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Volume 28, Number 1January/February 1977

In This Issue

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Partners in Growth

An Introduction

The Arabs, with their taste for metaphor, have an expression they find very useful: "The sands are blowing." It is a way of saying that time is marching on; that change comes with time; that change, in short, is inevitable.

Today, in the Arab world, that saying is particularly apt. The sands are blowing. Change is inevitable. Change of staggering magnitude and incalculable impact as Arab countries from North Africa to the Arabian Gulf launch monumental efforts to transform their often rudimentary economies into full-blown industrial states.

Behind those efforts is a cooly pragmatic assessment of the facts of life today. In early 1977, for example, Saudi Arabia owned 110 billion barrels of proved oil reserves—easily 22 percent of the free world's oil reserves—and thus, it would seem, has no need for other sources of income or any other economic base. But like a billionaire worrying about his health, Saudi Arabia is concerned about over-reliance on oil. Saudi Arabia knows that world demands could, and may, deplete even its vast reserves in a relatively short time. Its leaders know too that some alternatives to oil already exist and that others may be perfected in the not-too-distant future. Saudi Arabia, therefore, and other Arab countries have begun to prepare for the future. In recent years they have been increasingly investing their earnings in industrial projects and infrastructures in order to diversify their economies and reduce their dependence on oil.

The investments are being made on an almost unimaginable scale. Even in such small states as Abu Dhabi, Dubai, Qatar and Kuwait they are measured in billions and in Saudi Arabia are larger yet. In Saudi Arabia, for example, the government has earmarked $143 billion to, in effect, develop the kingdom. That's $143 billions—an amount sufficient to quadruple American per capita expenditures on hospital care in 1975.

On the Arabian Peninsula, development on that scale means imports. Virtually everything needed must now be imported or, if it is to be supplied locally, the facilities for its production must be imported. Even labor must be imported—because of the size of the undertakings and the relative smallness of the labor force—particularly the trained technological labor necessary for the development programs.

For the world's industrialized nations, therefore, the sands blowing in the Middle East offer unprecedented opportunities. The Arab world's almost unlimited appetite for staggering quantities of industrial commodities and services—from computers to cracking columns, design data to deep-sea diving—are injecting billions of dollars into the world's anemic economic bloodstream, swelling cash flows into corporate and national treasuries and, as one effect, providing salaries and wages, dividends and taxes.

The cash, of course, flows two ways. Partly as a result of the rise in oil prices in the early 1970's, payments by the industrialized world to the Arab oil countries and other members of the Organization of Petroleum Exporting Countries (OPEC) increased tremendously. The United States, for example, imported $5.85 billion worth of oil from Saudi Arabia in 1976—more than three times the amount for 1974—while sales of American goods to Saudi Arabia in the same period totaled $2.77 billion, a merchandise trade surplus for Saudi Arabia of $3.08 billion.

Such surpluses, now being enjoyed by Saudi Arabia and other oil exporters, have generated sufficient funds to allow them to embark on industrialization and development programs. These programs, in turn, are providing opportunities and markets for the already industrialized nations and the result has been intense competition for industrialization contracts.

At the beginning of the competition many Americans assumed that the United States had the inside track in Saudi Arabia. Remembering that Aramco—owned by four major American oil companies—had discovered and developed the enormous Saudi Arabian oil reserves, and that thousands of Saudi students had been educated in schools, colleges and universities throughout the United States, they assumed that Saudi Arabia would naturally turn to the United States for the help needed to transform the kingdom. They knew too that the U.S. Army Corps of Engineers had been commissioned by the Saudi government to supervise construction of billions of dollars worth of facilities. Last, they remembered that both governments had formed the U.S. Saudi Arabian Joint Commission on Economic Cooperation to allow Saudi Arabia to draw on American expertise on economic development matters.

All of which is perfectly true. Saudi ties with the United States are old and still strong. Yet it does not, in sum, mean that the United States has the inside track.

Because of their years of experience in Saudi Arabia some American companies do have a slight competitive edge. And because of their American training and education many Saudi government officials and prominent Saudi businessmen do feel more comfortable working with American companies and using American-built machinery and parts. But that's as far as it goes. The Saudi government—and those charged with carrying our their plans—cannot, today, be concerned with inside tracks. They want, quite simply, results. Any company which offers advantages in price, quality or timing, therefore, can win a contract—and many European and Asian companies already have. Easily a quarter of the Saudi projects being administered by the U.S. Army Corps of Engineers, for example, have been won by non-American contractors.

In many ways, in fact, it was the non-American companies that had an edge. Governments in Europe, Britain and Asia—notably Japan and South Korea—often put up financial guarantees and performance bonds required by the Saudi government, while American companies had to look after their own up-front financial needs. Until recently, bonding stipulations were sometimes enough to knock Americans right out of the competition. Americans, moreover, are often handicapped by restrictions that might change United States-Arab trade relations and seriously hamper American efforts to win a share in the ambitious industrialization programs.

American companies, however, have not thrown in the towel yet. If they're losing some contracts, they're winning others and, all the while, are keeping an eye on the even more staggering opportunities which lie ahead—opportunities that, in-kingdom studies say, could be worth $80 billion to contractors alone.

To trace the full impact of such amounts on an economy as big and as complex as the American economy is, of course, difficult. For although such payments may seem to sustain just the fortunate firms that win contracts, the benefits in fact seep into the economy of the country: from contractor to sub-contractors, sub-contractors to suppliers, suppliers to factories, mines and farms. At each step those payments create or sustain jobs that in turn generate wages to pay rents and mortgages, buy groceries at the supermarket, reduce the loan on last year's new Chevy, correct a daughter's overbite, or put a son through college, thus providing income to landlords, bank tellers, grocers, car dealers, dentists and bursars. Like stones thrown in a pond, such contracts send ripples in all directions and are almost untraceable.

On the pages that follow, nevertheless, our contributors will try to suggest the extent of the impact. For if the sands are blowing in the Middle East—and they are—the impact is being felt throughout the world, not least in the United States.

—The Editors

This article appeared on pages 2-3 of the January/February 1977 print edition of Saudi Aramco World.


Check the Public Affairs Digital Image Archive for January/February 1977 images.