Saudi Arabia's Minister of State Abdullah Alireza delivered these remarks on Economic Reforms in the Gulf at the 61st annual conference in October, 2007.
Hani Findakly: Good evening. I am Hani Findakly, a member of the Board of Governors of the Middle East Institute. It is my honor and pleasure to introduce our penultimate speaker of this conference, His Excellency ‘Abdullah Alireza, Minister of State in Saudi Arabia. He has been a key player in economic and educational reform in Saudi Arabia, including his important role in Saudi accession to the World Trade Organization. His short bio is in the booklets that you have for the conference so I am going to skip that and make two very quick points.
First, on behalf of the Middle East Institute, I am very thankful and grateful for Abdullah’s leadership and his and his family’s continual support of the Middle East Institute and its programs.
The second point I will make very quickly. In the midst of the gloom and doom and discussion of problems in the Middle East, an often overlooked and very important phenomenon and development that has taken place in the region is the quiet but very powerful economic revolution that is rapidly transforming the region’s economy, with very serious social, economic and strategic implications. I can think of no other individual who can speak with authority than our coming speaker, His Excellency ‘Abdullah Alireza.
Ambassador Chamberlin, Hani, the Middle East Institute is certainly no stranger to me. The first time I ever attended the Middle East Institute was in 1968 when I was at Georgetown. I am grateful for your invitation this time. I suppose the age differential can make the difference between what I was and what I am today.
I think we are all here because I think the Middle East is not just in flux. Funnily enough, we talked about the gloom and doom, Hani, but there is a boom at the same time. That boom is economic in nature, which without a doubt will have its ramifications on the political and social atmosphere.
The Middle East region finds itself on the verge of a profound economic, political and social transition – whether it is the situation unfolding in Iraq, Iran, Lebanon and the West Bank, state institutions are being challenged. Economies are being restructured and social alliances and dynamics are drifting in a new and unpredictable direction.
The GCC, on the other hand, is emerging as the stabilizing economic and political entity in a region that is full of problems and chaos. In the last three years the GCC has emerged, together with China, as the region with the largest current accounts surplus, accumulating at a rate of $300 billion or more a year. More than 55% of the GCC current accounts surplus is invested in the US from 2002 to 2006, according to a recent report by the Institute for International Economics. GCC capital is also creating the stimulus for reform in countries such as Egypt and Jordan. It has helped to link North Africa more closely to the Arab world. Job opportunities in the GCC are helping to lower poverty in Jordan and Lebanon through migrant workers and remittance earnings. GCC exports are driving integration for the MENA region as a whole. From 2000 to 2005 it is estimated that intra-regional exports increased from 5.8 to 8.9%, and 80% of it is coming from the GCC.
If we look at Saudi Arabia and the boom that I was talking about, the boom we have in Saudi Arabia is unlike the boom that we have experienced in the 1970s. This time around the private sector is extremely active and they have a huge reservoir of capital. They also have learned a great deal from what happened in the past, so I can assure you that the boom that we are experiencing today is one of sustainability and that is how we are going to work at it and make sure it is going to be sustained for the next generation to come.
Saudi Arabia, as you know, is the 25th economy in the world and it houses the Arab world’s largest stock market, which is valued at about $700 billion. With 40% of the population born after the 1991 Gulf War, it is a young and dynamic market. The economy and society are undergoing fundamental shifts. In 2004 King Abdullah mapped out five strategic objectives for accelerating the transition to private sector-led growth. These strategic imperatives we looked at are diversifying the national income away from oil; increasing the private sector employment opportunities for Saudi citizens; promoting privatization of government-owned entities using private sector capital; enhancing bureaucratic efficiency while controlling public sector spending. What is more important, we are going to be leapfrogging into a knowledge-based society and ensuring that this knowledge-based society is going to be the sustainable factor for us in the future.
