Has Saudi Arabia found the answer?

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ELIE ELHADJ is among the Arab world's most respected, and controversial, bankers. Now retired following postings in New York, Philadelphia, London and Riyadh, he spoke to economic analyst PAMELA ANN SMITH about his recent research on water politics in Saudi Arabia and Syria, which is making an important contribution to the current debate in the Arab world about how to respond to global shortages of food, water, and the rising cost of food imports.

MORE THAN 20 years ago Saudi Arabia launched a programme to ensure food security. The intervening years and spiralling costs of agribusiness have shown this to be unfeasible in the current climate. In an important and well considered shift, the kingdom has announced its decision to increase wheat imports in order to conserve its most vital, nonrenewable resource, ground water.

Having spent much of the 1990s in Saudi Arabia as the chairman and managing director of the Arab National Bank, Elhadj was able to gain access to senior Saudi officials, businessmen, scientists and diplomats. His research confirms that the kingdom is running out of the non-renewable water reserves that have sustained its 28-year-old programme of growing wheat and cereals, a development that underpins Riyadh's announcement last January that it is reducing its purchases of wheat from local farmers and that, by 2016, it will rely solely on wheat imports.

The move has dramatic implications for Saudi Arabia's future, especially given that world wheat prices reached a record last February, having doubled since May, 2007. There are also political implications: the US, one of the world's top exporters of grains, has in the past threatened to withhold shipments to countries whose policies it dislikes.

While this new policy means an end to the desert kingdom's hopes to achieve a degree of food security, Elhadj suggests that this is not a bad thing. Too often the concept of food security can be used as an emotional slogan to help enrich certain business elites, he feels. Ending desert farming would save whatever is left of the country's non-renewable aquifers and stop the high cost of agricultural production.

As for national security, Elhadj argues that food independence is an unrealistic goal for a country that has a fast growing population but insufficient renewable water resources. Indeed, reliance on foreign-built desalination plants for drinking and household water exposes Saudi security to much greater risk, he maintains, than the risk of reliance on wheat imports. The new policy, he says, could ensure that the kingdom's potential economic return on its growing oil wealth is used for the benefit of all its people, rather than on unsustainable environmental and financial projects that deplete the country's non-renewable water resources and which should be left as an endowment for future generations. 'Governance' is a word that comes easily to Elie Elhadj. Dressed in a grey suit and silk tie that matches his silver hair, you might be hard pressed to recognise him as a Syrian educated in one of the Arab world's most ancient and traditional capitals, Damascus, let alone one who, in his mid-50s, went back to university and gained a Ph.D. from London's prestigious School of Oriental and African Studies (SOAS).

"To know what good governance is," he insists, "you have to know what bad governance is. And that is why I got interested in Saudi Arabia's water politics. It's a case of very bad governance." And also one that the rest of the Gulf states, such as Dubai and the United Arab Emirates, Kuwait and Qatar, as well as Egypt, Jordan, Syria and other parts of the Arab world, would do well to learn from, especially in this time of soaring world food prices, escalating water scarcity and pressure on governments to appear to be acting to alleviate the plight of the poor.

"In January, the Saudi government announced that they are going to get out of the wheat business. They will rely solely on wheat imports," he tells me. "This is a 100% reversal of its sacrosanct food independence policy since the early 1980s. They had such vaunted claims... telling their people and the world about the spectacular achievement of turning the desert green and how much they were doing to provide food for the hungry. By the mid-1990s, Saudi Arabia had become the world's sixth largest exporter of wheat!"

He then spends the next 45 minutes in a detailed, passionate expose of a series of statistics ... vital statistics, between-the-lines statistics and, most of all, contradictory statistics from various Saudi ministries.

All of these are encapsulated in a series of tables spread over the 200-plus pages (and 400-plus footnotes) of his dissertation/book, Experiments in Water and Food Self-sufficiency in the Middle East: The Consequences of Contrasting Endowments, Ideologies, and Investment Policies in Saudi Arabia and Syria. Published in 2006, the parts on Saudi water politics have now been updated in a shorter report, Saudi Arabia's Agricultural Project: From Dust to Dust, published in June.

Like the good accountant and economist that he is, Elie Elhadj does not regard figures lightly. Running his fingers over lengthy tables and columns ... page 71 ... page 11 ... page 83 ... page 104, he points out the numbers that tell the real story.

"Look, you see here ... in 1970, Saudi Arabia had just 373,000 hectares of cultivated land. By 1994 this had risen to 1.6m. In 20 short years," he continues, Saudi Arabia "had quadrupled its land cultivation." From 1980 to 1992, "wheat production grew 29-fold, to 4.1m tons, making Saudi Arabia the world's sixth-largest wheat exporting country." Now, 16 years later, he adds, "it announces that it is getting out of the wheat business altogether. Why? Because it has run out, or is about to run out of, non-renewable water. In the early 1980s, the government estimated that non-renewable aquifers contained some two-thirds of the country's ground water. It does not need a genius to figure out that non-renewable aquifers would sooner or later run dry."

