Well-oiled machine: Hydrocarbons wealth supports diversification efforts

Home to an estimated 15.9% of the world’s proven oil reserves and the single largest economy in the Middle East and North Africa, Saudi Arabia is a key player in the region and around the world. Since it was officially founded in September 1932, the Kingdom has poured its considerable resources into a series of large-scale economic development, diversification and modernisation initiatives.

ECONOMY: In 2012 Saudi Arabia ranked as the world’s 19th-largest economy, based on a GDP of $711bn, according to the World Bank. The Ministry of Finance estimated GDP to have grown to $746bn in 2013. While oil income is expected to continue to account for the majority of government revenues in the foreseeable future, the non-oil sector has expanded significantly over recent decades. In 2013 it grew by 9.3%, after increasing by 7.2% in 2012 and by 8% in 2011 (see Economy chapter).

Saudi Arabia’s thriving economy is related to its reputation as a stable regional player, and a close ally to many of the world’s leading powers. Indeed, the government’s foreign policy is closely linked to its trade and other economic relationships. In recent years King Abdullah bin Abdulaziz Al Saud has worked to broaden the Kingdom’s standing on the international stage by shoring up relationships with longtime allies and developing new relationships with emerging powers around the world.

INVESTMENT: The government has worked at opening up the Kingdom to foreign investment in recent years. This has paid off, with the country ranked 26th in the world in the World Bank’s 2014 ease of doing business report. Indeed, Saudi Arabia’s conducive business environment and reputation for stability have made it the single largest destination for foreign direct investment in the region. According to figures from the UN Conference on Trade and Development (UNCTAD), Saudi Arabia received $12.2bn of foreign direct investment in 2013, out of a total of some $26bn of investment in the GCC bloc.

ENERGY RESOURCES: Saudi Arabia is one of the most important oil producers in the world, boasting nearly 15.9% of total crude reserves, according to BP’s 2014 “Statistical Review of World Energy”. Additionally, the Kingdom is home to more than 4.4% of global natural gas reserves. Saudi Arabia has an oil production capacity of 12.5m barrels per day (bpd) and in 2012 produced a record 11.5m bpd, giving it a significant buffer to raise production when domestic or international demand warrants. The Kingdom’s overall oil reserves are estimated at 265.9bn barrels.

The country’s energy industry is dominated by the government-owned Saudi Arabian Oil Company ( Saudi Aramco), the largest oil company in the world, according to a 2012 report from Forbes, a US-based magazine. Saudi Aramco controls nearly all of the Kingdom’s oil and gas reserves.

Saudi Arabia is one of the five founding members of OPEC. The government has worked to carefully manage its status as a swing oil producer, as the Kingdom’s wider economy is closely related to the energy industry. That said, the government has invested much of its considerable cash reserves in economic diversification programmes at home, with the goal of expanding away from oil revenues. In particular, the state has worked to build up downstream industries in recent years. “Cheap energy cost and government incentives have led Saudi Arabia to become a viable location for manufacturing,” Fayyaz Sarwar Mirza, a board member for Mohamed Yousuf Naghi & Brothers Group, told OBG.

MINERALS: In addition to its energy resources, Saudi Arabia also boasts considerable mineral reserves, which have so far been largely under-exploited. This is now likely to change, as the government aims to diversify economic activity in the Kingdom. Bauxite and phosphate reserves are just beginning to be developed, while state-owned Ma’aden Gold and Base Metals Company has been producing gold since 1988. Foreign firms are active in mining copper and zinc reserves, and studies are currently under way to determine the potential of rare earths minerals.

GEOGRAPHY: Saudi Arabia has an estimated area of 2.15m sq km and covers 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 nations 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 in the south. It is also connected to the small island nation of Bahrain – which is located off Saudi Arabia’s east coast in the Gulf – by the King Fahd Causeway, a 25-km road bridge. The Kingdom’s west coast sits 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. According to World Bank data, less than 1% of the country’s total land area is considered to be well suited for farming and other agricultural activities.

ADMINISTRATION: Riyadh, the capital and largest city, is located in the Nejd (“highland” in English), 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. The city is the largest in Makkah Province, which also includes the cities of the two holy mosques, Makkah and Medina.

At the administrative level, the Kingdom is organised into a total of 13 provinces, including the massive 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 sub-divided into between three and 20 governorates 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.

CLIMATE: Like much of the rest of the Gulf, Saudi Arabia is hot and extremely arid year-round, and 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, especially at night. During the seasonal transition period, from February to May, much of the interior is prone to violent sandstorms.

Average annual precipitation is around 8 cm, almost all of which falls during the months of December, January, February and March, when tropical winds cause monsoons in the south and south-west.

POPULATION: Based on estimates from the Central Department of Statistics and Information (CDSI), in 2013 the Kingdom had a total population of 29.99m, up 2.7% from the previous year. The population was largely nomadic until the early 1960s, when rapid economic development prompted a rapid rise in settling and fuelled a process of urbanisation. As of 2011 more than 95% of the population was settled.