We are making progress in all of these areas and moving closer to a dynamic free market economy. According to World Bank data, unemployment has declined while fewer restrictions are done on businesses, which will continue to create jobs for Saudi citizens. As a matter of interest, an American consultant has come up with a forecast that the Saudi economy will create 600,000 jobs that are mainly middle management and above. Two hundred thousand Saudis will be available for that, so you can imagine what kind of expertise we will need in the future.
Looking into the future, there are an estimated $600-700 billion in market opportunities. This includes more than $350 billion in infrastructure, electricity, water and telecommunications; about $140 billion in natural gas and petrochemicals; and the remainder in tourism, information technology, agriculture and education.
Saudi Arabia is also leveraging its oil wealth to build clusters of innovation. One example is the King Abdullah Economic City which is being built on the east coast of the Red Sea. There are five other cities in different regions that include world-class industrial, financial and education zones as well as recreation and tourist attractions. This will be undertaken by the private sector. This is the equivalent of the Royal Commission of Jubail and Yanbu but on a bigger scale.
These initiatives will work toward ensuring that the current oil revenues create the basis for sustainable growth and permanent improvements in living standards and the quality of life — with emphasis on the quality of life. The crucial task ahead is transforming Saudi society into that knowledge-based society through complementary investments in infrastructure, human capital and technical knowledge. The experience of other developing regions shows that natural resources wealth does not have to be a curse for the economy; rather, it can be a blessing. By investing depletable oil revenues in knowledge and people, we are creating a renewable resource that will be the future capital of Saudi Arabia, as opposed to oil. At the end of the day it is not important what countries produce but how it is produced and how much value is going to be added.
At the same time as Saudi Arabia is entering into the globalized world, we can ask ourselves: what can international partners create value for Saudi Arabia? Two hundred years ago, Adam Smith predicted that increased trade opportunities would have a profound impact on political dynamics between countries. Mutual communication of knowledge, promoting extensive commerce and ensuring respect for the rights of other countries should be priorities for policymakers in adding value to international partnerships. These words ring true today as they did during his period.
At the national level there is room for greater knowledge sharing through deeper institutional collaboration with global actors and institutions in Saudi Arabia. The aim should be supporting the modernization and development of public institutions. As you all know, two weeks ago King ‘Abdullah opened up a university that is called the “University of the Future.” This is going to be the King ‘Abdullah University for Science and Technology. It is going to be completely outside of the institutions that run the universities in Saudi Arabia. It is going to be devoted to research and development and the board of trustees is composed 70% of people who are not from Saudi Arabia but from all over the world. The president of that board of trustees is the president emeritus of Cornell University. That to me signals where Saudi Arabia is heading and what they are going to do. I am sorry, I do not mean to harp on this, but this university will house 3,000 people, all on the graduate level, and will do research and development in conjunction with the private sector — not only in Saudi Arabia but research and development also to go outside to various companies. So that most of the ills of the world and social problems that we may have could be addressed from that university.
In Saudi Arabia today there are a large number of public institutions responsible for delivering services to the people of Saudi Arabia which can improve in terms of accountability and effectiveness. Institutional collaboration based on sharing of best practices, capacity assessments, technical assistance, study tours and others can help to anchor international relations in significant ways. As a matter of interest, three of our top universities — whether it is in Jeddah, Riyadh or the Eastern Province — have now asked for international advisors to come on their board of trustees. This is a huge step for Saudi Arabia. Encouraging extensive cooperation between countries is equally important and has the potential to make best use of Saudi Arabia’s growing role as a dynamic emerging market and a hub between East and West.
At present however, US investors —and this you may not like — I am sure Sean will not like it — represent less than 13% of total foreign direct investment in Saudi Arabia and bilateral trade is declining, although it was Sean who managed to sort of shepherd us through the WTO. This trend neither serves the interest of American investors nor the American people and needs to be addressed. We welcome a world in which that soft power would be the order of the day and we must move beyond the current notion of region-building through creative chaos and destruction and one in which all of us can restructure our economies based on the need and the culture and milieu that we all live in.
