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Development Trajectory of Saudi Arabia


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Introduction:

The Kingdom of Saudi Arabia (KSA) was established by King Abd Al-Aziz Abdulrahman Al-Saud also known as Ibn-Saud in 1932 after a 30-year campaign for the consolidation of the Arabian Peninsula into four traditional regions- Hejaz, Asir, Najd & Al-Hasa, the empire has since been a monarchy; located in the Middle East (West Asia), Saudi Arabia is surrounded by the Red Sea on the western side & by the Persian Gulf on the eastern side; Jordan, Iraq & Kuwait borders it to the north while Qatar & UAE borders it to the eastern front and Oman & Yemen borders it to the south. It is the 5th largest country in Asia & 12th largest in the world with an area of about 21,49,690 sq. km. and an estimated population of 33.1 million. (1) The geographical terrain of Saudi Arabia is mostly comprised of deserts, highlands, and steppe landscapes with no perennial rivers. The local communities (58.4% of the Saudi population) comprise mostly Sunni Muslims (84%) and Shia Muslims (10%), while the rest 41.6% of the population comprise the non-Saudi immigrant population of various ethnicities settled there as workers. Islam is the official religion & Arabic is the official language of the kingdom. (1)

Saudi Arabia’s economy has been mostly dependent on oil exports since the discovery of petroleum in 1938, amounting to approximately 92.5% of the government’s revenue in 2014. (Cordesman et al., 2016). (2) Although there has been a rise in the service sector in recent times, the agricultural sector has very little contribution to Saudi Arabia’s GDP due to geographical constraints of limited cultivable land (.2% of the total landmass) and sporadic rainfall.

But considering that petroleum is a non-renewable resource, and Saudi Arabia needs alternate sources of revenue to sustain its growing economy in the future, the Kingdom came up with the development plan of “Vision 2030”, under which the government will focus on creating a vibrant society, a thriving economy and an ambitious nation through investments in renewable energy and ending dependence on oil revenues, promoting tourism and investing more in the domestic production.

 

Development Trajectory: 1950s-1990s.

The period of the 1950s-80s was specifically chosen by me due to some of the major internal disturbances and external political tensions that shaped the trajectory of reforms in the Kingdom of Saudi Arabia.

During the initial period of the 1950s, Saudi Arabia’s economy was completely dependent on oil revenues, and the society was divided into two major classes, one comprising the wealthy elites of the royal family & the merchant class while the other belonging to the lower class comprising of unskilled & semi-skilled workers employed by the former. (Michel, 1994)

However, the state revenue was mostly spent on the expenditures of the royal families and not on improving the state infrastructure, and this class divide added to making Saudi Arabia one of the poorest parts of the world despite the availability of a considerable amount of state revenues.

This period also saw the rise of Arab nationalism in neighbouring countries like Jordan & Egypt. Saudi’s involvement in international politics changed with the ascendence of Kind Saud to power in 1953, in opposition to his father’s (King Abd Al-Aziz) stance of non-involvement; he signed a pack with Egypt & Syria to oppose Iraq’s stance for western-sponsored defence systems in 1955, He also severed Saudi’s diplomatic relations with Britain & France and signed the Eisenhower Doctrine in 1957 endorsed by all Arab leaders to keep the Soviet Union out of the Middle-East; On the other hand, Saud was provided with defence loans from US of 250 million dollars which was opposed by Egypt & Syria who wanted to hold their neutral stance. (Michel, 1994)

Such stances of King Saud caused more harm to his empire as on one side his oil exports declined and on the other hand, he also faced opposition from rising Arab nationalism.

The transition of Saudi Arabia from an agricultural & herding economy to an oil-exporting economy also witnessed the emergence of a growing middle class; who were comprised of foreign workers working in these oil companies, but with the immigration of these foreign workers also came new outlooks and values which influenced the urban Saudi citizens greatly; The ARAMCO (Arabian American Oil Company) being the largest state-owned oil company witnessed two major worker’s strikes in 1953 & 1956, the former being staged over the demand for better working conditions and latter against the renewed lease of US access to Dhahran Air Base by the Saudi government. At the time ARAMCO was owned and administered by the United States due to which the workers blamed the US for their exploitation. But these strikes were eventually crushed by King Saud and he ended up issuing the Royal Decree of 1956 forbidding the strike of any kind. (Michel, 1994)

The economy of Saudi Arabia was also affected by the financial crisis during the late 1950s due to the reduction in oil production by ARAMCO and from falling global oil prices, The government had to manage their budget deficits through internal borrowings from the Saudi Arabian Monetary Agency (SAMA) which is the central bank of Saudi Arabia or through external grants.

Such events caused a loss of confidence in King Saud’s government among other princes and eventually under political pressure, he had to surrender his executive powers to Crown Prince Faisal, who sought the help of the International Monetary Fund (IMF) to develop a stabilization program and also took effective measures to reduce the budget deficits. This paved the way for a formal planning attempt in the future and a deliberate use of fiscal policy in Saudi Arabia for the first time. It included establishing an Economic Development Committee to evaluate the productive potential of the undergoing ministerial proposals and projects and submit a report based on which a five-year plan could be developed for the implementation of such projects within the limits of the budget.

