Oil discovery changes face of the kingdom

PUBLISHED : Friday, 23 September, 2011, 12:00am
UPDATED : Friday, 23 September, 2011, 12:00am


The spin-offs of being the world's biggest oil exporter pervades Saudi Arabian society like no other industry anywhere in the world.

The discovery of commercially viable oil in the Eastern Province in the 1930s changed Saudi Arabia forever, as a population comprising mostly nomadic people, shepherds and farmers stumbled upon wealth and became urbanised. It added a dimension to the employment landscape in which people could choose working in a government job, private company or oil.

Kamran Saddique, an investment consultant for Middle East corporations, says Saudi oil has enriched the lives of people in the country. 'Oil prices are still higher than expected in their public budget, so the extra windfall is translated into generous social programmes for Saudi Arabia's citizens,' Saddique says. 'New jobless benefits, education and housing subsidies, and also debt write-offs are possible from oil revenues. These programmes are further extended to the Shiite minority in the Eastern Province.'

In 1950, about 40 per cent of Saudis were nomadic and lived in tents, scattering across the land in search of grazing and water for their goats, sheep and camels. Another significant portion lived in rural villages, while only about 20 per cent resided in the major cities of Riyadh, Mecca, Medina and towns.

Once the financial benefits of oil started to trickle down to the people in the 1960s and 1970s, more people started moving to the cities and oil centres. These days, about 80 per cent of the Saudi Arabian population are city-dwellers.

As the urban areas expanded, Bedouins built their own villages within these cities and on the outskirts. They worked mostly as labourers, traders and taxi drivers, eventually moving up the social order and earning jobs in the private sector or starting their own businesses.

In terms of oil revenue benefits, these are manifested through tax-free salaries, free health care, education and other concessions.

The oil industry revolves around one of the biggest companies in the world, Aramco, previously a joint venture between Arab and American interests, but now wholly owned by the Saudi government. Aramco is estimated to be worth at least US$2 trillion and provides about 45 per cent of the country's budget revenues, 55 per cent of GDP and delivers the bulk of all Saudi exports. The company is among the world's largest employers with more than 5 million foreign workers.

Revenue from oil has enabled the Saudi government to diversify the economy with increased spending on training and education for other sectors, particularly services and telecommunications. In addition to its core role as an oil producer and exporter, Aramco has increased its downstream activities at home and abroad, particularly in refineries, including plants in China, South Korea and the United States.

In August, Aramco and Dow Chemical Company announced a joint venture to build and operate a fully integrated chemicals complex in the Jubail Industrial City. Once complete in 2016, the plant will produce more than 3 million metric tonnes of high-value chemical products and performance plastics. The project is worth US$20 billion and is expected to create hundreds of jobs.

In February, the Saudi government almost doubled the value of a development fund that supports Saudi citizens to buy homes, launch businesses and get married. The government established unemployment assistance for the first time.

The move involved US$10 billion in funding for housing loans and US$7.9 billion to increase the capital of the Saudi Credit Bank.

The government also vowed to give US$266 million to enable social insurance for more family members and US$320 million to improve social services. About US$930 million was dedicated to low-income families who needed funds to repair homes and pay utility bills, while US$126 million was allocated to support programmes for needy students.

Almost US$4 billion was set aside to support the General Housing Authority, while government employees received a 15 per cent salary increase.