross domestic product

2. Developing human resources so that the several elements of society will be able to contribute more effectively to production and participate fully in the process of development

3. Diversifying sources of national income and reducing dependence on oil through increasing the share of other productive sectors in gross domestic product.7

In viewing the similarities between the themes, rationale, and objectives of the First Development Plan and the most recent, the Ninth Development Plan, the comparisons between the Kingdom's economic and industrial profile during the 1970–1975 period of the First Plan and the 2010–2015 period of the Ninth, throws a strong light on the vision, foresight, and analytical powers the nation's planners have possessed since early in the creation of its modern economy.

During the preparation of the First Development Plan leading up to 1970, the Kingdom faced an economic crisis unlike the economic turmoil facing it during the writing of the Ninth Development Plan, but a crisis nevertheless. Because of the nation's poorly managed economy by King Saud and the inexperienced close family members he appointed to key government positions, during the late 1950s and early 1960s, the Kingdom's finances were in very bad shape. Its currency was on a steep decline against all of the currencies of its trading partners. It was a nation whose market was flooded with foreign goods and possessed of virtually no global exports other than oil. The national debt had been on a steadier upward incline since King Saud assumed the throne from his father Ibn Saud in November 1953. And, as more foreign workers took up residence in Saudi Arabia for work, an increasing amount of the nation's wealth continued to escape the country as expatriated earnings.

One must consider Saudi Arabia had virtually no heavy industry leading up to the 1970s. And, besides oil production, its basic economic output came from light manufacturing, construction, agriculture, and merchant trading and services. When the most recent National Development Plan, the Ninth, was drafted, the nation had a different economic profile. When surveying its industrial and economic might today through the lens of the Ninth Year Development Plan, one gains an appreciation over how close the Kingdom has adhered to its core values in deliberating its future. In its preface, the Ninth Development Plan stated:

The Ninth Development Plan is based on five main themes, together forming an integrated framework for furtherance and acceleration of balanced comprehensive development in the coming few years, as well as for laying the foundations for sustainable development in the long run. These five themes are: continuing efforts to improve the standard of living and quality of life for citizens, development of national human resources and their employment, restructuring of the Saudi economy, balanced development among regions, [and] enhancement of the competitiveness of the national economy and Saudi products in both the domestic and external markets. In addition, the Plan focused on numerous other issues, such as continued expansion and maintenance of infrastructure, acceleration of the pace of economic and institutional reform, and the privatization program, promotion of technological and informatics development, as well as raising economic efficiency and productivity in the public and private sectors, development of natural resources, especially water, and development of environmental protection systems. 8

The challenges faced by Saudi fiscal authorities during the drafting of the Ninth Plan were numerous: a global financial recession in full swing, an alarmingly high Saudi unemployment rate and a steady inflow of foreign workers, an onerous and growing rate of inflation, higher costs of materials, supply, and labor for major priority construction projects, and a growing influx of foreign goods and commercial competitors challenging locally produced goods and domestic companies.9 Nevertheless, in preparing the Ninth Development Plan, the Kingdom had a strong foundation upon which to build a successive plan.

During the Eighth Development Plan, 2005–2010 (1425–1430), the Kingdom experienced an annualized rate of growth in an already high level of investment of about 11.2 percent. This contributed to an increase in the average ratio of investment to real GDP from 21.1 percent in 2004, the last year of the Seventh Development Plan 2000–2005 (1420–1425 AH), to 28.1 percent.10 Because of historically high world oil prices for oil that had not ameliorated until 2008, the Kingdom's coffers were well cushioned to weather the global economic meltdown.

In moving ahead with the Ninth Plan, the Ministry of Economy and Planning listed its expected accomplishments of the Plan as follows:

During the next five year (2010–2014), the Ninth Development Plan aims to realize an average annual GDP growth rate of 5.2 percent at constant prices of 1999. This would result in increasing the average per capita GDP at constant prices from $12,320 (SR 46,200) in 2009 to approximately $14,186 (SR 53,200) in 2014. 11

The Ministry's expected deliverables at the macroeconomic level were listed as:

• Growth in merchandise and services exports at an average annual rate of 4.5 percent, thus bringing their share of GDP to about 35.7 percent by the end of the Plan in 2014.

• Growth in merchandise and services imports at an average annual rate of 7.7 percent, to bring their share of GDP to around 67.6 percent by the end of the Plan in 2014.

• Growth in final consumption (government and private commodities and services at an average annual rate of 5.4 percent, to constitute around 90 percent of GDP in 2014.

• Increasing the share of national manpower in total labor force (Saudization rate) from 47.9 percent in 2009 to approximately 53.6 percent in 2014 by providing 1.1 million job opportunities to labor market entrants.

• Reducing the unemployment rate among the national workforce from around 9.6 percent in 2009 to about 5.5 percent by the end of the Plan in 201412 (See Table 1.2.).

Table 1.2 Main Indicators of the Ninth Development Plan (2010–2014)

* By end of the Plan.

