Saudi Arabia Errs on the Side of Caution
Until the final months of 1995 things appeared to be running reasonably smoothly in Saudi Arabia. Following the financial upheaval that followed the Gulf War, when the kingdom's budget deficit increased to more than 17%, signs that belt-tightening measures were paying off were apparent. By 1992 the budget deficit was already down to 10% and estimates for 1995 predicted a fall to around 2%, with plans to eliminate the deficit entirely by the year 2000 forming an important part of the kingdom's sixth five year plan.
Then on 13 November, a car bomb exploded at the Saudi National Guard Communications Centre in Riyadh leaving seven people dead. Rumours that Islamic Fundamentalists - who since the Gulf War have spoken out increasingly stridently against Western interference in the kingdom - were responsible for the attack prompted a nervous response from the international business community.
Less than three weeks after the Riyadh bomb blast King Fahd was taken into hospital sparking off fears of a succession crisis.
Rumours that the monarch had died caused oil prices to soar. Only hours after the announcement of King Fahd's decision to hand over the reins of power to Prince Abdullah, prices had stabilised. Fears were quelled as experts such as Robert Mabro of the Oxford Institute for Energy Studies spoke reassuringly about the overall stability of the kingdom's oil policy. "Prince Abdullah may have a different style, but there has been a consistency in Saudi policy since King Abdul Aziz in terms of oil and the relationship with the US." Thus the crisis was averted.
The new budget maintains spending at 1995 levels of SR150 billion. However, a budget deficit of SR18.5 billion is projected for 1996, an increase of SR3 billion on the 1995 estimate. A small reduction in revenues, from SR135 billion in 1995 to SR131.5 billion during 1996, is generally regarded as being realistic.
With the new budget all the signs are that the government has seriously embarked on a programme of curing structural imbalances to the economy which have been allowed to emerge over the last 15 years or so.
For some time the kingdom has espoused diversification away from oil dependency and much headway has been made along these lines. Ports, the industrial cities of Jubail and Yanbu, ambitious agriculture, dairy and animal husbandy projects were all intended to provide the kingdom with an industrial base which would help diversify exports and guarantee income when oil reserves were exhausted. However, it was the economic crisis which followed the Gulf war which really served to drive the message home, prompting the beginnings of a restructuring of the country's economy.
The establisment of the Saudi Export Development Center has become the most recent part of the drive to promote exports from the kingdom. With substantial backing from both the private and public business sectors, the center is facilitating Saudi Arabia's growing export drive and helping decrease the kingdom's reliance on petroleum exports.
The Center, established under the auspices of several ministries, most notably the Ministry of Commerce and Industry, as well as the country's three main chambers of commerce, will provide financial backing and other attractive inducements to exporters.
Aside from long term loans for non-traditional exports from the Islamic Development Bank - one of the many financial organisations cooperating with the Center, exporters will also be afforded special pricing schemes for shipping agricultural and industrial exports by Saudia, the national airline. …