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Volume 28, Number 1January/February 1977

In This Issue

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Partners in Growth

Saudi Arabia

Written by Robert Arndt
Photographed by Burnett H. Moody

In statistical terms, Saudi Arabia's massive $143-billion industrialization and development program is unquestionably one of the most ambitious any nation has ever undertaken. Some examples:

  • Approximately $93 billion is earmarked for kingdom-wide projects—a sum that is more than double the amount America spent on the entire Apollo Space Program, with its 18 space-shots and six manned landings on the moon.

  • A major airport planned for Jiddah, one of three to be constructed, will occupy an area about the size of Manhattan.

  • Proposed construction will require close to two million man-years of construction labor, 63 million cubic yards of asphalt, 80 million cubic yards of concrete aggregate and three billion concrete blocks.

  • The SCECO power-generation system will, by 1982, have a capacity of 5,800 megawatts—nearly three times the present consumption of Los Angeles—and its 2,949 rniles of circuits would stretch from Boston to San Francisco.

  • In 1976, shipping charges for just Aramco-managed projects totaled $96 million, up six times over the amount spent in 1974. Costs for urgent air shipments for the same projects—enough, roughly, to fill 147 Boeing-707 cargo jets—came to $14 million.

The program, to be sure, is ambitious in other terms too; its high-priority construction of houses, hospitals and schools is no less than an attempt to guarantee shelter, health and education to every one of the kingdom's seven million citizens. Essentially, though, the development plan is a blueprint for an enormous infrastructure—a term that aptly describes the plan's first goal: something to build on, or with, in the future.

To provide that infrastructure, Saudi Arabia has begun to import immense quantities of goods from the already industrialized countries—most notably the United States. In 1976 alone, for example, nearly $740 million in American-made goods—ranging from 320-ton boilers to 208,000 cans of potato chips—were shipped to Saudi Arabia for just Aramco projects. In so doing the Kingdom has also begun to expand an informal but durable economic partnership dating back to May 29, 1933.

On that date Saudi Arabia granted an American company exclusive oil rights in an area measuring 500,000 square miles—the first step toward the discovery of the vast oil reserves from which the kingdom, today, is supplying steadily mounting percentages of the world's energy. It was also the first link in a strong economic chain forged during the ensuing 43 years—a chain that is already worth billions of dollars to the United States and promises to be worth far more in the future.

One of the key links, of course, was Aramco, the company that would eventually develop the kingdom's oil and—in the 1970s—take charge of the great gas-gathering project that is at the heart of the development program.

The gas-gathering project is actually the largest project the petroleum industry has ever tackled. It will include, initially, construction of major gas processing centers—at Shedgum, Uthmaniyah, Ju'aymah and Berri—which will remove contaminants and produce ethane, methane, propane and butane, and will be connected through 2,500 miles of pipelines to storage tanks, fractionation plants, refineries and shipping terminals. When completed, Saudi Arabia will have the capacity to harness six billion cubic feet of gas a day—enough to fuel nearly half the gas-using homes in the United States. The gas-project will also provide raw material and fuel for the attendant hydro-carbon-based industrial complexes at Jubail and Yanbu'. And it will also, because the companies most closely involved are American, channel substantial benefits into the United States.

Some companies from the United States have already benefited—particularly those in the construction industry and its suppliers. For in the plan's early phases construction is big business. Out of the $143 billion allocated to the development plan some $79 billion is specifically earmarked for construction projects. That sum includes $9 billion for education—including the construction of 2,000 new schools; $8 billion for housing—including the construction of 175,000 houses, enough to shelter more than 10 percent of the population; $3 billion for the construction of 50 new hospitals and 575 dispensaries; $13 billion for municipal drainage systems, sewer systems and street paving; $3 billion for new highways; $3 billion for airports; $2.5 billion for new seaports and port expansion; $10.5 billion for electrical power generating and water desalination plants; and $20 billion for industrial plants.

Recent in-kingdom studies show that total expenditures for projects—plus the private sector's spending—come to a staggering $115 billion which will generate some $80 billion in payments to construction contractors and $68 billion in construction-related imports.

One important sector of the Saudi development plan is the enormous airports program under which Saudi Arabia will build three major airfields. All are to be designed and constructed to American specifications.