Such an initiative is needed to solve the grievous problem of Iraq, Palestine, Lebanon and Iran. This holds the key to providing lasting stability and prosperity to the people of the Middle East. There are increasing arenas for collaboration where this can happen. Memberships in regional FTAs, associations with the European Union and others offer opportunities for countries to overcome domestic politics while signing onto and playing more open competitive and transparent rules of the game.
Today Saudi Arabia seeks to maintain strong relations with the United States but Saudi Arabia is also seeking to maintain a very strong relationship with China, India, Turkey and Brazil. The US in particular can do a great deal to support developing countries to enter such clubs of good citizenship, allowing the dynamics within these groups to play themselves out. These initiatives should be seen as mutually reinforcing rather than competitive with US interests.
Creative chaos, I repeat, or destruction must be replaced by creative restructuring, engagement and respect for the rights of countries, in which dialogue is the primary instrument for interaction and not what we are seeing today. By working with countries to accelerate knowledge-sharing, commerce and integration into a global and regional area in a way which promotes openness, competition and equality of opportunity, the US can fight the war on terror while promoting these shared international values. In forging a new global political alliance we must keep in mind that time is of the essence. We must act together in good faith before an iron curtain descends with a terrible finality between the West and the Islamic world. This alliance must create value as well as reinforce mutual communications, knowledge-sharing and commerce. We must be cognizant of the cultures and the unique value systems of the other while building these bridges of mutual appreciation and trust.
This brings me to a final point. In this interconnected world of ours, states are democratizing. Markets are going global and civil society is proliferating in numbers and purposes. Let me suggest that significant changes and innovation can occur when individuals working in these arenas take on leadership roles, like you are doing today, that are more broadly defined than their specific interests. When the private sector practices good citizenship, when citizens expand their own rights and responsibilities and when politicians risk transparency and accountability on a regular basis, we know that much can be accomplished. The challenge for international policymakers is creating these conditions for this type of collaboration to proliferate within and across countries.
Let me conclude by saying that we live in a world where countries are moving into a global playing field at a fast pace with significant risks and rewards. We must structure or restructure international relations in a way which allows for more broadly defined and fluid bilateral interests but which also supports shared international values. Thank you very much for having me.
Hani Findakly: Thanks, Abdullah. I have a few questions which I am going to bunch for the sake of time. As far as I can see, they are all softball questions for you. One set of questions relates to the economic boom. To what extent can the economic boom and liberalization on the economic front spread into political liberalization and democratization, not only in the GCC? To what extent can that itself play a role in liberalization on the social and political side outside the GCC?
‘Abdullah Alireza: Without a doubt, economic development and the economic boom that is taking place in Saudi Arabia — and I am sure the ambassador there would know — is having a far-reaching effect in terms of political liberalization and social liberalization and women’s injection into the labor market. I used to be the chairman of the Saudi Chambers of Commerce and I was also the chairman of the Jeddah Chamber of Commerce. It is precisely because of this economic liberalization and women’s role within the Jeddah society that it became incumbent to include them in as members of the board. For the first time we have been able to do that and this is going to have a spillover effect. To me, having women — I remember when they came to see me when I was head of the Chamber. They asked me if they could have their own little chamber for women and I said no. They were shocked. I said, if you do that then you have actually institutionalized segregation and I won’t allow it. You can become members of any of the committees that we have in the Chamber and you will take your rightful roles in how you are going to behave. In fact, I asked some of them to become members of the board without having a voting right, until they got elected the next time around. That in itself is huge.
Furthermore, as we have these huge IPOs that are coming on, as companies begin to go more public, funnily enough in a way that gets people to participate in an assembly – it is a general assembly, but they get to participate in areas that they would not otherwise have done before. That little wave that they could make — they could actually sit down in public companies and talk about what they feel like doing, attacking the management if they are not doing well — that augurs well as we begin to participate.
