http://www.stratfor.com/MEAF/commentary/0004282041.htm

[Fair use, for educational purposes]

Saudi Arabias Future Stability Questionable

"Saudi Arabia is experiencing ominous economic and demographic trends. The economy is not expanding enough to sustain the population growth. While economic reforms are being made, it is unlikely they can be made fast enough to reverse the current trends. Saudi Arabia will eventually have to cut back and redistribute its spending, about 70 percent of which goes to government subsidies and ruling-family allowances. Cutting back the subsidies violates a social contract between the government and the people, which leads to collective domestic opposition. Moreover, cutting back the allowances will create an atmosphere of dissent within the royal family that could eventually threaten Saudi Arabian stability."

ANALYSIS

"The Kingdom of Saudi Arabia has survived and flourished because of a tacit agreement, established during the boom years of the 1970s, between the Saudi people and the ruling family. In return for material well-being, modern infrastructure, education and copious social spending, Saudis have given up modern forms of political participation to a system in which the clergy is appointed by the king, and the authorities rule with a heavy hand. Simply put, the government keeps the people employed and well paid so they dont revolt. This social contract between the ruling family and the people may be threatened in the coming years due to the expanding size of both groups and the failure of the economy to expand with them. The solution to the problem  necessary reforms and budget cuts  may not bode well for future stability either."

"Saudi Arabias population growth rate is now around 3.5 percent per year, according to a report published by the U.S. embassy in Riyadh. However, for the last 20 years, Saudi real GDP growth has averaged about 0.2 percent according to the report. In 1999, Saudi real GDP growth was only 0.5 percent. Furthermore, half of Saudi Arabias population is under the age of 18 and about to enter the workforce. In the coming years, the Saudi economy will have to achieve a 6 percent growth rate to absorb this growing labor force. Saudi per capita GDP, which peaked in 1981 at $28,600, is now less than $7,000. Public debt exceeded 120 percent of GDP at the end of 1999."

"Saudi Arabias economic woes are compounded by several factors, including its vast reliance on the fluctuating prices of hydrocarbon exports, which account for 90 percent to 95 percent of export earnings and 75 percent of the budget. Overseas Saudi private capital amounts to $600-700 billion and foreign worker compensation is about $16 billion annually, both of which further tug at the Saudi current account."

"Two of the principal expenditures in the Saudi budget are government wages, which account for 60 percent, and stipends for the ruling family, which make up 10 percent. Herein lies the crux of Saudi Arabias imminent troubles. Two of the largest consumers of the Saudi budget  government workers and the ruling family  are continually getting larger, while the economy is not growing fast enough to keep up. Economically, this is a trend that cannot go on indefinitely."

"Saudi Arabia is in dire need of economic reform. Crown Prince Abdullah appears conscious of this and has strongly advocated economic reform in the kingdom. Joining the World Trade Organization is a key element of Saudi reforms as well as giving more responsibility to the private sector, liberalizing trade and diversifying the economy. Abdullahs plans include trying to attract foreign direct investment in all areas, including the hydrocarbon sector, and diversifying tax revenues away from over-reliance on unstable oil prices. He has set up a powerful economic council to revamp the tax code, amend property and employment laws, and regulate the stock market."

"Despite these plans for reform, in order to effectively trim the budget deficit and boost the economy, spending cuts will have to be made in either the peoples subsidies or allowances to the Saudi ruling family. The Saudis have several economic options, but ultimately, they will only buy time before the inevitable cuts will have to be made. One viable option would be to send the 5 to 6 million foreign worker population away to increase employment opportunities for Saudis. However, this population generally does the relatively menial jobs that most Saudis deem lowly and would not be happy to accept. Prince Abdullah has frankly declared that Saudis will in fact have to tighten their belts in the coming years. He has already doubled visa fees for foreign workers, cut electricity and petrol subsidies, and raised airport departure taxes."

"While these reforms will be helpful, they cant come fast enough to reverse current trends and the Saudi fast-track, the planned course for economic improvements, is still relatively slow. The pace of reform is far outweighed by population growth and the growth of the ruling family. More drastic measures will be needed."