It is easy, in discussing the development of Saudi Arabia, to take superlatives in stride. But the new Jiddah airport—which the Ralph M. Parsons company of Pasedena, California is managing in a joint venture with Daniel International of Greenville, North Carolina—is something else. "In land occupied, it will be about the size of Manhattan Island," a senior Parsons executive says without batting an eye. "And in terms of air-traffic and plane-handling facilities, it will compare to the new Dallas-Ft. Worth airport. Except that it will cost an estimated $4.6 billion."

Like the Jiddah seaport, the Jiddah airport plan has grown in size with the Saudi Government's increasing emphasis on caring for the Hajj traffic—the annual inflow of up to two million Muslims a year making a pilgrimage to nearby Mecca. There will be, for example, a special terminal for Hajj traffic and an airport mosque.

At Riyadh, the capital city of Saudi Arabia, the new airport will also include a mosque—a mosque large enough to accommodate 8,000 worshippers. The third airport, to serve the oil-industry center of Dhahran on the Arabian Gulf, was originally supposed to simply expand the existing American-designed facility. Indications now, however, are that an entirely new field will be built.

Whether American companies will win further contracts for such projects is, of course, uncertain. But at the moment the Americans do have one advantage over eager competitors from other nations: the 43 years of association in which American firms were forging strong commercial links in the kingdom. In the 1930s, for example, and, thereafter, Aramco's oilmen naturally called for, and were shipped, American materials and equipment; as Americans, they knew the names, quality and specifications of American brands. And because the purchasing offices that supported them were in the U.S.A., this preference for "buying American" was passed on to the Saudi Arabs who worked with the Americans and who eventually set up supply businesses or industrial operations on their own.

"Our first customers were Americans and they, of course, wanted American goods—or else they specified according to American standards," says one Saudi heavy-equipment dealer who remembers those days. "Either way, it came to the same thing: most of our equipment was American. Because of that, our Saudi customers came to know and value those brands, and preferred them over others they weren't so familiar with."

That, to be sure, is changing. Saudi businessmen are as sophisticated as any in the world and, as a result, American products and technology now have to prove their worth over and over again against mounting competition. Even so, hundreds of U.S. firms today are involved in large numbers of projects currently under way in the kingdom.

Some of those companies are the experienced multinational firms which have always worked abroad. But some are small, imaginative or innovative firms which have never worked in foreign countries—but whose new contracts in Saudi Arabia sometimes exceed the value of their previous annual turnover.

Their projects are varied, ranging in scale from single villas to whole industrial cities and in cost from about $100,000 to almost $10 billion each. They include feasibility studies, engineering and architectural design, project management and construction. Aramco alone has contracts totalling more than $2.8 billion with American firms and individuals.

But the main focus is construction, particularly on the east and west coasts where the kingdom's industrialization programs are concentrated. On the west coast, for example, a dozen wholly owned or partly owned American companies figure prominently among the 200 companies that are handling 85 percent of the work there. Altogether, American firms handled about seven percent of all construction work done on both coasts in 1975 and 1976.

J. A. Jones Company of Charlotte, North Carolina, may be representative of the American construction firms working in the kingdom. The company entered the Saudi market in August 1974, won the first job it bid on and now has contracts for about $385 million worth of construction, including some $100 to $110 million with Aramco and a portion of the rest with the U.S. Army Corps of Engineers which oversees some $18 billion worth of contracts for the Saudi Arab Government. The company employs 230 Americans in the kingdom and its total work force, of 2,600 men, is still growing.

J. A. Jones has worked abroad since the 1930's but never on this scale. "We now have in the kingdom more assets than we've ever put into a country outside the United States," says vice-president George Turner. "We probably have equipment here with an acquisition cost of $12 million, and another $3.5 million worth of land and facilities. Ninety-nine percent of that equipment is American."

Furthermore, Turner says, J. A. Jones, in the past two years, has imported "in excess of $100 million worth of materials purchased in 37 of the 50 states."

"Other than some locally produced cement and reinforcing steel, everything it takes to build a building is imported—everything—and we import the bulk of it from the U.S. All the electrical equipment from heavy switchgear and transformers down to cable, receptacles and light switches. We even import furniture and linens from the U.S.," Turner says.

"On one of our projects, the architect is Swedish and the specifications are written around British and European standards, but we're finding it more attractive to buy U.S. materials, and they're approving them."

In Saudi Arabia, typically, purchasing decisions on materials and equipment that make up 50 percent of the total project value are in the contractor's hands and though most contractors buy heavily in their home countries, almost all buy to some extent from the United States.