According to CDSI data, the Kingdom’s population density stood at around 15 people per sq km at the end of 2013, though this number is substantially higher in cities and urban areas. CDSI figures list Saudi Arabia’s largest cities as Riyadh, the capital, which is home to around 5.33m people; Jeddah, with 3.46m inhabitants; Makkah, with 1.68m residents; Medina, with 1.18m; Al Ahsa, with 1.06m; Taif, with 987,914; and Dammam, with 903,597.

DEMOGRAPHICS: In 2013 Saudi nationals accounted for around 68% of the population, with non-nationals making up the remaining 32%, according to the CDSI. The large expatriate population comprises foreigners 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 substantial Western population, including residents from the UK, the US, the EU and Canada. The great majority of the expatriate population lives in the capital and the other major urban centres.

Like many other countries in the Gulf, Saudi Arabia is defined by rapid population growth and a large youth demographic. Between 1975 and 2009 the Kingdom’s population grew by 333%, from around 7m to 25m, according to a 2010 CDSI report. This represents one of the fastest growth rates in the world. According to a recent report released by Standard Chartered Bank, the population is forecast to reach 33m by 2020, around 28m of which are expected to be nationals. Additionally, the CIA World Fact-book estimates that 47% of the population is below the age of 24. The rapidly expanding populace and the large percentage of young people have created numerous social and economic challenges.

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 dialects and languages are also spoken in the Kingdom, including, Urdu, Egyptian Arabic, Malay and Tagalog, among others. English is widely spoken by Western expatriates and in places of business, and a large number of road signs are in both Arabic and English.

RELIGION: As the birthplace of the Prophet Muhammad and the home of Makkah and Medina, Saudi Arabia is officially an Islamic country. Sunni Islam, the predominant form of the religion in the Kingdom, plays a central role in social, political and economic life in Saudi Arabia, though the country also has a small number of Shia Muslims.

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. With this in mind, Islam informs and defines all areas of life in the Kingdom, 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, a reference to Makkah and Medina.

Most Saudis practise Wahhabism, 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, both of which are considered to be cornerstones of Islamic life, Saudi Arabia attracts nearly 3m 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 3rd millennium BCE, when the Dilmun civilisation occupied an area that now includes Bahrain, Qatar, Oman, parts of Iran and Saudi Arabia’s Eastern Province. In the 1st 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 around the time of Muhammad, in the middle of the 1st 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 at around 570 CE. By the time of the Prophet Muhammad’s death in 632 CE, the majority of the Gulf had been united under the Muslim religion. 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.

CENTRAL ROLE: The Arabian Peninsula, as the birthplace of Islam and the location of the religion’s two most important cities, Makkah and Medina, continued to play a central role in the Islamic world over the course of the next 1000 years, even as other cities came to be increasingly important centres.

With political power concentrated in other urban areas – primarily 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 2nd millennium CE.

DYNASTIC ORIGINS: The Al Saud family, which today rules Saudi Arabia, 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 powerful imam, Al Wahhab, with the objective of unifying the whole of the Arabian Peninsula under the banner of Islam.

The first Saudi state, which was headquartered 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 through 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, where the Al Saud family remained popular among the 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 oil revenues.

According to the IMF’s 2014 “World Economic Outlook”, Saudi Arabia was categorised as an “emerging market economy,” a group that includes countries such as Turkey, China, India and Russia.

GOVERNMENT: Saudi Arabia is a monarchy overseen by the Al Saud family, and specifically the direct descendants of King Abdulaziz, the Kingdom’s founder. King Abdullah, the current monarch, has been on the throne since 2005, when the previous ruler, King Fahd bin Abdulaziz Al Saud, passed away. Although he was officially crowned in 2005, King Abdullah has overseen the day-to-day operations of the country since 1995.

The Basic Law, which was passed by King Fahd in 1992, served to codify the government’s relationship with, and responsibilities towards, its citizens. The top government body in the Kingdom is the Saudi 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 is allowed to interpret existing laws and propose new legislation to be passed by the ruler.

It also advises the king on a variety of issues, including the Kingdom’s annual budget and long-term economic development plans. Finally, the Consultative Council has the power to call ministers in for questioning. Around 70% of the members of the current council hold PhDs, a substantial number of them from US- and UK-based universities.

While the Consultative 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.

Additionally, the Council of Ministers, with the king at the helm, has increased the size of the Consultative Council’s membership a number of times over the past 15 years, with the goal of making the body increasingly representative of the Kingdom’s population at large. In September 2011 King Abdullah announced that women would be able to vote in the 2015 municipal elections and also become members of the Consultative Council; they now account for one-fifth of the total membership.

SUCCESSION: In 2006, with the goal of clarifying the succession process, King Abdullah issued a succession law, which established a committee to choose future monarchs. Prior to 2006 succession was decided based on informal consensus within the family, which at times resulted in disputes. Under the new law, however, a committee made up of the male heirs of King Abdulaziz will meet soon after the death of a king to officially name the crown prince as the new monarch. The law is expected to help smooth future transition periods after a ruler passes away.