Saudi Arabia rolls out new development initiatives

Home to an estimated 15.7% of the world’s proven oil reserves and the single largest economy in the MENA region, Saudi Arabia is a key player not only in the region but also globally. Since the establishment of Saudi Arabia in September 1932, the Kingdom has poured its considerable resources into a series of large-scale economic development, diversification and modernisation initiatives.

Geography

Saudi Arabia covers an estimated area of 2.15m sq km and some 80% of the Arabian Peninsula, according to official government data. It is the largest country in the Middle East and one of the 15 biggest in the world. The Kingdom shares borders with Jordan, Iraq and Kuwait in the north, Qatar and the UAE in the east, and Oman and Yemen to the south. It is also connected to the island nation of Bahrain – which is located off Saudi Arabia’s eastern coast in the Gulf – by the 25-km King Fahd Causeway. The Kingdom’s west coast lies on the Red Sea. Saudi Arabia is covered by a series of interconnected deserts and associated scrubland, the largest being the 650,000-sq-km Empty Quarter in the south, which is the biggest contiguous sand desert in the world. The country contains numerous wadis, or dry riverbeds, but no natural lakes, rivers or streams.

Climate

Like much of the rest of the Gulf, Saudi Arabia is hot and extremely arid nearly all year-round, and it does not have well-defined seasons. In what are typically regarded as the summer months (May-September), temperatures can hit highs of up to 45-55°C, especially in the interior, which is largely covered in sandy desert. Temperatures are cooler during the winter months (November-February), averaging 19-25°C, and in central and northern Saudi Arabia winter temperatures occasionally drop below freezing. During the seasonal transition period, from February to May, much of the interior is prone to sandstorms. Average annual precipitation is around 8 cm, almost all of which falls during the months of December, January, February and March.

Population

Based on estimates from the General Authority for Statistics (GaStat), as of 2016, the Kingdom had a total population of 31m. The population was largely nomadic until the early 1960s, when rapid economic development prompted people to settle and fuelled a process of urbanisation.

As of 2011 more than 95% of the population lived in permanent dwellings. According to GaStat data, the Kingdom’s population density stood at around 15.9 people per sq km at the end of 2015, though this number is substantially higher in cities and urban areas. GaStat figures as of 2014  list Saudi Arabia’s largest cities as Riyadh, the capital, which is home to around 6m people; Jeddah, with 3.98m inhabitants; Makkah, with 1.92m; Medina, with 1.34m; Al Ahsa, with 1.19m; Taif, with 1.11m; and Dammam, with 1.03m.

Demographics

In 2015 Saudi nationals accounted for 67% of the population, with non-nationals making up the remaining 33%, according to figures from GaStat. The expatriate population comprises people from around the world, including a large number from the Philippines, India, Pakistan, Afghanistan and Indonesia, among other Asian countries. Additionally, the Kingdom is home to a sizeable Western population, including residents from the US, the UK, the EU, Canada and Australia, among other countries. The vast majority of the expatriate population lives in the capital and in and around the other major urban centres.

As elsewhere in the Gulf, Saudi Arabia’s population is young and growing rapidly. Between 1975 and 2009 the Kingdom’s population grew by 333%, from around 7m to 25m, according to the latest official census in 2010. This represents one of the fastest growth rates in the world. According to a report released by Standard Chartered Bank, the population is forecast to reach 33m by 2020, around 28m of whom are expected to be nationals. Additionally, just under half of the population is estimated to be below the age of 24. This has created social and economic challenges that the authorities have sought to tackle through major investment initiatives.

Language

Saudi Arabia’s official language is Arabic, and there are two predominant dialects: Nejdi Arabic and Hejazi Arabic. The large expatriate population means that many other languages are also spoken in the Kingdom, including Urdu, Malay and Tagalog, as well as a number of others. English is widely spoken by Western expatriates and in places of business, and the majority of road signs in Saudi Arabia are now written in both Arabic and English.

Religion

The birthplace of the Prophet Muhammad and home to the holy cities of Makkah and Medina, Saudi Arabia is officially an Islamic country. Islam plays a central role in social, political and economic life in the Kingdom. The majority of Saudis are Sunni, while a minority, mostly living in the Eastern Province, are Shia. Under the Basic Law of Saudi Arabia, which was issued by King Fahd bin Abdulaziz Al Saud in 1992, the Quran serves as the basis for all of the Kingdom’s laws, rules and regulations. Therefore, Islam informs and defines all areas of life, including the legal system, public behaviour, marriage relations, culture and the calendar. All Saudis are required to abide by sharia law, which mandates daily public prayer, the separation of unrelated men and women, and the paying of zakat, or charity.

The king holds the title of Custodian of the Two Holy Mosques, referencing those in Makkah and Medina. Most Saudis practise a strict form of Sunni Islam that was espoused by Muhammad ibn Abd Al Wahhab, a powerful imam who was involved in the creation of the first Saudi state in the mid18th century. As part of the annual Hajj and Umrah pilgrimages, which are considered to be cornerstones of Islamic life, Saudi Arabia attracts around 8.5m Muslim pilgrims from around the world.