For political development, the most important first step is a sense of participation and feeling that they could participate in an economic sense but it is also in a political sense when they attack management for not doing very well. That in itself sort of liberates people. That is why I think economic development is the single most important thing that we do have in the Arab world and that is what is going to really push us as we go along.
Hani Findakly: This is an income distribution question. What impact will these innovations that you spoke about — the rising stock market and what have you — have on the poor in Saudi Arabia? Will these innovations benefit only the elite and to what extent can they increase the divide between the rich and the poor? I guess another way to phrase the question is: what in your economic reform and economic program do you have that will bring those poor into the economy?
‘Abdullah Alireza: I want to let you know that the level of poverty in Saudi Arabia is better than what it is in the United States. That is precisely because most of those people, because of our social system, are brought in and taken care of. But in the last year King Abdullah has pushed for reforms, especially in the social sphere, for the people on the poverty line. We have allocated something like 10 billion Saudi rials, approximately 2.8 billion, for the housing of these people who do not have the capacity to build their own. So that in itself, once you have a roof on your head, most of those people have a stake in the system. So that brings most of the poverty-level people up to a much better level than they ever had before. We are going to be seeing that in the next five years as we build these houses.
But what is more important is that Saudi Arabia for the first time will have a mortgage finance law. I know most bankers would love that but we are not going to get into a credit market and mortgage problems here, and sub-primes, because we won’t. What we are going to be having – in my opinion, once you start mortgage finance, which was at one time held back precisely because of shari’a, and now you can imagine a huge pool of people started working and came up with an instrument that will effectively leapfrog the shari’a problem. I and my colleagues estimate there will be between $100-150 billion in the next five years that we will build through mortgage finance. That in itself will create income distribution, it will make people be stakeholders in the system. Stability then will come about.
All these things are coming about. Like you did with the NASDAQ, we had a collapse in our stock market. It was at one time something like 23,000; today it is about 8,500. So we had this huge drop. Most people thought that this was a game that they could play. Most of them actually went into the market, borrowed money – actually some of them would actually take a car on installment but they go ahead and sell it to somebody else and take the money and invest it in the stock market. We made a mistake in not alerting those people that this stock market is not a game to be played by people who don’t know what is happening. That had an effect. I know that the King in the Supreme Economic Council, where I sit with him, he was extremely worried that this would have its own social ramifications. We made a study on it and luckily it did not have as much social ramifications as we thought it would.
So the distribution of income that we have is something that we are extremely cognizant of and we are trying as much as we can in allowing that. One area — we keep talking about people below the poverty line but to me the creation of a middle class is the single most important thing that Saudi Arabia could do in the next five to ten years. Housing, we talked about. But the most important part is actually through the SBAs, small and medium business administrations. If we could manage to do that — I know that when I was at the Chamber that was an area that we pushed very hard on. Now they came up with various banking facilities for the SMEs, small and medium enterprises. By bringing up the middle class, giving them housing and places to work, that in itself is a big distributor of income.
Hani Findakly: I was thinking that your comment about housing must be good news for homebuilders in this country. Here is a question about US-Saudi relations post-9/11. What should the primary focus of that partnership be? Where can the two countries benefit from one another the most?
‘Abdullah Alireza: Unfortunately, 9/11 came at a time that a lot of people felt that Saudi Arabia is not in the interest of the United States. As the Ambassador will tell you, that is a misnomer. A lot of people at that time played on that fact. They kept on playing on the fact that Saudi Arabia cannot assist the United States. There is talk right now that Iraq is going to replace Saudi Arabia as the area that the United States could have its oil and would have its airbases.
Saudi Arabia’s relationship with the United States — all relationships are based on interests, including between husband and wife. You have a love affair — there was a huge love affair between us and the United States and there is still that love affair between us and the United States. Most of us, especially somebody like me — David, you will know and most of you know who I am – have felt it was extremely important that the United States gets back its position in the Arab world. We did lose our momentum for the last five years and that momentum was based on people, either through misinformation, disinformation or — if you want to be candid — it is lack of understanding of what is happening, from both sides.
