Saudi economy in crisis
The present production of eight million barrels of oil a day, with its
handsome export earnings of $160 million a day does indeed give the impression
that Arabia's economy is booming. Yet the reality is sadly different. The
1997 Saudi budget, announced on New Year's eve gives reason for concern
in many respects. Its forecast export earnings of $43.73 billions against
$48.28 billions in expenditure leaves a deficit of $4.50 billions. The budget
does not give the expert the necessary details to make a precise judgment
about the state of the kingdom's economy. The difficulty comes essentially
from the fact that since 1989 the Saudi Government has always based its
budgets on expectations and has not given any figures regarding the actual
earnings and expenditure for each year. All the financial institutions (Financial
Times, Economist Intelligence Unit, IMF) analyse the state of the Saudi
economy on the basis of expected earnings and expected expenditure only.
The reason is that the kingdom's economy has been in such a dismal state
for the last nine years that for the Saudis to publish figures would be
tantamount to confessing to a disastrous situation. But how did all this
Gulf crisis excuse for looming financial disaster
To justify the sorry state of the economy, the House of Saud has very
frequently blamed the Gulf war which naturally strained the economy with
its cost of $55 billion, but it is by no means the prime cause of the problem.
Up until 1983, the country's reserves had reached in excess of $100 billion.
However, the spread of corruption forced the regime to plunder its reserves
and by 1987 these had dried up. A 1994 Saudi Government document signed
by King Fahd and Finance Minister Mohammad Abul Kheil, and leaked to the
opposition, underlines the complete depletion of the cash reserves and the
serious state of the Government finances. The truth - as this document tells
- is that since 1987 the House of Saud has relied heavily on borrowings
from Saudi-foreign joint banks and international financial institutions.
MIRA has obtained a copy of a confidential and private report on the
state of the Kingdom's economy and finances, addressed to the Defence Minister
Prince Sultan by former Secretary-General of the Finance Ministry Abdul
Aziz al-Dakhil. The report which is dated 23rd December 1995 and typed on
the letterhead of The Consulting Centre for Finance and Investment says:
Our society is today facing a key problem whose solution requires a strong
political will as well as a clarity of vision and logic. After some stylistic
precautions, Mr Al-Dakhil stated clearly: What I mean to say here is that
the global financial assets of the State are today in its worst ever situation.
Al-Dakhil pointed out that the very high proportion of local Government
debt (despite what is said regarding its causes and the need for it) is
dangerous and has never been reached by many of the State's recipients of
the Kingdom's aid. While strongly defending the private sector and its ethics,
the report's author warned that temporary solutions and increased borrowings
will lead to radical problems in the global financial situation.
In the absence of inflation figures, the state of the kingdom's economy
can only be measured by the spiralling cost of living which is estimated
to have risen between 200% and 300% since 1975. This is of no surprise as
civil servants' salaries have been frozen since 1975. Abdul Aziz al-Dakhil's
report mentions that the State owes SR340 billion to the private sector
and that 3,000 contractors and enterprises have not been paid for four years.
Recent attempts to pay them did not solve the problem since the Government
simply paid them with bonds borrowed from joint financial institutions,
which amounts to shifting the State's debt burden from one place to another.
The State has ran up two kinds of debt: an internal one for which no figures
have been released; and a series of international loans in cash and credit
for which guarantees have been difficult to find. There is also a third
type of debt which consists of huge commitments to the arms dealers. The
cash side of the borrowings have recently been paid. However, the State
will not be in a position to pay the credit for the foreseeable future.
In the 20 years preceding the Gulf war GNP reached $1.6 trillion. Why
is it that Arabia finds itself on the edge bankruptcy in spite of its huge
oil reserves, high production and important daily export earnings?
Nepotism behind depletion of financial reserves
The explanation lies with the House of Saud which has ruled without power
sharing and accountability since the country was established in the 1930's.
The ruling oligarchy simply considers Arabia, including its underground
wealth, its sea and air, as its own rightful property and so has disposed
of it as it has pleased in spite of all the talk about budgets. There are
several ways through which the Saudi family had squandered the Kingdom's
First, by allocating a huge share of the people's wealth to its own members.
Each of the estimated 7,000 princes earn a monthly salary of at least SR
60,000, whilst princes that are the direct sons of King Abdul Aziz earn
millions. This amounts to a total of more than $2 billion a year in salaries
for the royal family. To be added to this total are the Kings donations
of which there are two types; annual and exceptional, and which reach $1.5
billion a year. For example, after the Gulf war, during the month of Ramadhan,
the King donated $0.7 million to junior princes and the colossal sum of
$30 million to the senior ones. Another way of distributing the country's
wealth among the members of the House of Saud is through a system of oil
quotas to which each prince is entitled and which are worth $2 billion annually.
