Impact of Oil Discovery on State-building in Saudi Arabia - Essay Example

Impact of Oil Discovery on State-building in Saudi Arabia On 3rd March, 1938, Saudi Arabia made a discovery that was to change the economic dimension of the country. The American-owned company, Dhahran identified the country’s large source of petroleum in the whole world. Before this discovery, the population was mainly nomadic. The economy was mainly anchored on revenue collected from tourism that came to visit the holy city of Mecca. However, over the years, the country has shifted its attention towards oil production, with 92% of the country’s budget dependent largely on oil revenues. The discovery of oil has changed the demographics in the country. For instance, the number of foreigners working in the country has increased tremendously. The proponents of oil-led development argue that the country is very lack to have oil as its base for development. However, another school of thought argues that oil has brought a curse to the country. This paper will therefore, discuss the ways in which the discovery of oil in the county has affected state-building in Saudi Arabia. Economic building cannot be dependent on a single source of revenue. Therefore, after the discovery of oil in Saudi Arabia, the government adjusted its internal structures in order to benefit from revenue that will be collected from oil. This killed other important sectors of the economy because the government shifted its resources towards drilling of more wells and teaching the technical staff that will work on these wells. This affected the growth and development of the country. In addition, the move exposed the country towards external risks and uncertainties. Furthermore, there being no other country that depends almost wholly on oil resources, the country did not have the appropriate model to use in order to set up checks and balances to ensure that money collected was used effectively towards state-building. This aspect affected the country’s growth and development (Selby 216). The reason is that the level of corruption in the country increased tremendously. In addition, funds were directed towards projects that were not bringing any returns to the country. This dragged economic growth and led to unequal distribution of resources. Unlike other countries that have a diversified economy, Saudi Arabia depends on oil revenue to build its economy. However, oil prices have become very volatile with prices surging up and down, an aspect that affects the consistency of the country’s economy. The reason is that the country depends heavily on the global oil market which is faced by very high risks and uncertainties in order to make its future plans regarding the progress of the economy. With the increasing levels of globalization resulting from liberalization of markets, efficient flow of information and integration of economies across the world, it has become very hard for a single country to make its single decisions without considering the effects of global market. However, unlike other countries which have diverse source of revenues, Saudi Arabia has stick with oil in order to spearhead growth and development of the economy (Simmons 119). Therefore, since the financial crisis which had a major impact on the spending of many countries, the Saudi economy has been greatly affected. This aspect has stalled very many projects which could have stabilized the economy. The oil discovery has enabled the country to establish various structures that makes it possible for the country to achieve economic growth. Research indicates that the Saudi government has been critical in investing in the education sector. The country has improved the infrastructures in this sector. Furthermore, it has equipped its research centers especially the departments that deal with oil production. Thousands of young Saudis have been able to secure jobs outside the country. Therefore, they have been playing a critical role in foreign direct investment. This aspect has played a significant role in stabilizing the country’s economy especially at this time when the prices of oil have reduced drastically. Oil discovery led to influx of money in the country. However, due to lack of the necessary economic structures, people in government accumulated a lot of wealth instead of channeling the money towards economic development. Therefore, just like any other oil-producing country, oil dependence has increased the poverty levels in the country. The reason is that there is no well drafted mechanism by the government to alleviate poverty. Initially, the country was benefiting from the resource through employment, improved infrastructure, and per capita growth. However, the government did not invest in cautionary measures that would protect it from external shocks (Vassiliev 34). Therefore, the country is mainly dependent on short term decisions because the oil prices in the global market are unpredictable. According to International Monetary Fund, Saudi Arabia economy has been forced to adjust itself to global oil prices in order to remain stable. For instance, the country has been forced to scale up its production by 2.7 million barrels each day. This is to ensure that the country stabilizes the global oil market thereby, contributing positively towards the economic growth and stability. However, in the face of supply interruptions in other countries that produce oil, the country has been forced to overproduce in order to serve the increasing demand. In an