Monday, October 1, 2007

Karen Sasahara : Lower oil revenues put a damper on economy - Saudi Arabia

Lower oil revenues put a damper on economy - Saudi Arabia

by Karen Sasahara | March 30, 1987

Last year was a tumultuous one for the oil industry and Saudi Arabia in particular, as OPEC producers broke away from set production quotas and Saudi Arabia abandoned its traditional role of swing producer to regina lost market share. The result was a drastic drop in the price of oil down to $8 a barrel in July. By the end of October, Sheikh Zaki Yamani was no longer Saudi oil minister and netback deals were out. By December, Planning Minister Hisham Nazer had succeeded Yamani and set to work on stabilizing the price of oil.

The Saudi government continues to make policy and spending adjustments to deal with the ongoing problem of decreased oil revenues. The 1987 budget for Saudi Arabia totaled $45 billion, a 6 percent decrease from last year, with projected revenues of $17 billion. U.S. exports to Saudi Arabia continue to decline; the 1986 total was $3.45 billion, down from $4.5 billion in 1985. On the other hand, the United States imported $4.1 billion worth of goods from the Kingdom, mostly competitively priced petroleum.

While the economic downturn has forced the Saudi Arabian government to tighten the fiscal belt, some Saudi officials believe that the loss of reserves will force the Kingdom to eliminate wasteful spending and prompt policymakers to lay out strategies and priorities for the Kingdom's further growth and development.

The private sector has turned to the task of trimming costs and improving the efficiency of management. The area most affected by the cutbacks is labor, particularly expatriate labor. In an effort to protect the Saudi population from the ill effects of the austerity measures, the Saudi public and private sector have begun a manpower reduction program to decrease the number of expatriate workers in the Kingdom. Those workers remaining are finding that their contracts contain less lucrative terms and benefits. Others are being replaced outright by less expensive Asian labor.

In spite of the economic downturn, there are still a number of opportunities for U.S. exporters in the Kingdom. Saudi Arabia remains the most lucrative market for the United States in the Middle East, the 13th largest U.S. market worldwide.

Gone are the mammoth construction projects of the 1970s. The Saudi infrastructure has been completed for the most part. The primary focus of the Saudi Arabian government is the establishment of the services sector. Operations and maintenance has been identified as an excellent area of opportunity. Other areas include agricultural equipment; computers, software, and other high-technology items; health care equipment and medical supplies; and food processing and packaging equipment. The Saudi government's program to replace expatriate workers with qualified Saudi citizens has spurred an increase in the demand for education and manpower training expertise.

American businessmen have reported a slowdown in payments on some projects in the Kingdom. Certain firms claim that the work has already been done, while the Saudi government says that it is a matter of noncompliance on contract stipulations. Recently, there have been government-led efforts to speed up the payments process, though there is still a considerable backlog of claims.

Upcoming Department of Commerce-sponsored missions to Saudi Arabia include Saudi Agriculture (April 1987), medical and hospital equipment (October 1987), communications (January 1988), and transportation (February 1988).

For more information, contact the Saudi Arabia desk officer at (202) 377-5767.

COPYRIGHT 1987 U.S. Government Printing Office
COPYRIGHT 2004 Gale Group