History

Despite the fact that the great majority of the Arabian Peninsula is covered in mostly uninhabitable desert, nomadic tribes have called the area home for thousands of years. The earliest recorded archaeological evidence discovered on the peninsula dates back to the third millennium BCE, when the Dilmun civilisation occupied an area that includes the modern-day states of Bahrain, Qatar and Oman, as well as parts of Iran and Saudi Arabia’s Eastern Province.

In the first millennium BCE the ancient Thamud tribe moved from southern Arabia to what is now the Medina region, where they occupied a series of towns until the middle of the first millennium CE. The history of the Arabian Peninsula from around 600 CE was largely characterised by the rise of Islam, which began with the birth of the Prophet Muhammad in Makkah in around 570 CE. By the time of the Prophet Muhammad’s death in 632 CE, the majority of the Gulf had been united under Islam. By 800 CE, as a result of rapid expansion by the early Muslim caliphs and other leaders, Islam had become the predominant religion over a wide geographical area, running from what is now Spain and Portugal in the west to Central Asia in the east.

Early States

With political power concentrated in other urban areas – mainly in Baghdad, Damascus and Cairo – during the medieval period, a handful of nomadic and semi-nomadic groups came to control the Arabian Peninsula.

Among the most powerful of these groups were the Hashemites, or Banu Hashim, a clan within the larger Quraish tribe that is descended directly from the Prophet Muhammad and came to control much of the eastern Hejaz region of Arabia during the second millennium CE. The Al Saud family, which today rules Saudi Arabia, has held intermittent control of the Nejd and other parts of central and eastern Arabia since the mid-1700s.

In 1744 Muhammad ibn Saud, then-head of the Al Saud family, established an alliance with the imam Al Wahhab, with the objective of unifying the Arabian Peninsula under the banner of Islam. The first Saudi state, which was based in Diriyah, controlled a large area until 1818, when the Ottomans recaptured it during the Ottoman-Saudi war. During the second Saudi state, which was formed in the wake of the war and was based out of Riyadh, the Al Saud ruled over a substantial area in central Arabia from the early 1820s up until 1891, when it succumbed to tribal infighting. In the wake of this defeat, the head of the family at the time, Abdul Rahman bin Faisal Al Saud, fled to Kuwait with his family, including his son Abdulaziz Al Saud, the founder of the third Saudi state, which is synonymous with the modern state of Saudi Arabia.

New Beginning

In 1902, when he was around 26 years old, Abdulaziz Al Saud conquered Riyadh with a small group of men. Over the next few years the young ruler worked to consolidate his control over most of the Nejd region, where the Al Saud family remained popular among the local population.

By 1912 Abdulaziz had gained control of most of central and eastern Arabia. Over the following two decades he continued to expand his reach across the peninsula, negotiating with local rulers and colonial powers when possible, and using force when necessary. In September 1932 Abdulaziz announced the formation of the Kingdom of Saudi Arabia, naming himself king.

Six years later Standard Oil, an American company, discovered oil in commercial quantities at Dammam, in the vast Eastern Province. The discovery, which eventually revealed the second-largest reserves of crude in the world, changed the young country forever. By the mid-1950s oil exports accounted for the majority of the country’s income, and Saudi Arabia was in the midst of a series of large-scale, government-led economic development projects funded by this revenue stream.

Economy

According to the IMF’s April 2016 “World Economic Outlook”, Saudi Arabia is categorised as an emerging market economy, a group that includes countries such as Turkey, China, India and Russia, while the World Bank classifies the Kingdom as a high-income, non-OECD country. According to the latest data from the World Bank, Saudi Arabia ranked as the world’s 20th-largest economy in 2015, based on a GDP of $646bn, down from $746.2bn in 2014 due to a decline in oil revenues. The Kingdom also regularly participates in G20 meetings.

While oil income has traditionally accounted for the vast majority of government revenues, in April 2016 the government launched Vision 2030, a bold economic diversification plan, whose goal is transitioning Saudi Arabia away from its dependence on oil revenues. The plan calls for a multitude of developments, including greater localisation of key sectors such as defence and value-added industrial production, an expansion of religious pilgrimage, and privatisation of government services in areas such as utilities and health.

Announced in June 2016, the National Transformation Programme provides targets and plans as part of the initial roadmap for Vision 2030. While questions have been raised regarding the manner in which the plans will be implemented, both the international and local business communities expect there will be ample opportunity for increased private sector investment.

Investment

The government has worked hard in terms of opening up the Kingdom to foreign investment in recent years. Saudi Arabia is ranked 82nd out of 189 nations in the World Bank’s 2016 “Doing Business” report. Its conducive business environment and reputation for stability have made it one of the top destinations for foreign direct investment in the region.

