Saudi Arabia - Factors That Transformed the Economy

More about the Economy of Saudi Arabia.

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 movement, Abd al Aziz encouraged the establishment of a series of agricultural communities (hujra), designed to relieve the beduin groups comprising this unified military force of providing for their livelihoods. 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. 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.

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