Judged against its stated economic indicator goals in Table 1.2, in assessing the effectiveness of the Ninth Development Plan, the Kingdom may be seen as having gone a long way toward achieving its goals. Although expecting to bring down the unemployment rate from 10.5 percent in early 2010 to 5.5 percent within a five-year period may have appeared a tad ambitious, they were not far off. The Saudi Department of Central Statistics and Information (CDSI) reported that the unemployment rate in 2013 was 5.6 percent, a figure that held fast into the first quarter of 2014.13 And, more to the thrust of this book, the key indicator of how much more the Saudi private sector is playing a role in contributing to the growth in Saudi GDP is equally impressive. The Saudi private-sector's contribution to GDP at constant prices for 2012 was recorded by the CDSI at 58.8 percent.14 In February 2014, banking sector analysis of this activity for the month of January 2014 confirmed a strong Saudi private-sector performance. The Saudi British Bank (SABB) published the results of the headline “SABB HSBC Saudi Arabia Purchasing Manager's Index (PMI) for January 2014,” a monthly report issued by SABB and Hong Kong Shanghai Banking Corporation (HSBC). In it, the bank reported the Kingdom's non-oil sector activity grew at an accelerated rate for the third successive month to its highest rate since October 2012 because of elevated production and new orders.15

Saudi companies are growing more, producing more, and exporting more non-oil goods than ever before. At the end of 2013, non-oil exports achieved a record high after recording months of moderate gains. Intermediate and tertiary chemicals, plastics, and base metals make up the bulk of non-oil exports. The Saudi non-oil private sector was the main growth driver for the Saudi economy in 2013, registering growth of 5.5 percent, compared to a 0.6 percent contraction in the oil sector because of reduced production out of the Kingdom and lowering world oil prices. In August 2014, SABB reported their PMI results for July 2014 in which the Saudi non-oil sector achieved the fastest pace of growth since September 2012, in sharply improving environments of operating conditions.16 The SABB Emerging Markets Index (EMI), an SABB/HSBC report taken from PMI surveys, reported for August 2014 a 17-month high in the growth of the non-oil sector on backs of stronger output, employment, and new orders.

Does the growth and success of the Saudi private sector owe an overwhelming debt to the Kingdom's development planners? How integrated has the Saudi private sector been into the Kingdom's push for development and diversification away from a purely oil-based economy?

Having worked in both government and the private sector, I am acutely aware of the disconnect that often occurs between government, when it envisions positive change for its constituents and then creates and uses methods to pursue such change, and the private sector, which is often compelled to adhere to new policies as unwitting or reluctant agents of change. On more than one occasion working for government, I witnessed the creation of government-redesigned programs and services without the slightest input from the government workers and their managers on the ground charged with delivering and executing the new initiatives. In these instances, on many occasions there was also a complete lack of consultation with the constituents themselves, private-sector companies for whom the new programs, procedures, and services were being created. Planning for change and the effort put into its execution are always best accomplished through collaboration and close consultation between both the affected and those affecting. In Saudi Arabia today, there is ample evidence to suggest that the Saudi government has achieved and continues to maintain a sincere and active engagement with the country's private sector. There appears to be real collaboration and coordination between government and business on numerous fronts when it comes to the expansion and diversification of the Saudi economy and the development of a knowledge-based economy.

THE PRIVATE SECTOR'S ROLE IN NATIONAL DEVELOPMENT AND NON-OIL GDP

When examining the question of whether the Saudi private sector has been adequately incorporated into the economic development plans of the Kingdom, it is instructive to review how the Saudi government has interacted with the community and their pronouncements concerning their role.

Since oil revenues began streaming into the Kingdom in the 1930s, the private sector has been the beneficiary of patronage in the form of contracts doled out by King Abdulaziz and his successors. In part to reward loyalty to his leadership during the challenges faced while he was unifying the country, and in part to grow nascent manufacturing and trading communities across the Kingdom eager to capitalize on the government's spending priorities, the king and his sons succeeding him, awarded contracts to what were then primarily small Saudi businesses to construct government buildings, roads, build bridges, schools, and airports, and to supply goods and services to a young nation. With the exception of the larger merchant firms of Jeddah and a few in the western province, many of the old family-owned businesses began operations and expanded between the 1930s and 1960s as a result Aramco contracts, partnerships with foreign firms in fulfillment of government contracts, and through other government spending that had knock-on effects on the developing Saudi economy. Although business leaders were rarely offered government jobs or asked to help steer economic policy decisions, the business community's value as perceived by the nation's rulers and their economic planners was growing.

At the time the first Five-Year Development Plan was delivered, the Saudi government said about economic change and the role of the private enterprise:

The commitment of Saudi Arabia to a free economy derives from the teachings of the nation's religious code and its long-standing social traditions. It is supported by growing evidence that economic and social change cannot be imposed on the country by the actions of the government alone, but must come about through increasing participation of all elements of society in both the process of development and its benefits. Only by continuously encouraging private enterprise – large and small companies, family businesses, and individuals – to pursue those activities that they can undertake more effectively than government agencies, will the economy be able to benefit to the full from the ability and initiative of all of its people. 17

The Ninth Development Plan echoed the First Development Plan when positioning the private sector in high prominence in setting the Plan's main directions toward shaping its economy. Under its “Main Directions” section, the Plan stated its objectives as:

[The] objectives further include development of national human resources and raising their efficiency, enhancing contributions of the private sector to the development process, supporting the move toward a knowledge economy, raising the rates of growth and performance efficiency and competitiveness of the Saudi economy in an international environment dominated by globalization and heightened competition based on science and technology achievements. 18

SO, HOW HAS IT ALL WORKED OUT?

Governments have always made decisions that affect businesses and businesses have always had to comply with any requirements emanating from those decisions. It is when those decisions lead to laws and regulations that, in their view, are unnecessarily in a state of discordance with making profits that businesses voice concern. It is also when the implementation of those laws and regulations is clouded by uncertainty in the application and process that the business community often registers its dissatisfaction. Normally, businesses voice dissent less with the laws and regulations themselves, as opposed to how they are applied and over what turn out to be unintended consequences borne by them.