Wednesday, September 7, 2005

JIDDA, Saudi Arabia — Record oil prices have sent Saudi revenues soaring and contributed to a sixfold increase in stock prices, but ordinary citizens are just beginning to feel the benefits, financial analysts say.

Economists hope that in time the surge will produce more and better jobs for young Saudis, reducing their interest in joining al Qaeda-linked terrorist groups that have been battling the government.

A midyear financial report by the Samba Financial Group, one of the largest and most profitable private banks in the kingdom, said oil revenue this year is expected to reach $157 billion, a 48 percent increase over 2004’s oil revenue of $106 billion.

The Saudi stock market, meanwhile, has seen its capitalization grow from $82.1 billion at the end of June 2002 to $517.6 billion at the end of June 2005, or an increase of $435 billion in just three years.

“The increased wealth is beginning to trickle down to ordinary Saudis,” said Ihsan Buhuleiga, a leading economist and member of the Shura Council, in an interview with The Washington Times.

While some economic analysts have expressed worries over an overheating stock market, Mr. Buhuleiga said he hoped to see the surge of new listings continue.

“The number of companies currently listed are only 80. In Oman, they have double that number. More Saudi companies should be listed, as this will encourage more job creation,” he said.

Job creation is something the Saudi government desperately wants to achieve in order to stop young, unemployed Saudi men from being lured into joining terrorist groups.

While some foreign critics of the Saudi government worry that some of the increased oil revenues will find their way into the pockets of the terrorists, Anthony Cordesman, a specialist in Saudi affairs at the Center for Strategic and International Studies, thinks the new revenues will allow the Saudi government to both battle the insurgents and develop the country.

The spurt in oil revenue may also help the ruling al-Saud royal family to secure its popularity.

On Aug. 22, the government announced a 15 percent increase in the wages of all government employees, a move ordered by newly enthroned Saudi King Abdullah to garner popular support and to inject money into the local economy.

Even before the salary raise, Saudis had seen their per-capita gross domestic product grow from $7,437 in 1998 to $11,052 in 2004. Samba estimates per capita GDP in 2005 to reach $13,603.

However, Mr. Buhuleiga warned that the government must avoid spending profligately and establish a buffer fund to tide the country over during leaner times.

“We don’t know where oil prices will be in five years from now. We need to create a public budget-stabilization fund, in which all oil revenue is deposited, in order to finance budget deficits,” he said.

“I don’t think we want to be in the situation again of having to borrow money from our pension funds to cover our deficits. The government regularly overspends its budget by 15 [percent] to 20 percent. They should stop doing so. We need fiscal responsibility.”

Saudi Arabia’s current total population is 26 million of which more than 5 million are foreign workers. Mr. Buhuleiga cites this as evidence of the kingdom’s overwhelming dependence on foreign labor to keep the economy growing.

“It is not going to be the normal state of things in the next three years. We should be talking about developing the citizen. We need to learn from the extremely hard lesson we had in 1998 when oil went below $10 a barrel. We must continue with economic reforms to maintain our competitive advantage,” the economist said.

Government spending on infrastructure and education was cut back in the late 1990s owing to the low oil prices on international markets.

The government began to catch up by allocating $21.3 billion toward building new roads, water-desalination plants and schools through 2006.

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