Even in An Oil Boom, Saudi Arabia Still Seeks to Diversify Its Economy
By Jad Mouawad
THE NEW YORK TIMES
RIYADH, SAUDI ARABIA
The ultimate oil state is seeking to shift its economy away from oil.
Saudi Arabia may be experiencing its third oil boom in three decades but it is also undergoing an economic revolution that its rich but nervous leaders hope will finally insulate it from the oil producer’s curse: the next price collapse.
The Saudi kingdom remains the 600-pound gorilla of the global oil market. Given its vast reserves, Saudi Arabia can keep pumping oil for the next 70 years. Oil, along with Islam’s holy cities, Mecca and Medina, provides the country’s rulers with wealth, power and influence. Oil sales account for 40 percent of the economy and about 90 percent of government revenue. But that reliance on a volatile commodity — with big booms but also big busts — is also a problem that the royal family is determined to overcome.
The nation’s leaders, of course, have made similar vows before to translate their vast oil wealth into a more diversified economy. Will this time really be different?
There are signs that it may be. Unnoticed by many outsiders, the Saudi private sector has been flourishing in recent years, thanks to structural changes started by King Abdullah in the late 1990s when he was crown prince and oil prices were at $10 a barrel.
“There’s a gold rush in Saudi Arabia right now,” said Mohammed al-Sheikh, a Saudi lawyer associated with the White & Case law firm here in Riyadh, the capital. “You can feel it everywhere in the economy. Everyone wants to invest here.”
Driven by a construction boom that is already replacing many of the buildings thrown up in the 1970s, sprawling shopping malls, paved with white marble and featuring Gucci stores and Starbucks coffee shops, have become fixtures of the landscape in Riyadh, Khobar and Jeddah.
Analysts at the Samba Financial Group in Riyadh expect the economy to grow by 6.5 percent this year thanks to record oil prices, which have helped fuel the third consecutive year of rapid expansion. But the private sector, which also stands apart from the state-run oil industry, has outpaced the rest of the economy for seven of the last 11 years and is expected to grow 7.4 percent this year.
“The diversification of our national income and our economy away from oil is key to our well being,” said Abdullah Alireza, a minister without portfolio and a member of the Supreme Economic Council. “It’s absolutely key.”
The Saudi stock market has become one of the world’s top performers, and growth in its market value for this year is about twice as large as the country’s oil revenues.
Saudi Arabia is also opening itself to real competition. It joined the World Trade Organization on Sunday after 12 years of negotiations, a move that is expected to give a powerful push to the country’s private sector.
“It’s going to be a long road to bring ourselves up to international standards,” said Fouad al-Humoud, a local businessman, sitting in his office in the center of this sprawling city.