Saudi oil pinch opens avenue to private sector
Riyadh, Saudi Arabia
The Saudi government, in light of the decline in oil revenue, has tightened its belt and told the private sector it is its turn to generate the wealth. ''The Wild West is gone,'' a Western diplomat comments. The days when foreign businessmen could sell the Saudis on virtually any project imaginable are over, Saudi officials, American businessmen, and diplomats agree.
Oil production peaked in 1980 at 9.9 million barrels a day and has now dropped to 4 to 5 million barrels a day. This means that even Saudi Arabia, which holds the largest currency reserves in the world, has had to scale back and spend more carefully.
The Saudis' budget for their 1984-85 fiscal year projects a deficit of $13.1 billion. But the Saudis had predicted the downturn and budgeted a cut in expenditure in the five-year development plan for 1980-84.
''In the last decade, we concentrated on building an infrastructure; now it is finished,'' says Finance Minister Muhammad al-Khayl. ''Our priorities since 1983 are different than before. We emphasize investment in industry, agriculture , and the quality of public services.''
Previously, about 80 percent of Saudi money was spent on infrastructure; now that figure is about 48 percent and decreasing, says Planning Minister Hisham Nazir.
The private sector should take over maintenance operations and management of facilities as well as move into agriculture, industry (largely petrochemicals), and minerals, Mr. Nazir says. ''Everything that the government owns that we feel the private sector can do better will be sold off.''
To that end, the government has sold shares in the Saudi Arabian Basic Industries Corporation and the Saudi Arabian Fertilizer Company. Two criteria determine what the government or private business can go into: Enterprises should be capital intensive, depending as little as possible on scarce domestic manpower and as much as possible on mechanization - and they should use a minimal amount of water.
''Beyond that, it is a free market,'' Nazir says. ''Anything that leads to lessening dependence on the pure sale of crude oil, we'll do.''
Saudi Arabia expects to capture about 5 percent of the world's petrochemical market by 1990. Nazir anticipates making 200 to 300 products, ranging from paint and plastics to pharmaceuticals and proteins.
He sees the world market as relatively easy for Saudi Arabia to penetrate, because other producers' facilities are old and inefficient in comparison with the ones built in the kingdom. The Saudis have created new industrial cities on the kingdom's east and west coasts. Among other things, these will manufacture petrochemicals.
The kingdom is studying the commercial potential of about 30 minerals found in the country, including gold, silver, potassium, iron ore, and uranium, the planning minister notes. Numerous greenhouses have been started, but the Saudis are by no means aiming for self-sufficiency in agriculture.
''Industrialization is the future,'' says Mahsoun Jalal, a Saudi businessman who heads a public company investigating some of the 3,000 projects that he envisions will begin operating in the next decade.
''The Saudis have managed to bring the economy down to a relatively soft landing,'' says a Western commercial attache. ''They have been more successful in adjusting to lower oil revenues than any other oil producer.''
The brunt of the austerity will be borne by the foreign workers, especially those in construction. When current projects end, construction workers will be sent home. Few new contracts will be awarded, officials and businessmen say; those few will be for schools, hospitals, and clinics.
Some American businessmen complain that a side effect of the rapid reduction in oil revenue has been that the Saudis have been slow in paying them. ''Across the board, a lot of people are owed a lot of money,'' says an American in construction.
Mr. Khayl admits there were problems in 1983 but says the delays are over. But businessmen and diplomats cite a variety of reasons for the delays, including poor and inexperienced budgeting and red tape.