From such figures it is clear that profits for these American companies working in the kingdom are impressive. But their presence means even more for the future than it does for the present. Between 1976 and 1980, payments to contractors in Saudi Arabia will probably average $16 billion a year, compared to a 1975 figure of about $3 billion. And assuming American companies can stay in the race they could expect a share.

"For one thing," Turner explains, "I think the government agencies in Saudi Arabia tend to look West, to the United States. The softening of the Saudi Government requirements for performance guarantees and bid guarantees certainlv worked more in favor of the American companies than anyone else, and, I think, was intended to do so."

Whether Saudi Arabia will continue to look to the United States is, of course, debatable. As in Kuwait, the United Arab Emirates and other Arab countries, competition in Saudi Arabia is fierce. Saudi Arabian officials, furthermore, like those in neighboring countries, have expressed concern about possible restrictions that would bar or reduce U.S.-Arab trade. But if American firms hold their present share of the Saudi contracts—and if no restraints on their ability to operate in the Arab world are imposed— many American businesses and industries can reasonably expect an economic bonanza.

In-kingdom studies show, for example, that every million dollars worth of construction contracts awarded to an American company will probably mean $400,000 in exports to U.S. suppliers of construction materials, equipment and services. These studies also show that the U.S. can reasonably expect to have exported—between 1976 and 1980—more than $18 billion worth of construction needs to the kingdom—in uninflated 1975 dollars. And that $18 billion in exports could amount to $8 billion in national income during those five years and amount to an average of 170,000 jobs over the period.

That, furthermore, is only from construction-related exports. With exports of consumer goods added, the total export figure could jump to about $22 billion and the jobs total proportionately higher.

Those estimates, it should be said, are conservative; they do not include the earnings which Americans send back to the U.S., or the profits which American companies send back.

The overall economic benefit derived by Americans may be much larger, particularly if American firms compete more effectively. In this vein the Saudi Minister of Commerce, Dr. Soliman Solaim has said that "By 1980, of the expenditures under the five-year-plan, as much as $40 billion could be spent in the United States on projects and on consumer goods." And an official of the United States Department of Commerce calculates that every $1 billion of additional exports may even mean as many as 75,000 additional American jobs.

"The further you look ahead, though, the more interesting the situation gets," says an American economist working in Saudi Arabia. "Industrial development is the motor of this economy now, but spending for that purpose is going to peak around 1985. Spending is going to shift into operating all those new projects, and into consumer products." Thus every project built now with American installed equipment is a long-term future source of American sales of spare parts, replacement parts and equipment. Every project constructed now on the basis of American designs is a potential source of a larger volume of future business.

The Houston architectural firm of CRS Design Associates can testify to the validity of this view. CRS designed the stunningly beautiful campus of the University of Petroleum and Minerals in Dhahran only a few years ago—a $50-million project. Since then, they have been called on for another $200 million worth of buildings, and a third phase of expansion will come to a similar amount. And the word has spread: since the campus was completed, the firm has won a further $6 billion worth of business in Saudi Arabia and Kuwait.

American direct investment in Saudi Arabia is also important both in its scale and its implications for the future. Minister of Industry and Electricity Dr. Ghazi al-Gosaibi divides the Saudi industrialization program into two parts.

"The sector which private enterprise is undertaking will include about 800 medium and small manufacturing units. Some 10 or 15 percent of them will be joint ventures with Americans," he says. "In the large government part, almost all the large petrochemical and aluminum projects are with joint-venture partners.' He named several world renowned American firms. "They are going to participate in the equity and most likely in the engineering. Part of the construction will also be American, I expect." Thus some American firms will profit from their direct investments, others from the engineering and design work the projects call for, still others from the huge volume of construction work that the future holds while a fourth, far larger group of American enterprises will supply the efforts of the first three, providing everything from drafting paper to steel plate to expert advice.

In some cases, the minister says, Saudi Arabia is better off dealing with American firms, notably in the area of petrochemical ventures. "They have the processes, the markets and the experience and have proved more willing to invest their own money, and have greater liquidity than European or Japanese firms."

"But," he adds, "in the case of the vast majority of goods and services we could get them elsewhere. Nothing in this world is indispensable: if you have to do without something, you manage to. As for our industrial projects, I cannot think of any one that would be crippled by non-participation of the Americans. It could be delayed, might be impaired, but not crippled. Certainly not."

