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Narrated Abu Bakra: During the battle of Al-Jamal, Allah benefited me with a Word (I heard from the Prophet).
When the Prophet heard the news that the people of the Persia had made the daughter of Khosrau their Queen (ruler), he said, "Never will succeed such a nation that makes a woman their ruler."
[Volume 9, Book 88: Afflictions and the End of the]
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Prince Abdullah admits to blowing away his peoples wealth
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audi Arabia, Its Wealth on the Wane, Courts Foreign Investors
Riyadh, Saudi Arabia, Feb. 26 (Bloomberg) -- A generation ago, oil was Saudi Arabia's blessing, turning the desert kingdom of Bedouin tribes into one of the wealthiest nations on earth.
Today, the country's leaders blame their dependence on oil for ills ranging from a male unemployment rate of at least 15 percent to a ballooning national debt of $170 billion, to near zero economic growth.
Prince Abdullah bin Faisal, head of the newly created Saudi Arabian General Investment Authority and a member of the ruling al- Saud family, is trying to help the largest oil producer out of its slump. He's traveling the world, speaking at conferences and meeting with journalists in an effort to publicize new investment rules aimed at attracting foreign investment into nonoil projects. Saudi Arabia hasn't reached out to foreign investors this way since before the kingdom nationalized many of its industries, beginning in the 1970s.
The prince hasn't found it easy. Foreign companies remain skeptical of Saudi Arabia, which has yet to put into place laws that will govern such investment. ``We're essentially starting from scratch,'' the prince says, tapping off the ash from his ever- present cigarette. Foreign companies have made $8.5 billion of commitments in the past two years, and only a fraction of that has actually been spent.
Heavy Debt
Saudi Arabia needs the money. The building of new power, water, gas and telecommunications capacity will cost $15 billion a year for the next several years, says Brad Bourland, chief economist of Saudi American Bank, or Samba, the kingdom's second- largest bank.
The government is already carrying debt equivalent to nearly 100 percent of gross domestic product -- almost twice Argentina's ratio. This year, the debt figure is set to rise by $10 billion as the government borrows more beccause of a projected decline in oil revenue.
In the meantime, Saudi Arabia's wealth has dwindled. According to the International Monetary Fund, Saudi GDP per capita was $15,319 in 1980 compared with $17, 283 for the U.S. By the end of 2000, Saudi GDP per capita had fallen to $8,452, slightly above Argentina's $7,778.
``Fifty years ago, we were desert Bedouin,'' says Prince Abdullah. ``Then, we discovered oil -- and money. Lots of money. So we spent it. Now, those days are over, and we have to think again.''
Under Pressure
A Saudi Arabia short of money is a daunting prospect for the Middle East and its Western allies. Saudi Arabia is not only the producer of 25 percent of the world's oil supplies and the largest supplier to the U.S.; it's also a linchpin of political stability in the region.
As it struggles with growing unemployment and wider disparities in wealth, Saudi Arabia is under increasing pressure to provide for its people. While no one suggests there's any serious risk of a coup, some, like U.S. Senator Carl Levin, are questioning Saudi Arabia's reliability as an ally.
As keeper of the world's two holiest Islamic sites, Mecca and Medina, the kingdom views itself as responsible to the world's 1.2 billion Muslims for upholding the key tenets of Islam, such as praying five times a day. Saudi Arabia was also home to 15 of the 19 suicide hijackers who killed more than 3,000 people in the U.S. on Sept. 11.
A combination of weak oil prices and rising youth unemployment created Saudi Arabia's current predicament. With oil accounting for about 80 percent of government revenue of $61 billion last year and 42 percent of an estimated $178 billion in economic activity, the country is at the mercy of commodity prices.
Population Booms
Last year, it cut production by more than 11 percent as part of efforts by the Organization of the Petroleum Exporting Countries to buoy prices, according to estimates compiled by Bloomberg. During the same period, the price of Brent crude fell nearly in half to a low of $16.60 a barrel in November from more than $30 a barrel in early February 2001. Analysts say an increase from the Feb. 25 price of about $19.89 is unlikely before the second half of the year.
In better times, Saudi Arabia spent billions of dollars of its oil earnings on building a health care system, schools and transportation and telecommunications networks. That helped prompt an explosion in the Saudi population, to 16 million today from 8 million in 1980.
At 3.5 percent a year, the kingdom's population is growing faster than almost any other nation's. It's also one of the youngest countries, with almost 60 percent of its people younger than 19.
Unemployed Youth
Those youths have had a harder time finding jobs as economic expansion has slowed. Saudi Arabia needs growth of at least 6 percent a year to stop unemployment from increasing, Bourland says, but the economy grew less than 1 percent annually in the 1990s compared with 11 percent a year in the 1970s.
In the 1980s, unemployment was rare, because the government hired most of the country's high school and college graduates. Today, almost half of all employed Saudis -- a little more than 1 million in all -- work in government or at state-owned companies. Bourland and other economists say thhose organizations are carrying about twice the level of staffing they need.