"Prince Abdullah, regardless of his popularity among the people, will have to use caution when cutting subsidies to the masses. He will be undercutting the very social contract from which the ruling family maintains its legitimacy. Foreign workers make up 95 percent of the private sector workforce, according to the Washington Times. Thus, most Saudis either work for the government or are unemployed. If a balance between reform and continued subsidies is not maintained, the threat of a popular revolt becomes feasible."

"Ultimately, Abdullah will act tactfully and will not push the masses to take such action. Demography, geography and effective security forces also work in favor of the regime in the face of preventing an uprising. Saudi Arabia has a small population relative to its size and the people are largely spread out. Nor are they heavily concentrated in key economic regions. Various Saudi security forces including religious police keep a tight grip on what little domestic unrest exists."

"When the time comes to make the painful budget cuts, the ruling family rather than the peoples subsidies is likely to shoulder most of the burden. With the information available, it is extremely difficult to accurately quantify the size of the ruling family, though most reports put it between 10,000 and 30,000 members. Even princes lowest in the hierarchy reportedly receive as much as $4,000 a month in allowances, which begin at a very young age. High level princes reportedly receive monthly stipends as high as $130,000 a month, according to the Washington Times. However, Defense Minister Prince Sultan is reported to have expenses in the millions of dollars a month. As the family grows exponentially, so does the portion of allowances coming straight out of the budget."

"If Abdullah is intent on economic reform  and he appears to be  he can make significant cuts in the amount of money the lowliest princes receive. Power distribution among ruling family members has a very small number of top princes with extensive authority and resources while most princes keep a lower profile and have little effective power. Abdullah must be extremely careful not to undercut anyone with any significant power and resources lest he invoke a potentially destabilizing family feud. However, cutting even the lowest of princes could eventually spell trouble for the stability of the Saudi ruling family."

"Cutting back funds to certain princes creates an atmosphere of discontent within the ruling family. Such an atmosphere, in time could provide what does not appear to currently exist in upper or lower echelons of Saudi Arabias top family  sympathy for various opposition groups or individuals."

"Saudi rulers have laid their claim to legitimacy in the strict Wahhabi version of Sunni Islam. At the outset of the great Saudi oil boom during World War II, Saudi rulers called the sudden wealth a grace and blessing from God. In the 1970s when oil prices surged, that blessing reached incredible proportions and it was agreed by the government and people that it would be divided among all Saudis. Extremist religious opposition groups claim that the ruling familys lavish lifestyles have squandered Gods blessing and the rulers have abused their power and legitimacy."

"A key element that has perpetuated the stability of the Saudi Arabia is the lack of covert support or even sympathy for such opposition. Osama bin Laden serves as a clear example. The Bin Laden clan of Saudi Arabia is one of its most prominent and wealthy families. However, the Saudi government stripped Bin Laden of his Saudi citizenship after he challenged the legitimacy of the ruling family. Reports have circulated that Saudi businessmen and even members of the ruling family make large contributions to Bin Laden and various terrorist groups. However, according to Janes Intelligence, these contributions appear in most instances to have been given in response to blackmail or as a subtle form of protection payment. Still, many young Saudis followed Bin Laden to Afghanistan and around the world. There are real sympathies for his cause, and real opposition to leading Saudi princes."

"The larger point is that as long as the members of the ruling family are sufficiently paid off, they wont damage family cohesion or try to undermine the regime by supporting opposition movements. If some members are cut off or have allowances drastically cut back in the name of reform, they may cease to cooperate. It would only take one or two princes shifting their policies to give opposition a substantially valuable ally in the family with which to collaborate. While low-level princes in most cases do not have means to challenge the regimes stability, simply becoming an opposition sympathizer can give the opponents renewed momentum and a key foothold in the ruling family."

"It must be made clear that Saudi Arabia can buy a considerable amount of time before such cuts in the ruling familys allowances need be made. However, once these actions take place  and we believe they will  a potentially destabilizing shift in the ideology of certain members of the ruling family may occur. Opposition groups capitalizing on such ideological shifts pose a future challenge to the Saudi regime. The challenge will be whether a crisis blows up suddenly or whether the family, through creeping reform and containment measures, can keep ahead of the explosion."

-- Deb M. (vmcclell@columbus.rr.com), May 04, 2000