SAUDI ARABIA SEEKS DIVERSIFICATION.

The Kingdom of Saudi Arabia has come a long way in developing its infra-structure in recent years, but the nation's greatest challenge has not changed: reducing dependence on oil revenues. Given the adverse climatic conditions that prevail, it is difficult for the Kingdom to be cost competitive in the agricultural sector, with the exception of niche markets. The greatest potential for development lies in diversifying the industrial and service bases to focus on value-added products that capitalize on local materials and human potential.

Early in 2000, Saudi Arabia, experiencing a recession along with other OPEC nations, decided to reduce oil production in order to raise prices. The price hit nearly $35 per barrel in September 2000, the highest level since 1990. General uncertainty over Iraq and its tensions with Kuwait contributed to edging prices upward. Experts point out, however, that OPEC controls a smaller amount of world supply than it did during the 1970s oil crisis, and that there is an adequate worldwide supply.

The country's Seventh Development Plan will run from 2000 through 2005. In order to understand how the Kingdom of Saudi Arabia has achieved in just three decades what many thought would take far longer, it is necessary to appreciate the contribution that long-term strategic planning has made to the developmental process.

A FAST-GROWING POPULATION According to United Nations World Population Prospects: The 2000 Revision, Saudi Arabia's population is now in the range of 20,346,000 people, which is 5.4 times the level of 50 years ago. Nevertheless, during the next 50 years Saudi Arabia's annual population growth rate will decrease significantly, to a level lower than the world's annual population growth rate. Population is expected to reach 59,683,000 people in the year 2050, only 1.9 times the current level. According to the UN report, the infant mortality rate in Saudi Arabia will decrease from 25.0 infant deaths per 1000 live births in the year 2000to 19.4 deaths in 2050. Life expectancy at birth will increase from 70.9 years today to 79.4 years in 2050.

Western Asia's total population is in excess of 188,700,000 people, and the per capita income of that region is US$3,620 (1998). According to The World Factbook 2000, Saudi Arabia has a per capita income of US$9,000 purchasing power parity, and the United Arab Emirates have a per capita income of US$17,870, the region's highest.

A BROAD DEVELOPMENT PLAN The economic development section of the 5-year development plan links infrastructure, agriculture, industrial, and commercial development to achieve clearly defined national goals. The plan's weakness lies in the fact that the Kingdom has been unable to break away from being a commodity-based economy. This subjects the pace of development to the vagaries of the global oil market.

Fortunately for the Kingdom, oil revenues recovered during 2000 and are likely to be strong through 2001. Oil rev-enues have made the government the driving force behind the economy. Capitalizing on these revenues, the government has provided the essential infrastructure, without which the economy could not achieve sustained development.

Saudi Arabia operates a market economy in which free enterprise can flourish. Indeed, as the country's agricultural and industrial base expands, the part played by the private sector in the economy will grow in importance, reducing the role played by government. Progress has been made in recent years to reduce the Kingdom's dependence on foreign personnel, but there is still a long way to go. Until such time as Saudis occupy the majority of rank-and-file jobs, the country will be continuously in need of foreign workers to employ in these jobs.

A key element in the Saudi Arabian government's economic strategy is industrial diversification, a process that has as its primary objective the reduction of the Kingdom's dependence on oil revenues. To this end, the government is encouraging the development of a wide range of manufacturing industries.

STIMULATING THE PRIVATE SECTOR The government provides a range of incentives to encourage private sector participation in the Kingdom's industrial effort. Eight industrial funds provide private Saudi manufacturing companies with the necessary infrastructure and services at a very low cost. Generous terms of credit are readily available for such companies. The Kingdom has adopted a free-market economic model. The financial, industrial, and trade sectors have made rapid progress, enabling the private sector to play an increasingly important role in the development and diversification of the economy, especially in the fields of construction and farming.

Saudi leaders recently participated in a conference dealing with the Kingdom's economy and finance. The conference, which was organized by the Council of Saudi Chambers of Commerce and Industry (CSCCI), the Ministry of Finance and National Economy, and the Saudi Arabian Monetary Agency (SAMA), brought together private and public sector leaders to look at means of stabilizing the Kingdom's GDP in spite of fluctuations in oil prices.

Crown Prince Salman affirmed that the government has been giving support and priority to the growth of the private sector. He stressed that, as a result of this policy, the private sector has played an important role in increasing the Kingdom's Gross Domestic Product (GDP).

Minister of Finance and National Economy Ibrahim Al-Assaf stressed that business and government leaders need to work together to promote the financial sector and make private-sector loans available for viable business projects. The finance ministry and banks are working together to develop financial mechanisms that could boost Saudi economic development.

ATTRACTING FOREIGN INVESTMENTS Speaking at the conference, CSCCI Vice Chairman Abdulrahman Al-Jeraisy said the Kingdom is working to attract investment capital from Arab nations and other parts of the world by offering internationally competitive financial instruments. This will be achieved in accordance with guidelines established by international financial organizations.

A recent Forbes magazine article by Caspar Weinberger noted that "since 1999, when Crown Prince Abdullah invited foreign investors to invest in the Kingdom, vitally needed resources have begun to flow in." The ability to attract private sector investment capital is enhanced by the government's unwavering support for the business community.

Saudi Arabia is taking a more open stance toward tourist industry development. Until recently, visitors to the Kingdom were limited to workers and religious pilgrims. The Kingdom has recently begun to open its doors to non-Muslim tourists. A recent Saudi Aramco World magazine includes an article on a group of American tourists who traveled to a number of historical and cultural sites in the Kingdom. An article published in the March/April issue of Saudi Aramco World states that: "Though the numbers are still small, commercial tourism is Saudi Arabia's fastest-growing industry, and it is expected to become the country's second largest, after oil."

Opening up the tourism sector represents another step toward broadening Saudi Arabia's economic base. By funneling oil revenues into private sector projects, the government should be able to achieve greater economic stability, which in turn should strengthen consumer confidence. As a growing percentage of the working population gravitates from public to private sector employment, Saudi Arabia will develop a more stable consumer base and boost retail activity.