Meanwhile, every year, about 120,000 more young men, mostly without higher education, enter the job market. Only a third of them find work, according to Saudi American Bank.
``I've been looking for a job for a year,'' says 19-year-old Wasfi Mubarak, as he watches friends play football in a run-down neighborhood in the capital, Riyadh. ``I can't find anything that earns me good money.''
Foreign Firms Invited
Originally from the southern province of Jizan, adjacent to the border with Yemen, Mubarak's family came to Riyadh in the early 1980s looking for jobs and a better life.
Mubarak and his extended family live in the crumbling neighborhood of al-Oud, where women covered from head to toe in black veils beg for cash or food. Around them, children, many of them barefoot, play in the dirt among battered old cars.
``We face serious challenges,'' says Ihsan bu-Hulaiga, a member of Saudi Arabia's Shura, or Consultative Council, which reviews draft government legislation. ``We must start finding jobs for our young people.''
To attract more businesses that could create jobs, Saudi Arabia has been gradually opening its market.
In 1998, as oil prices plunged to less than $10 a barrel, Crown Prince Abdullah bin Abdelaziz al-Saud, who runs the country's day-to-day affairs, invited foreign oil companies to invest in its oil and gas industry for the first time in almost three decades. In 1973, the Saudi government began nationalizing the U.S.-controlled Arabian American Oil Co., a process it completed in 1980.
Unmet Needs
The prince -- half brother to King Fahd, who's incapacitated from a stroke -- sought ideas on how to develop the country's gas reserves, the world's fourth largest. It took almost two years for the kingdom and eight international oil companies, including Exxon Mobil Corp., whose predecessor firms were original Aramco partners, and BP Plc, to reach the outlines of a deal last June. They've set the end of March as the deadline for working out the details.
The Western oil companies have agreed to invest about $25 billion during the next decade to explore for gas in three different parts of the country as well as to build plants that would produce 5,000 megawatts of power and 500 million gallons of water a day. Though Saudi Arabia has ample supplies of fossil fuels, it has a shortage of electric power and fresh water.
Power Projects
According to Fareed Zedan, governor of the country's new electricity regulator, Saudi Arabia needs 26,000 megawatts of electricity-generating capacity, but it has only 23,000; it needs about 3 million cubic meters (3.92 million cubic yards) of desalinated water a day but produces only a little more than 2 million.
The oil companies will get a majority stake in the projects and the opportunity to make money by selling the gas to power and water desalination plants, or they can use it for their own petrochemical production.
They'll also have a foothold in the country if and when Saudi Arabia decides to open development of its crude oil reserves to foreign participation or ownership -- though for the moment, that's not in the cards because the Saudis are very protective of their supplies. Currently, Saudi AAramco, state-owned successor to Aramco, produces all of the kingdom's oil.
Investment Changes
The power projects, the first of which is scheduled to be completed in 2004, will meet little more than a 10th of the expected growth in demand for power and fresh water during the next 20 years, Zedan says.
That's where Prince Abdullah, governor of the Investment Authority, comes in.
In 2000, the government passed a new investment law that allows foreigners to own 100 percent of their business as well as the land on which they build it. Before, they could own only 49 percent of a business and none of the land.
The government also set up Prince Abdullah's Investment Authority, or Sagia for short, to license all foreign investment.
In the past, foreign investors had to traipse from ministry to ministry seeking various approvals to build a factory or start a service -- a process that sometimes took as long as six months. Instead, Sagia provides all of the necessary approvals and is permitteed no more than 30 days to do it.
``A one-stop shop,'' says Prince Abdullah, adjusting his red kiffiyeh, the traditional head scarf.
Little Invested
In almost two years, Sagia has approved more than $10 billion in investment, about 85 percent of it from foreign companies and the remainder from their local joint venture partners. Most of the money is earmarked for additional water and power plants as well as some petrochemical, textile and furniture factories.
Little has actually been invested. Since Sept. 11, fewer investors have inquired about the kingdom.
``At the beginning [after the attacks], numbers fell because of restrictions on air travel, but since then, people have been put off by the bad press the kingdom has been getting,'' Prince Abdullah says.
For example, Senator Levin, who's head of the Senate Armed Services Committee, suggested in January that the U.S. withdraw from the Prince Sultan Air Base near Riyadh. Levin, a Michigan Democrat, said Americans felt unwelcome in the country because of its restrictions on female service personnel and its suspected financing of anti-Western militants.
Waiting for Regulator
Companies are moving slowly for other reasons, too. Japan's Sumitomo Corp., for example, in January 2001, received a license to build a $2.2 billion power and water plant. It still hasn't announced which local and international partners will join it in negotiating details with the government.
The major obstacle: lack of a regulatory body to outline the new ownership and tariff structure of the electricity industry. ``We're waiting for the establishment of the regulator,'' says Takumi Fujita, manager of Sumitomo's projects development department.
