Abdulaziz Saud

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 happen?

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 wealth:

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) Arabs.

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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