Oil, the source of wealth
Most of Saudi Arabia's economy is based on oil production. The first oil field was discovered in March 1938 in the north-east of the country. In 1945, the United States secured privileged access to Saudi oil in exchange for military protection. The revenues from oil exploitation allowed the young country to ensure its development. A railroad line was built between the northeast and Mecca, and roads were built to connect the different regions. In 1960, the oil producing countries organized themselves to raise the price of a barrel, which was then fixed at 5 US$. OPEC had 5 founding countries, including Saudi Arabia. Between 1977 and 1981, Saudi Arabia earned $300 million per day. This financial windfall made it possible to finance five-year development plans. The 1975-1980 plan, with a budget of 195 billion dollars, allowed for the construction of 28 dams, 24,000 km of roads, 4 ports, 175,000 houses, and the Jeddah airport, then the largest in the world. From the 2000s onwards, the share of crude oil exports in GDP has been declining. It fell from 34% in 2000 to 21% in 2013, which still represented $312.7 billion. In 2015, the decline in oil prices is not without consequences for the country's economy. Saudi Arabia is forced to issue debt, the first time since 2007, and to revise its operating expenses downwards. At present, the country produces 10.4 million barrels of crude oil per day for a maximum production of 12 million barrels. Just under 7 million are destined for export, making the country the world's largest exporter. The kingdom plans to increase its production capacity to 13 million barrels by 2027. In 2019, British oil company BP estimated Saudi Arabia's oil reserves at 266 billion barrels, which represents 15.8% of global reserves. The country also has a significant natural gas reserve with 8.2 trillioncubic meters, or 4.4% of the world's reserves.
The manufacturing industry
From the 1950s onwards, Saudi Arabia began to diversify its production to meet the growing demand of the domestic market. The diversification of oil-derived products and the availability of capital led the country to set up and increase the number of production units in a variety of sectors: plastics, office furniture, industrial foodstuffs, paints, air conditioning systems, fertilizers, prefabricated aluminum buildings, etc. But lacking technical expertise and skilled labor, the Saudis are forced to contract with foreign manufacturers who often provide maintenance and operation, in addition to the delivery of a turnkey plant. In the 1970s, the government built two industrial cities: Jubayl on the Persian Gulf coast and Yanbu on the Red Sea. These oases focus primarily on energy-intensive activities or the production of hydrocarbon products: refineries, heavy chemicals, fertilizers, plastics, steel and metal. Ultra-modern residential areas are built around these factories. In 1982, in order to limit the growing influence of foreign contractors and investors, the government introduced a "Saudiization" of companies to increase the share of local workers. By 2020, manufacturing accounted for 10% of Saudi GDP.
A country in search of foreign investment
In 2000, Saudi Arabia increased its attractiveness in an attempt to attract foreign capital by creating an agency dedicated to investment in the kingdom, the Saudi General Investment Authority (SGIA, which was later replaced by the Ministry of Investment). The institution is in charge of facilitating administrative procedures for investors, including foreign investors, and issues licenses authorizing foreign investors to take a stake in local companies. Minimum investment amounts are set by sector: US$6.7 million in the agricultural sector, US$1.3 million in industry and US$500,000 in other sectors. In addition, many sectors are closed to foreigners, such as the oil industry (exploration, drilling, production), health, transport, telecommunications (except for mobile and fixed telecommunication services or electronic data exchange), fishing, distribution, services to the armed forces, printing and publishing, real estate investments and services to pilgrims in the holy cities of Mecca and Medina. In 2020, foreign direct investment amounted to $5.4 billion.
Vision 2030
Brought to power in 2017 by his father King Salmane, the young Crown Prince Mohammed Ben Salmane is working to restore his country's image, at least on the facade, in order to attract investment. Anxious to anticipate the end of the oil bonanza, he is developing an ambitious program to diversify the economy. "Vision 2030" was presented on April 25, 2016 while MBS was Minister of Defense and Chairman of the Economic Affairs and Development Council. This socio-economic reform program is based on three pillars. The economic pillar calls for diversification of activities and empowerment of youth. It includes opening the country to tourism and major sustainable development projects. The social plan aims to strengthen services to the population, particularly in the health, culture and leisure sectors. It aims to strengthen the Saudi national identity, in particular by revalorizing the national heritage. The political aspect has not been forgotten, with a project for institutional reforms that will bring more transparency and efficiency in the management of public affairs. The program is divided into three five-year plans allowing for the implementation of 543 concrete initiatives.