Later, the Economic Development Committee was succeeded by the Supreme Planning Board established in 1961 with the help of the World Bank, then known as the International Bank for Reconstruction and Development, was charged with the responsibilities of planning and coordinating strategies for economic development and monitoring the execution of the plans. But due to a lack of reliable statistical data, it was quite difficult at the time for the SPB to function properly and it more or less acted as the subcommittee for the Council of Ministers. (Edens & Snavely, 1970).

Then in 1965, the Central Planning Organization (CPO) superseded the Supreme Planning Board and consisted of a president and twelve economic advisors, the report was directly sent to the King, and it provided the base for formulating the five-year plans.

The economy of Saudi Arabia has grown rapidly since 1961. There was a continued rise in the standard of living & per capita income every year from 1962/63 to 1971/72, from 1,853 Saudi Riyals (S.R.) in the former year to 5,189 (S.R.) in the latter. But this increase has also remained unevenly distributed being limited only to the Kingdom’s 8-9 major cities. (Knauerhase, 1974)

The era of the 1960s was also covered with major unrest among the lower classes due to the denial of rights to form unions and the right to protest and in retaliation, they started joining underground political organizations like the Sons of Arabian Peninsula, Saudi Communist Party etc., which were also joined by students, teachers & urban middle-class. There was intense political unrest during the time and it witnessed massive arrests, executions and deportation of foreign workers involved in these protests. The administrative deficiencies in meeting the rising demands of workers, the problem of Arab nationalism & the Palestinian problem are the major contributors to the unrest. (Michel, 1994)

Also, from 1950 to 1972 there were many important revisions in the oil contracts between the Saudi government and the oil companies, earlier the share of revenue was done with the 50-50 formula sharing on all profits which was later revised to a precise calculation of the company’s net taxable income.

The Organization of Petroleum Exporting Countries (OPEC) (founded in 1960) also demanded additional benefits for the host country due to the global inflation and Arab-Israel dispute during the period, which resulted in an increase of concessions followed by a 2.5% annual increase in oil prices. (Knauerhase, 1974)

The era of the 1970s came with another set of challenges to the Saudi economy, the global fall in oil prices being one of them sharply hurt the economic health of the Kingdom in the later years, the per capita income shrunk from $28,600 in 1981 to $7,000 in the year 2000. And the economy of Saudi Arabia slipped from being a high-income state to a mid-to-low-income state. This period also saw massive unemployment due to exponential population growth (3.5% a year) and slow economic growth (0.8% a year). (Axelgard, 2001)

The political tensions with Iran continued throughout the 1980s on one hand and Iraq’s invasion of Kuwait in 1990 followed by attacks against Saudi Arabia on the other triggered a major political crisis, during the war Saudi Arabia accepted the royal family of Kuwait and around 4,00,000 refugees into the Kingdom. Also, the U.S. military forces played a major role in launching counterattacks against Iraq but were followed by internal resistance by the conservatives against admitting foreign non-Muslim troops in Islam’s holiest cities, US troops later left the country in 2003. (Cordesman et al., 2016)

Since 2005, the Kingdom has seen rapid modernization followed by a series of economic & social reforms including expanding employment opportunities for women, greater call for foreign investments, and increased role of the private sector. The government also held its first-ever election in the year 2005 for electing the municipal councillors. In December 2015, women were also given the right to vote and were allowed to contest elections for the first time.

 

Conclusion:

The development trajectory of Saudi Arabia shows the transition of the kingdom’s economy from being a nomadic agricultural economy in the 19th and early 20th century to becoming an oil exporter nation in the mid-20th century onwards, it came with enormous changes in the societal structure itself that we saw above; and it aligns with the psycho-cultural theories of modernization as mentioned in the text by Richard Peet and Elaine Hartwick, as Saudi Arabia is still a monarchy but there have been continued changes in the political structure of the government, from being a traditional society where the king was the unquestionable authority, the Saudi Arabia has gradually transitioned into a modern society where the king gives regard to the advice of Council of Ministers, the economy has also became more planned after establishments of bodies like the Central Planning Organization. Also, in recent times there has been a greater tilt towards Westernization by allowing the private sector to grow in the economy, adoption of modern technologies and huge investments in the education sector to create a skilled workforce.

 


Author: Reshu Kumar

Turnitin Paper ID: 2348892630

 

References:

1.     Britannica, T. Information Architects of Encyclopedia (2024, April 11). Saudi Arabia. Encyclopedia Britannica. https://www.britannica.com/facts/Saudi-Arabia

2.     Cordesman, A. H., Markusen, M., & Jones, E. P. (2016). SAUDI ARABIA. In Stability and Instability in the Gulf Region in 2016: A Strategic Net Assessment (pp. 217–251). Center for Strategic and International Studies (CSIS). http://www.jstor.org/stable/resrep23340.11

3.     Michel G. Nehme. (1994). Saudi Arabia 1950-80: Between Nationalism and Religion. Middle Eastern Studies, 30(4), 930–943. http://www.jstor.org/stable/4283682

4.     Knauerhase, R. (1974). Saudi Arabia’s Economy at the Beginning of the 1970s. Middle East Journal, 28(2), 126–140. http://www.jstor.org/stable/4325212

5.     Edens, D. G., & Snavely, W. P. (1970). Planning for Economic Development in Saudi Arabia. Middle East Journal, 24(1), 17–30. http://www.jstor.org/stable/4324550

6.     Axelgard, F. W. (2001). Saudi Arabia: The Islamic State. Brigham Young University Studies, 40(4), 169–182. http://www.jstor.org/stable/43044287

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