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Saudi Arabia
ECONOMIC POLICY AND THE STRUCTURE OF THE ECONOMY
Fundamental Factors that Transformed the Economy
For thousands of years, the economy of the Arabian Peninsula
was determined by autonomous clusters of people living near wells
and oases. Most of the population was engaged in agriculture,
including nomads who raised livestock by moving their animals
to the limited forage produced by infrequent rains. However, the
inability of pastoral nomads to provide for their communities
solely on the basis of pastoral activities forced them to create
multiple resource systems. Such systems took the form of protection
services for merchant caravans and pilgrims, control over small
oases, and, to a lesser extent, direct cultivation. In the settled
areas, local craftsmen produced a few items needed by those living
near or visiting the scattered sources of water. Production was
limited to serve very small markets and existed essentially on
a subsistence level. Trade was limited primarily to camel caravans
and the annual influx of pilgrims visiting the holy places in
the Hijaz. In the principal cities, such as Jiddah and Mecca,
several large merchant families settled permanently and prospered,
especially after the late nineteenth-century development of the
Hejaz Railway. The growth in international trade associated with
European colonial expansion also benefited these merchants and
attracted numerous families from as far away as the Eastern Province
of Arabia, Iran, the Levant, and Turkey.
The most profound agent of change for the economy of Saudi Arabia
was the discovery of huge reserves of oil by a United States company
in 1938. Initially, the newly established oil industry had only
an indirect impact on this primitive economy. The establishment
of the Arabian American Oil Company (Aramco, predecessor of Saudi
Aramco) and the oil towns around the oil fields triggered major
changes in the economy of the kingdom, especially in the Eastern
Province. Development of the oil fields required ancillary construction
of modern ports, roads, housing, power plants, and water systems.
Saudi workers had to be trained in new skills. In addition, the
concentration of oil field employees and the range of services
the oil company and employees needed opened new economic opportunities
on a scale previously unseen by local merchants, contractors,
and others. Aramco provided technical, financial, and logistical
support to local entrepreneurs to shed the many support activities
it had initially assumed. The discovery of oil ended the kingdom's
isolation and introduced new ways to organize the production and
distribution of goods and services.
Although the oil industry's creation produced a profound impression
on the kingdom's economy, economic structural change was well
under way before oil was discovered. Abd al Aziz Al Saud's quest
to consolidate his family's control over the territories by establishing
a modern state had begun to transform the traditional economy.
One of the pivotal policies pursued by the king was sedentarization
of the beduin, largely for political and security reasons. As
part of the creation of the Ikhwan (see Glossary) movement, Abd
al Aziz encouraged the establishment of a series of agricultural
communities (hujra--see Glossary), designed to relieve
the beduin groups comprising this unified military force of providing
for their livelihoods (see Nation Building: The Rule of Abd al
Aziz, 1926-53 , ch. 1). The hujra never succeeded in
becoming self-sufficient, however, requiring the government to
supplement basic necessities. Once the Ikhwan movement was disbanded,
some tribesmen returned to their original occupations, but a significant
number joined the White Army, which later became the Saudi Arabian
National Guard, or moved to the cities to seek employment (see
The Ikhwan Movement , ch. 5). Moreover, in 1925 the government
abolished the exclusive rights of tribes to their dira
(tribal grazing land) and further accelerated the transformation.
The final blow to the traditional tribal economy was dealt many
years later. A law adopted in 1968 distributed swaths of land
in various parts of the country to individuals, thereby breaking
the centuries-old communal control over land. Inevitably, this
distribution of lands led to land ownership patterns that mainly
benefited tribal leaders and, finally, to the growth in land sales
to nontribal members.
Data as of December 1992
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