By the 1960s, Saudi Arabia had made major advances in many areas. Roads were established, a modern educational system introduced, health care improved, agriculture expanded and factories built. Although the economy was largely reliant on oil revenues, Saudi leaders resolved to bring about basic improvements in the country's economic structure. The objective was to diversify the economy away from oil into other fields.

Achievement of such an economic transformation required deliberate planning and careful implementation of a development program with clearly defined objectives. The quest for economic development and growth began in earnest with the introduction of the First Development Plan in 1970. This began a series of five-year plans that continues today.

The first phase of this process was to establish an infrastructure that could support a modern economic base. The next was to develop the human resources necessary to help bring about the planned economic transformation. Finally, the focus could shift to economic diversification, including expansion of the industrial, agricultural and other sectors, an expansion that is now well advanced.

The establishment of the physical infrastructure was accomplished in stages during the first three development plans. As the infrastructure was taking shape, the government launched a major effort to expand the industrial base. This was done along two separate, but parallel, courses. One aimed at the expansion of the country's oil industry and the other at establishing a modern non-oil industrial sector.

In addition to optimizing revenues from Saudi oil production, the modern oil industry plays an equally important role in the development of the non-oil industrial sector by providing the raw materials and feedstock that facilitates this growth.

By 1985, with most of the physical infrastructure in place, attention shifted to diversifying economic sources. "Our economic policy is based on lessening our dependence on the export of crude oil as the sole source of income to the state," emphasized Custodian of the Two Holy Mosques King Fahd bin Abdulaziz.

The Fourth (1985-89), Fifth (1990-94), Sixth (1995-99) and Seventh (2000-04) Plans all emphasized strengthening the growing private sector and increasing the efficiency of the industrial sector. The Eighth Five-Year Development Plan (2005-09) was devised with a focus on increasing foreign as well as national investment, and on developing human resources.

Throughout the course of the development plans, Saudi Arabia's steady but dramatic industrial and economic transformation has been accomplished through the careful guidance and active support of the government. To judge the success of this effort one need only consider that in the 25 years from 1970 to 1995, the non-oil sector's share of GDP increased from 46 percent to just over 70 percent, and that this GDP tripled, to 125.1 billion U.S. dollars, reflecting a growth rate of 8.6 percent in current prices. By 2002, the GDP had reached 186 billion dollars.

One of the fastest developing countries in the world, Saudi Arabia is the most dynamic economic power in the Arab world and ranks 20th globally in the size of its economy.

The Kingdom's policy for ensuring the growth of the non-oil industrial sector focuses on establishing industries that use the country's abundant and inexpensive supplies of petroleum products, petrochemicals and minerals. Petrochemical and other oil-based industries were concentrated at new industrial cities. These plants use natural gas and natural gas liquids that were previously flared, as well as refined products from the oil industry to manufacture products that would in turn feed non-oil industries. Concentration on industrial plants in specific areas also facilitates the provision of vital support services, such as water, power and transportation.

Industrial cities have been built, scattered across the Kingdom. These sites were chosen for their proximity to sources of raw materials and ease of access to major domestic and international consumer markets. All have been built with emphasis on environmental and wildlife conservation. The two principal industrial cities are Jubail on the Arabian Gulf and Yanbu on the Red Sea. Jubail, the largest, accommodates tens of thousands of workers in its many industrial facilities, and has a dedicated desalination plant and its own busy seaport. It also boasts a vocational training institute and a college. Yanbu also has its own port, from which products manufactured in the Kingdom are exported. It has refineries, a petrochemical complex and many manufacturing and support enterprises.

The Saudi Arabian Basic Industries Corporation (SABIC) plays a central role in encouraging private sector participation in the nation's economic growth. Established in 1976 by the government as a shareholding company with an initial capital of 2.7 billion U.S. dollars, SABIC now has an invested capital of close to 30 billion dollars. It is owned 70 percent by the Saudi government and 30 percent by shareholders from the six Gulf Cooperation Council (GCC) countries. SABIC quickly became the backbone of Saudi Arabia's successful industrialization. By 1994, it had 15 major plants operating in Jubail, Yanbu, and Jeddah, with an annual production of 13 million metric tons. By 2002, total production was 40.6 million tons of basic and intermediate chemicals, polymers, plastics, industrial gases, fertilizers, steel and other metals; this figure is expected to exceed 48 million tons by 2010.