Desalinated water, he goes on to explain, "has become the lifeblood of the 10 largest Saudi cities. Many have sufficient groundwater for their drinking and household water needs. Yet, the groundwater is used for irrigation while desalinated water is pumped across the rising terrain of the desert from Jubail on the Gulf Coast to the Riyadh and the Qassim regions, 450km away. In the former, the domestic water requirement is around 11% of the water used in irrigation. In the latter, the ratio is only 3%. More than a third of the Saudi desalinated water capacity is dedicated to these two areas."

In 20 years, Elhadj reveals, "the kingdom used some 300bn cubic metres of water for its agriculture. Two-thirds of this, according to official Saudi estimates, was non-renewable! That's six times the annual water volume that flows from the Nile River into Egypt, or about 15bn cubic metres a year, equivalent to what Syria and Iraq together get from the Euphrates River annually."

"Between 1984 and 2000," he goes on, with greater intensity, "the estimated cost of this venture was more than $100bn. While the cost of Saudi wheat averaged over $500 a tonne, the international price for wheat averaged just $120 a tonne." And the Saudi prices, he explains later, didn't include other subsidised costs, such as the fuel and electricity used, the value of the land given away by the government, bureaucratic expenses or the cost of providing interest-free loans to farmers. "If you add all that in, the actual cost of a tonne of Saudi wheat might have been more than $1,000."

"Today," he notes, "the cost of oil is up, electricity, fuel, fertiliser, wages, seeds, transport. So what cost $500 in the period from 1980 to 2000 today might cost $2,000." And that, I note, is about $1,100 more than even the record high price wheat reached earlier this year.

"Foodstuffs are an encapsulation of water. Food is virtual water. For example, a slice of bread needs 40 litres of water to produce. A kilogram of beef needs 15,500 litres (or kilogrammes) of water. A litre of milk requires 1,000 litres of water. A cup of tea requires 30 litres of water. Today, sadly, "Saudi Arabia has depleted its non-renewable aquifers." He repeats this fact, still apparently shocked himself at what he considers to have been a monumental waste of resources for future generations.

"Natural springs have dried up in most parts," he continues. "Seawater intrusion has afflicted areas of the East coast. Poor sanitation and drainage, along with inorganic fertilisers and pesticides, turned the water brackish. This madness," he adds fervently, "isn't only in Saudi Arabia. It's also in Syria. Irrigation extractions beyond the volume of renewable water have led to negative balances in five out of Syria's seven water basins. In Damascus this summer, you have 17 hours a day with no water. This is in a capital city of four million people!"

But, I can't help thinking, isn't it a good idea to try to achieve food security and food independence, especially if vital crops such as wheat are subject to world prices and policies outside your control? And other countries, such as Egypt or Jordan, have more water than Saudi Arabia.

"What's happening in Saudi Arabia is an extreme example. It's less extreme in Egypt," he says, "but Egypt's food self-sufficiency is a mirage too. Why? Because a population of 80m requires 80bn cubic metres of water. But, the Nile River provides only around 55bn cubic metres annually. So," he continues, "Egypt needs to import today the equivalent of about 25bn cubic metres in foodstuffs. As the Egyptian population grows, imports will follow. The same is true in the entire water scarce Middle East."

Given a choice between providing safe drinking water or irreplaceable water for agriculture, he is clear about what the choice should be. "It takes on average one cubic metre of water a year to drink, 100 cubic metres of water a year to bathe, cook, etc ... But it takes 1,000 cubic metres for food, even if you live in a temperate zone. In Arab countries, it's even more."

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Saudi Arabia has been exporting agro-commodities that require high water use, he goes on to explain. "I estimate that Saudi water exports in the form of foodstuffs between 1997 and 2006 averaged just under 5bn cubic metres a year, more than twice the annual household water needs of its 23m population. That an arid Saudi Arabia continues to export its non-renewable water is breathtaking."

"So what is the answer?" I ask, trying to keep up with the consequences of his arguments and his passionate conviction.

"You must recognise your interdependence," he insists. "Of course, you can invest to improve [agricultural] yields or have farms watered from renewable aquifers or from rain. But you don't do this just for the sake of food independence. You do it only if the investment is financially sound."

"But what does that mean?" I ask. "If you can make a better return by producing shoes, rather than by growing wheat, you produce shoes," he answers.

But, I wonder, does this mean that countries like Saudi Arabia, Egypt or Morocco have no option but to depend on countries like the US, Canada, Australia and others that grow and export wheat, just as the US and Europe must depend on Saudi Arabia for oil?

"If you don't have water, what are you going to do? Do you desalinate the sea in order to grow foodstuffs?" he asked, somewhat impatiently. In that case, he implies, it's obvious there is no choice." So, it appears that food interdependence, rather than independence, is not such a bad thing.

Can Saudi Arabia devote the earnings it gains from one irreplaceable resource--oil--to ensure it preserves another--its own groundwater, or at least what's left of it? And by looking carefully at where it earns the most from its endeavours, the kingdom can also ensure that its wealth is not wasted on illusory pursuits, rather than productive investment.

In other words, Elie says, as we part company, "What's the use of pumping your non-renewable resources?" But then, I think to myself, in this day and age, that might equally apply to oil as to water.