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Saudi’s economic problems 30, August 2011

Posted by thegulfblog.com in Saudi Arabia.
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While in Carrefour this week standing at the checkout there was a burkad up woman in front of me with her 10-ish year old child. For seemingly no reason other than boredom (the queue was taking ages) the girl started to cry those pathetic, ‘I can’t really be bothered to put my all into it, I just want some attention’ type of crocodile tears. Any parents, those with experience of younger siblings or ten year old children will know what I’m on about.

In response, the mother thrust a Galaxy chocolate bar into the little girl’s hand: she continued to cry. A second Galaxy bar was offered: no dice. Then a king size Lion bar and a Galaxy chocolate drink carton were offered. A moment of indecision swept across the little girl’s face: should she relinquish here clearly superior bargaining position for just two Galazy bars, one king sized Lion bar and a Galaxy drink, or ought she push straight onwards and upwards…a kilogram or two of Cadbury’s, a gallon of Coke, a hectare of Choco-Choco Puffs or a Porsche Cayenne…clearly it was all within her reach. But, magnanimous in her humiliation victory, she accepted her bounty, the non existent tears stopped welling and a brooding scowl resumed its place.

This atrocious parenting (yes, I said it) is a mirror image of Saudi Arabia’s recent policies. In its desperate desire to appease the youth (in particular) in the Kingdom, the government has given out all the Galaxy and Lion bars in the land. Hunger sated for the moment and the restlesness in the Kingdom subsided.

But just as the parent in Carrefour will likely be reaping the whirlwind of such short-termist decisions for years to come, again, so too it is the same for Saudi. Indeed, the headline grabbing snippet from a recent article in Foreign Policy notes that Saudi will need an oil price of $320 per barrel of oil by 2030 if its ever more distended budget is to be balanced.

Aside from this acutely alarmist and selacious figure, the article is full of interesting snippets suggesting just how screwed the Kingdom is challenging the coming years will be.

  • Government spending now rising at 10% per year
  • Add to this the great $130bn giveaway of 2011
  • Funding the counterrevolutions around the Middle East – many billions
  • 1/3 of budget spent on defence – rise versus the supposed growing Iranian threat?
  • A crushing growth in domestic oil demand
  • “One of the world’s least energy-efficient economies”
  • OPEC competition from a revatilising Iraq, a post-revolutionary Libya and possibly Venezuela
  • The growing spectre of non-OPEC oil supply growing

The good news is that these problems coming home to roost are some way off. If Saudi Arabia takes bold and decisive action now, it may well be able to find a suitable and sustainable long-term footing. The bad news is that this will never ever happen. So the Kingdom will rumble on, spending ever more wildly beyond its means until it eventually tries to chronically hike up the price of oil. When this fails or forces meaningful diversification (of supply or from oil) then one needn’t be a savant with clairvoyant talents to work out just how bitterly the powers that be will root for their own survival.

Hat tip: Abstract JK

 

 

 

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Comments»

1. Eleanor - 31, August 2011

Hi David,
The original research was done by Jadwa Investment and published in early August. It is well worth a read.
Eleanor

2. ksa economist - 26, September 2014

the ksa economist blog wrote a great overview on the ksa economy take a look: http://www.ksa-economist.com/2014/09/overview-to-saudi-arabias-economy.html


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