The most important part is that the US move in the last three or four years into Iraq has really made the Arab world feel that they have lost a friend and the hearts and minds of most people in Saudi Arabia and in the Arab world in general has really looked at the United States as a country that is going to be bullying the Middle East for the next five to ten years. This is something that really bothers us and that is why in my discussion — I know I am moving away from what you — but this is too important for people to realize. The United States, using soft power, in the past could get and do things without even having to blink. The famous meeting between Dean Acheson, when he went over to see De Gaulle on the Cuban crisis, and he said, “The word of the president of the United States is good enough for me.” This is the era we want to get back to. I am not talking about the era in terms of there but this is what we really need to get back, that we have the sense of trust. The suspicion that has been played out in the last four or five or six years must end. This is the area that the Middle East Institute can play an extremely important role in trying to come up with winning on both sides of the equation. I know you don’t like us for some reasons; we tend to be using words like jihadists and so forth. In The Wall Street Journal yesterday the Republican Party, every one of them was using the word jihadist — Mitt Romney used it ten times in a speech. When I go to Congress all we hear about is madrassahs and jihadists. These are the buzzwords; I suppose it may have a nice tinge to it on television. But I am sure they do not really understand it and I hope the panel before came up with a better understanding of what a jihad means and what it could mean.
If we begin to change the language of the debate on the war on terror — first of all, the war on terror is a misnomer. It is really intelligence; these are criminals. I do not think an Islamic terrorist is as much as a Catholic terrorist or a Jewish terrorist. There are terrorists all around. This is what we have to realize: these are criminals and we have to go after them in an intelligent manner. If we do not do that then we are lumping the whole of the Muslim world, 1.2 billion people, into the same category as the terrorists. This is exactly what they want you to do. Take bin Laden, what he has done. You actually played into his hand. He wanted to destroy Saudi Arabia because of its friendship with the United States. What did you do? You obliged him.
This is where we really have to change the terms of the debate. The language has to be changed. It is no longer madrassahs or jihadists. The Democratic Party on the other hand, according to The Wall Street Journal yesterday, did not use the word jihadists. Not one of them. I don’t know, maybe they have a better wisdom than the Republican Party but I do not want to get into that debate.
Hani Findakly: Thank you very much, ‘Abdullah. I have a number of other questions but unfortunately we have run out of time so I apologize for those who had very important questions that could not be addressed. Please join me in thanking Minister ‘Abdullah Alireza for his contribution.
Last but not least, Ambassador Mack.
Ambassador David Mack: I want to very briefly conclude this 61st Annual Conference of the Middle East Institute. At least one of you became a member 61 years ago and has been a member for all 61 years since, and that is Grant McLanahan, a former Foreign Service Officer who is here today. But there are many others in this audience, this intellectually engaged audience, who discovered MEI during the past year and we look forward to seeing all of you at the Middle East Institute throughout the year to come and be part of this educational experience that we are all joined in.
I also want to make a very special thanks to the generous sponsors of this event from the worlds of business and diplomacy, who helped us do last night’s banquet and today’s conference. I hope the Middle East Institute has met your expectations.
Some of you know that this is the last conference to be produced under the direction of Clayton Swisher. In a few days he is going to join the professional team of Al-Jazeera English in Dubai. We wish him a great career in broadcast journalism. He was ably assisted by J.F. Holsten, who will become acting director of programs starting tomorrow.
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There are way too many others on the Middle East Institute team to mention them all. Literally every single person there at 1761 N Street, NW, has been involved. But I do want to end with words of appreciation for our vast army of interns and volunteers who have labored to make this conference and last night’s banquet successful. They represent the new generation of Middle East experts and whenever I despair about some of the awful problems we deal with, they give me hope for the future.
Thank you very much.
About this Transcript:
The presentation was delivered at MEI's 61st Annual Conference at the National Press Club, Washington, DC.