Under this system, each prince is given a tanker load of oil to dispose
of as he sees fit, generally by selling it cheaply to foreign oil companies.
Furthermore all royals are granted free use of a number of public utilities.
These include free electricity, water and telephone. These bills reach $1
billion a year. In addition to this, each of the 7,000 highnesses are entitled
to free internal and external air travel (for themselves as well as for
their attendants). All senior princes have fully staffed Saudia Airline
planes at their permanent disposal. For example, Mohammed bin Fahd, the
Governor of the Eastern Province, has a fully serviced TriStar available
24 hours a day. For entertainment or holiday abroad, each prince is entitled
to an impressive sum of money. For example, Defence Minister Sultan is given
$1.5 million a day. Sources reveal that for the purpose of a holiday in
Morocco two years ago, the Sultan bought 300 Jeeps, then left them behind
at the end of his holiday.
Evidence on the need for accountability
To entertain the reader, here is a couple of other true stories which
show the royal family's sheer lack of accountability. According to sources
close to Interior Minister Nayef, around four years ago the latter sent
to Siberia a C-130 military transport plane to hunt for a Siberian hawk.
Having travelled from a temperature of -20 C to one of +60 C the hawk died.
Nayef is said to have sent the C-130 plane to fetch another one. A princess
who wanted to travel from New York to London was sent a Saudia Airlines
plane from Riyadh. She found the plane too small for her and so sent for
a bigger one. Sadly, many similar stories have appeared in the western press
thus instilling in the reader's minds the sad myth of the rich (Saudi/Gulf)
Another way of spending the country's wealth is through the transfer
and retrieval of property. Huge real estates are donated by the Government
and then bought back. This process is repeated several times. Two cases
are worth mentioning ; the first is the Jiyad Hospital in Mecca. It was
given to Abdul Aziz bin Fahd then rented from him by the State at $100 million
a year. Similarly, the Riyadh zoo was donated and bought back three times,
with the beneficiaries being first Mohammad bin Abdul Aziz, then Badr bin
Abdul Aziz, and finally Mohsin bin Abdul Aziz. Commissions on government
contracts are perhaps the most effective way of squandering the people's
wealth. Here too, there are countless examples, but one instance clearly
illustrates the whole situation. The lowest bid for renovating the former
Oil Ministry building for the benefit of the Air Defence was $12 million.
However, the Head of Air Defence, Turki bin Nasser, rejected this bid in
favour of one for $120 million by a foreign company. The difference between
the two figures was Turki's commission.
Commissions on arm deals have frequently made the headlines in the international
press and involved people such as Defence Minister Sultan. Published figures
concerning the Saudi regime's arms contracts in the two decades between
1974-1994 show that over $200 billion was spent. Yet, according to well-informed
sources within the Defence Ministry, only $50 billion was actually spent
on military hardware, facilities and training. Defence Minister Sultan has
repeatedly been denounced for pocketing most of the missing money.
Propoganda and oil price increase cannot hide economic crisis
Finally, the last way of dissipating the Kingdom's wealth has been through
the allocation of a foreign information budget which has been used for the
sole purpose of propaganda. Daily scandals involving Saudi princes abroad,
mounting Muslim awareness about the reality of the rulers (supposedly the
custodians of Islam's holy Shrines), the increasingly aggressive popular
challenge of illegitimate rulers all over the Arab world and a bid to condition
the Arab people to international designs which go against their interests
are the main reasons why the House of Saud has allocated over £300
million a year to a network of Arabic-speaking media, privately-owned but
created with its blessing and based mainly in London. The network includes
essentially El-Hayat, Al-sharq al-Awsat and the Middle East Broadcasting
Corporation (MBC) television channel which targets the readership and viewers
of the whole of the Arab world with a view to informing, misinforming and
conditioning them regarding international, regional and national issues.
The unexpected increase in the price of oil in the last eight months
to approximately $20 a barrel will be of little help to the Saudi regime
as the huge deficit and lack of economic strategy for tackling the crisis
cannot be offset by the injection of a few more dollars. Moreover, a high
percentage of Saudi oil is exclusively for the royals' and is sold cheaply
to dispose of it, thus negating any possibility of real profit. Meanwhile
arms contracts are mostly paid for by oil at pre-set prices, thus not making
a profit. Finally, because the whole of the Saudi economy is based on oil,
most of the present production is based on old deals and old prices, which
does not allow for the possibility of taking advantage of the recent increase
in oil prices. Only a deep awareness by the House of Saud of the ominous
situation in which they have placed the Kingdom, their political will for
change, strategic planning and above all accountability will eventually
enable the monarchy to save the country from total bankruptcy and will,
perhaps, allow it to survive. In the meantime, with poverty, people's anger
and political unrest increasing, a storm is in the offing. Will the House
of Saud come to its senses?
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