Some of these products are sold on domestic and international markets, and SABIC's net revenue from sales during the first half of 2003 reached 850.7 million U.S. dollars, an increase of 224 percent over the previous year's figures. Other SABIC products are used as feedstock by secondary and support industries to produce consumer goods. These industries, all owned and operated by the private sector, produce a variety of consumer and industrial goods.

The government plays an essential role in industrial and economic development. The Ministry of Economy and Planning assists in formulating the five-year development plans that set long-term economic goals. The Ministry of Finance supervises implementation of the nation's economic policies. The Saudi Arabian Monetary Agency (SAMA), the nation's central bank, oversees the country's fiscal policy.

To facilitate the expansion of the private sector's role in the national economy, the government established five specialized credit institutions, which provide economic opportunities to many Saudis who were previously unable to compete in the marketplace. These financial institutions have provided loans to citizens for development projects in agriculture, industry and construction.

In 1974, the Saudi Industrial Development Fund (SIDF) was the first government agency set up to provide interest-free soft loans to enable Saudi businessmen to establish industrial plants. These loans can be used to finance up to 50 percent of the capital for a new factory. SIDF loans have helped launch thousands of new factories and expand hundreds of existing facilities.

Since it was founded in 1963, the Saudi Arabian Agricultural Bank (SAAB) has provided loans for agricultural projects, farm machinery and production requirements. The Real Estate Development Fund has been financing residential and commercial construction since 1974, with a unique program that provides interest-free loans repayable in 25 years. Launched in 1971, the Public Investment Fund offers credit to public and semi-public corporations. The Saudi Credit Bank was founded in 1973 to provide personal loans for home repair, as well as vocational and crafts training.

In addition to the specialized credit institutions, the government offers an array of incentives to the private sector. A sweeping reduction in utility and public service fees, implemented in early 1992, lowered operating and production costs for private companies, making their products more competitive with foreign goods.

Private entrepreneurs are also given access to government information systems specifically created to help local manufacturers target the best market for their products. Government agencies such as the Saudi Consulting House, replaced in April 2000 by the broader Saudi Arabian General Investment Authority (SAGIA), provide free consulting and support services and publish lists of investment opportunities for the production of goods in demand in Saudi Arabia. In September 2000 SAGIA opened service centers in Jeddah and Dammam in addition to its headquarters in Riyadh.

Government tenders also give priority to locally manufactured products and to Saudi companies. Saudi industries are exempted from paying customs duties on the import of machinery and supplies used in the production of goods domestically.

To facilitate the transfer of technology and expand the operations of the private sector, the government also provides various incentives to foreign companies that enter into joint ventures with Saudi firms. Far-reaching new investment regulations in 2000, including removal of the need for sponsorship, gave further encouragement to foreign investors.

The combination of loans, incentives, subsidies and information, and the government emphasis on strengthening the role of the private sector, have clearly had the desired result. While the overall GDP for 2002 amounted to 186 billion U.S. dollars, a growth rate in real terms of 0.7 percent, the GDP for the private sector grew by 4.2 percent. Industrial goods produced by this sector constitute more than one quarter of this amount, and about 20 percent of these are exported. During the last decade of the 20th century, the private sector contributed more to the country's GDP than did the oil sector. Moreover, the country has seen a decrease in imports, directly proportional to the increase in domestic production.

Commercial banking has undergone tremendous growth during the course of the country's development. There are now nine commercial banks, with branches all over the Kingdom. The rapid expansion of deposits has allowed the banking system to take on a leading role in marshalling Saudi financial resources to fund the expanding activities of the private sector. The Kingdom's financial and monetary policies have maintained stable domestic prices, and stable exchange rates for the national currency (riyal), with one U.S. dollar equaling SR 3.745 since the mid-1980s. As for the stock market, which has existed informally since 1954, the Capital Markets Law of June 2003 established the Saudi Arabian Stock Exchange (SASE) as a private sector entity. By then, market capitalization stood at over 127 billion U.S. dollars, confirming Saudi Arabia as the largest market in the region and one of the largest emerging markets in the world, although the number of companies listed remained comparatively low at 65.

Saudi Arabia is the 19th largest exporter and the 20th largest import market in the world. Exports now represent all economic sectors. Topping the list of exports to some 90 countries are petrochemicals, plastics, metal goods, construction materials, and electrical appliances. This sustained growth in non-oil exports reflects the success of the government's economic reforms and trade policies.

Resource: Royal Embassy of Saudi Arabia in Washington, D.C.