US President George Bush recently invited Crown Prince Abdullah of Saudi Arabia to his Texas ranch for a series of high-level discussions. This invitation signifies Saudi Arabia’s heightened geo-political role in the Middle East and its realization that regional stability is in its own best interest.
Saudi Arabia’s role in the Middle East and in international politics has escalated in importance, following Crown Prince Abdullah’s initiation of a proposal to end the Israeli-Palestinian conflict. During next week’s Arab League summit, the regional body is expected to support the Saudi plan, which offers Israel peace with the Arab world in return for Israeli withdrawal to the pre-1967 borders.
This plan has also received support from Europe and the United States. During US Vice President Dick Cheney’s recent visit to Saudi Arabia, Abdullah was invited to the Texas ranch of President Bush for top-level talks. The purpose of the invitation is “to discuss the American campaign against terrorism” and to promote the Saudi peace initiative. Just prior to Cheney’s visit, however, Abdullah publicly declared his opposition to a US-led military campaign against Iraq, joining the litany of objections by Arab leaders. This was a bold declaration, especially in light of the post-September 11 strain in Saudi-American relations.
In spite of strong concerns that Saudi authorities have not done enough to stem fundraising for Islamic militants, the US remains Saudi Arabia’s top investment and trade partner. Bilateral trade amounts to roughly $22 billion annually, while US investments in the Kingdom total nine billion dollars per annum.
In the near future, lucrative investment opportunities are expected to emerge in the country’s energy sector. Saudi Arabia requires a substantial increase in electricity generating capacity to reach its target of 70,000 megawatts by 2020. Based on these needs, an investment of 200 billion Saudi riyals ($53.3 billion) is required, of which SR 30 billion (eight billion dollars) is for construction purposes.
The Kingdom’s need for foreign investment has taken on added importance as oil prices have plummeted. With oil exports representing two-thirds of the country’s revenues, fluctuating prices make it difficult to judge prudent government expenditures. For instance, the national deficit reached nearly SR 22.5 billion (six billion dollars) last year, even though a balanced budget had been projected.
The government anticipated a shortfall of SR 45 billion ($12 billion) for this year, although rising oil prices would result in a significantly lower deficit. Numerous years of budget deficits have led to a national debt approaching SR 638 billion ($170 billion), almost equal to the country’s Gross Domestic Product (GDP). As a result, debt servicing, which exceeds SR 15 billion (four billion dollars) per year, seriously erodes the budget.
Last year, Saudi Arabia re-wrote its foreign investment law in an effort to allure more interest to its non-oil sectors. In spite of these reforms, potential foreign investors remain concerned over the security of the legal environment in the Kingdom, which has hindered development of key infrastructure schemes such as private water and power projects. In the medium-term future, the relative level of regional stability will greatly influence perceptions of foreign investors. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