He says he's reluctant to go ahead with agreeing to build the plant before the regulator decides what the tariff or tax structure will be. Government ministers agreed only in November to set up the new body.
Another obstacle to progress is that the government subsidizes power. The government last year more than doubled electricity prices for residential users to 9.5 cents per kilowatt- hour from 4 cents and then had to rescind some of the increase after an outcry from low- and middle-income families.
Water Subsidies
Now, consumers pay enough for the government to cover the cost of production but not enough to generate a profit.
Water prices are even more heavily subsidized: Consumers pay less than 4 percent of the $1 it costs the government to create a cubic meter of desalinated water, according to the Ministry of Agriculture and Water.
Reducing the power prices sent the wrong signals to investors, says Zedan, who was named governor of the new regulator in January. ``It was not a good move,'' he says.
Another issue is the regulators' independence. When the cabinet of government ministers said it would set up a telecommunications industry regulator in 2000, it named the minister in charge of telecommunications as chairman of the board. The cabinet appoints his deputy, the governor, who then runs the day-to-day business.
Only half of the remaining 10 board members will come from private industry; the rest are ministry employees. Some business executives say the preponderance of government officials casts doubt over the body's ability to balance the interests of consumers and producers.
Many Details
``Let's face it; how independent is anything going to be in Saudi Arabia?'' asks Karim Chraibi, business development manager in the kingdom for CMS Energy Corp., a U.S. power provider, which is aiming to build the first privately owned power plant in Saudi Arabia.
Together with a local partner, the AH al-Zamil group, Michigan-based CMS has been negotiating to build a $160 million plant that would supply power to government-controlled Saudi Petrochemical Co. Sadaf, as the petrochemical company is known, last May selected CMS and al-Zamil to build the plant.
``This is the first project of its kind in the kingdom, so there are many details to go through,'' Chraibi says. For example, he says, they have had to negotiate everything from fuel prices to tax obligations for the 20-year deal.
``Things move very slowly here,'' he adds.
Bureaucracy Problem
The telecommunications regulator, the Saudi Communications Commission, is taking shape at a glacial pace, too. In June, the cabinet named a governor, Mohammed Jamil Mullah, for the commission and ordered him to choose a board of directors and have an office operating by the end of December. At the end of January, he had neither.
Ibrahim Kadi, a professor of electrical engineering at King Saud University in Riyadh, says Mullah was unable to find qualified people from outside government to take up the posts. Mullah declined to be interviewed.
One reason the reform process is moving so deliberately is bureaucratic resistance, analysts and local businesspeople say.
``The problem is not at the top,'' billionaire Prince Alwaleed bin Talal said at an economic conference in Jeddah in January. ``It's in the middle.''
Longtime relationships between senior government officials and private business made it possible for thousands of Saudis to get very rich during the oil boom years -- as certain opulent homes in London; Paris; Marbella, Spain; and the south of France attest.
Few Hold Wealth
That wealth is concentrated in few hands. Less than 0.5 percent of the population controls overseas assets worth a total of about $750 billion, according to Samba. That's one-fifth the size of the economy and doesn't include property.
There are few statistics on poverty in the kingdom, but there's abundant anecdotal evidence. In Riyadh's wealthy Olaya neighborhood, teenagers in well-pressed dish-dashas, the traditional Persian Gulf Arab white robe, cruise around in the latest four-wheel-drive vehicles looking for a trendy coffee shop, while seven-year-old boys in rags from the slums of southern Riyadh beg at their windows.
Such inequality fuels anger and resentment against the ruling al-Saud family, says Roger Tomkys, a former British ambassador to the Persian Gulf region. Many poor young males are unable to marry because they cannot afford the wedding or the house for a family.
Islamic Curriculum
To make matters worse, the Saudi educational system focuses heavily on religious studies and fails to develop the skills and attitude a modern economy needs. More than half of the 75,000 Saudis who graduate from a university each year have degrees in Islamic studies or related subjects, according to Samba. Of eight universities, half are Islamic.
A third of the grade school curriculum covers Islamic history, culture and the Koran.
``Saudi Arabia, not unlike many other countries in the Arab world, is fertile ground for extremists,'' Tomkys says. ``The previous generation never had it so good. This one faces a sense of hopelessness.''
Consider Wasfi Mubarak, the unemployed 19-year-old in southern Riyadh. He says he sees Osama bin Laden, who the U.S. says is responsible for the Sept. 11 attacks, as ``a kind of savior,'' out to destroy the privileges of the ruling elite and to drive the U.S. out of the military bases it maintains in the kingdom.
``He is against this corruption,'' Mubarak says, referring to the way he believes the elite have amassed their wealth -- and apparently ignoring the fact that bin Laden himself comes from one of Saudi Arabia's richest families.
While condemning the Sept. 11 attacks, Mubarak ``understands'' where they come from. ``Let's face it; the Americans deserved it,`` he says.
He's not a religious activist, but he knows people who are. For the moment, he has no interest in joining them. If he gets desperate, he says, he may think again.
Source: Bloomberg.com
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