According to recent data from the UN Conference on Trade and Development “World Investment Report 2016”, Saudi Arabia received a total of $8.1bn of foreign direct investment in 2015. However, the government has stated it aims to grow this to $18.7bn by 2020.

Energy Resources

Saudi Arabia is one of the most important oil producers in the world, boasting nearly 15.7% of total crude reserves, according to figures from BP’s “Statistical Review of World Energy 2016”. Additionally, the Kingdom is also home to 4.5% of global natural gas reserves. Saudi Arabia has an oil production capacity of 12.5m barrels per day (bpd), and in 2015 the Kingdom produced 10.2m bpd, according to Saudi Aramco.

The Kingdom’s overall oil reserves are estimated at 266.6bn barrels, according to BP, although Saudi Aramco’s estimate falls slightly lower, at 261.1bn. The Kingdom’s energy industry is dominated by the government-owned Saudi Aramco, which controls nearly all of the Kingdom’s oil and gas reserves and is estimated by many to be the largest oil company in the world. Vision 2030 has called for a partial public listing of Saudi Aramco, although the exact size, timing and structure of this initial public offering are still under discussion.

Saudi Arabia is one of the five founding members of OPEC. Traditionally, the Kingdom was considered the global swing oil producer, but since the drop in oil prices starting in June 2014 the Kingdom has maintained high production levels in order to protect its share of the global market.

Administration

Riyadh, the capital and largest city in the country, is located in the Nejd, a rocky plateau that covers a large swathe of land in central Saudi Arabia. Jeddah, the second-largest city and the major urban centre in the west, is located on the Red Sea coast and is bordered to the east by the Al Sarawat Mountains. Jeddah is the largest city in the province of Makkah, which also includes the important and holy city of Makkah. At the administrative level, the Kingdom is organised into 13 provinces, including the Eastern Province (which is home to the bulk of Saudi Arabia’s oil reserves), Riyadh Province, Makkah Province and Medina Province, among others. Each province is further subdivided into between three and 20 governorates, making for a total of 118 throughout the country. This number includes 13 provincial municipalities, home to provincial capitals. Each governorate is further subdivided into sub-governorates.

Government

Saudi Arabia is a monarchy and the royal family is the Al Saud, specifically the direct descendants of King Abdulaziz, the Kingdom’s founder. The current monarch, King Salman bin Abdulaziz Al Saud, assumed the throne following the passing of his half-brother, King Abdullah bin Abdulaziz Al Saud, in January 2015. King Salman subsequently named Prince Mohammed bin Naif Al Saud as crown prince and his son, Prince Mohammed bin Salman Al Saud, as deputy crown prince. By appointing Prince Mohammed bin Naif, son of the late Crown Prince Naif bin Abdulaziz Al Saud, as crown prince, King Salman has laid out a clear succession plan that will help transition the leadership of the Kingdom into the hands of King Abdulaziz’s grandsons. King Salman also abolished a number of government councils, replacing them with two subcabinet councils – the Council for Political and Security Affairs, chaired by Crown Prince Mohammed bin Naif, and the Council for Economic and Development Affairs, chaired by Deputy Crown Prince Mohammed bin Salman.

The Basic Law, which was passed by King Fahd in 1992, has served to codify the government’s relationship with, and responsibilities towards, its citizens. The top governmental body in the Kingdom is the Council of Ministers, or the Cabinet, which is led by the ruler and consists of 30 royally appointed ministers serving four-year terms.

The Majlis Ash-Shura, or Consultative Council, has an advisory role in the government. The council is made up of 150 members, all of whom are appointed by the king. The organisation has limited powers, however, and cannot pass or enforce laws. The body broadly serves as a forum for policy debates, as it can debate and interpret existing laws and propose new legislation to be passed by the ruler. In addition, the council advises the king on a variety of issues, including the annual budget and long-term economic development plans. The Consultative Council also has the power to call ministers in for questioning.

Around 70% of the members of the current council hold PhDs, many of them from US and UK universities, with women making up one-fifth of its total membership. While the council continues to be primarily an advisory group, it has gained a substantial number of new powers over the past decade. It was recently empowered to participate in the Kingdom’s complex budgeting process, which was considered to be a significant increase in responsibility.

Succession

In 2006 a law was announced formalising the succession process in the Kingdom. Following the death of the reigning monarch, a committee made up of the male heirs of King Abdulaziz is convened to officially name the crown prince as the new king. This law helped facilitate a smooth transition in 2015, with the accession of then-Crown Prince Salman to the throne. Power has traditionally been held by King Abdulaziz’s sons, passing from brother to brother. However, with the appointment of Prince Mohammed bin Naif as crown prince, the next generation is now set to inherit leadership of the Kingdom. This announcement has settled long-running questions of how and when this transition would occur, and which of King Abdulaziz’s grandsons would lead the process.