All of the large joint-venture projects the minister was talking about, and many of the private industrial projects, will lean heavily on Saudi Arabia's copious supplies of gas which will be used as a raw material, as fuel, or—converted to electricity—as power once the gas-gathering system is completed.

The conversion of part of that gas to power, and indeed the SCECO electrification of the entire Eastern Province, with all its present and future industry and population, is another large government project being carried out by Aramco. The design of the 230-kilovolt backbone of the system is by Black and Veatch of Kansas City and the prime contractor, the L. E. Meyer Company, is also an American firm, with a contract valued at almost $300 million. The gas program, the electrification project and Aramco's own long list of current and contemplated projects comes to a total value of over $15 billion, with a large portion of the spending in the United States. In 1976 alone, the company spent $740 million in the U.S. for materials.

The development of Jubail into an industrial city of 250,000 is another large part of the development program which Americans are handling. So is the similar project across the country at Yanbu'. So is the 800-mile cross-country natural gas liquids pipeline to link Yanbu' with the Eastern Province oil fields—a pipeline longer than the Trans-Alaska pipeline—and a 48-inch, $1.5 billion crude oil pipeline running parallel to the gas pipeline. As well as the design and construction of many of the industrial projects across the kingdom that will be fed from the pipeline. According to the U.S. Department of State, 28,000 Americans currently live in Saudi Arabia and at least that many more could come later to lend their knowledge and their muscle to the kingdom's development plan in the next five years.

"I have lived and worked in Saudi Arabia for the past 30 years," says Aramco's Chairman of the Board, Frank Jungers, "and I've witnessed the country's tremendous growth in all fields—a growth almost unparalleled in modern times. That growth has been accompanied by increasingly close ties between the United States and the kingdom.

"Now Saudi Arabia and other Arab countries are on the threshold of even greater industrial development that will require greatly increased imports of goods and services from abroad. Barring artificial restraints on its own companies, the U.S. can expect to be a major supplier in this development program, while Saudi Arabia, with its huge oil reserves, will be a vital source of a large part of the oil that America's industrial economy needs. The points of contacts between Saudi Arabia and the U.S. are so many, and the economic ties so close that numerous Americans will benefit, however indirectly, from what is now happening in Saudi Arabia." In sum, a partnership. A loose, informal partnership in which mutual needs can stimulate mutual growth.

Partners in Growth…Some Service

As the development program statistics in Saudi Arabia are sometimes too big to grasp, some smaller figures may help to bring them into focus:

  • One company paid out more than $2.5 million via U.S. travel agents for airfares alone during 1976 to keep up with the Saudi Arabian projects under its supervision. One fifth of that was for travel within the U.S. An additional $130,000 was paid in U.S. postage.

  • Mini-cities to house construction workers—some 27,000 of them—are being planned by Holmes & Narver, Inc., in Nevada, within hearing distance of Las Vegas' famous Strip. Each will accommodate 4,000 to 10,000 workers, will be complete with recreational facilities including swimming pools, and will draw supplies from at least 30 states. Orders totaling $130.1 million had gone out from Las Vegas by the end of 1976. Examples: 36 128-man dormitories (California); 441 poolside lounge chairs (Tennessee); 9,000 complete sets of dinnerware (Pennsylvania); 1,760 bunk beds (New York); 4,416 bath towels (North Carolina); assorted spare parts for bread slicer (Maryland); three barber shops (California).
  • A food-storage ship loaded at Norfolk, Virginia, last July now stands off Dammam in Saudi Arabia with 6.2 million pounds of supplemental food for American construction crews. A few of its contents: 536,000 pounds of frozen chicken; 548,000 pounds of vegetables, and 70,000 pounds of TV dinners—and 236,500 pounds of cola-drink syrup.

  • Twenty-two Saudi Arabian programs are being helped by U.S.- Government personnel under the auspices of the U.S.-Saudi ArabianJoint Commission on Economic Cooperation, less than three years old. Examples: A five-year project to develop a census system (with almost $8 million funded for the first two years); a two-year study of highway-development needs ($4.7 million); a program to provide vocational schools and U.S.-trained Saudi instructors ($23.1 million for its firstphase); Roughly 80 U.S. families are maintained in Riyadh to help coordinate the technical-assistance programs. Saudi Arabia reimburses the U.S. for all costs—using funds it has placed in trust with the U.S. Treasury.

This article appeared on pages 12-25 of the January/February 1977 print edition of Saudi Aramco World.


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