example, during the gulf war (1990-1991), the Venezuelan strike, and Hurricane Katrina, the country scaled up its production in order to cushion its economy from external shocks. However, in the meantime, countries such as United States and Russia have increased their production, an aspect that has affected the global oil prices. Such a move is beyond the control of Saudi Arabian government. As a result, the growth of the economy has reduced drastically (Lippman and Council on Foreign Relations, 65). Therefore, the discovery of oil made the country to adjust the local economy in order to remain stable. However, the move has only exposed the country to external shocks especially at this era that is characterized by the integration of economies. Many countries have based their economies on strong pillars that are supported by the local population. However, in Saudi Arabia, the government has invested very little on its people. Although it has been in the forefront in supporting the education sector, there has been no drive to encourage local people to get formal education. The reason is that there is a lot of money flowing in the country, an aspect that makes majority of them not to focus on their education. As a result, the country is depending heavily on employees emanating from other countries to participate in state-building. According to Daily Mirror, in the past one decade, the country has received the largest influx of foreign workers in the Middle East. However, many of these employees retain their original citizenship. As a result, they send back the money they earn to their respective countries. Therefore, millions of dollars are being shipped from the country to other economies. This has affected the growth of the economies (Vassiliev 76). Furthermore, there have been arguments that the country lacks its local identity. The reason is that many of the state infrastructures have been built by the foreigners. Therefore, the locals are not connected to their country. Therefore, in case of a crisis, the country is likely to be greatly affected. Before the discovery of oil, Saudi Arabia was keen on enhancing local production in order to support the growth of the economy. However, after the discovery of oil, many of the country’s major companies collapsed. As a result, the country has become a major consumer of external products. With the country depending heavily on revenue from oil, it has been reluctant to support other sectors of the economy. As a result, majority of the revenue collected from oil ends up developing other economies as it is channeled out through the purchase of critical products. For instance, Saudi Arabia forms one of the key car markets. Therefore, Japan economy has benefited immensely from Saudis consumerism culture. This aspect has negatively affected the growth of the local economy. Social structures are very significant in state-building. Since the discovery of oil in Saudi Arabia, the country social structure has been eroded. The reason is because of the enormous capital and technological resources which are required to exploit these resources. Therefore, foreign oil companies have become dominant social force. This has had a major impact in the creation of a domestic entrepreneurial class. Although the foreign companies operating in Saudi Arabia have been partnering with domestic elite, their economic presence, their capital advantage, and technological advantages means that the local entrepreneurs do not have a platform to develop. Therefore, the country is dependent on the policies that are drafted by these companies (House 77). Therefore, there is no economic independence which would enable the country to take stern measures to improve economic performance especially at the global market. State-building is dependent on equitable distribution of resources. However, in Saudi Arabia, middle and professional classes are mainly shaped on their dependence on oil exports as the engine of the country’s economy. In the local labor market oil exporters offer three types of jobs, i.e. oil related, public sector, and private services. This plays a significant role in retarding the growth of a large middle and professional class which is the engine of economic prosperity. Therefore, the discovery of oil shifted the wealth towards the economic class. As a result, the group is not attached to the rest of the people. Therefore, social disconnection has affected the state of the Saudi Arabia economy. State-building thrives in a democratic government where the will of the people takes the center stage. However, since the discovery of oil in the country, the political class has hijacked the growth of the economy through enriching themselves. Research indicates that the country has been cracking down those agitating for democracy in the country. Furthermore, it has failed to offer the people with the freedom they deserve in order for them to participate in economic building. Therefore, it has become very hard for the local people to participate in evaluating the government spending. This is a character that has been noted in oil producing countries. Due to the magnitude of corrupt deals in these countries, the ruling class suppresses the voice of the people in order not to be exposed (House 85). This aspect has been affected the progress of the Saudi economy for over six decades. Since the discovery of oil, Saudi Arabia has been a safe haven for the investors. For instance, the construction industry has been on a growing trend for years with government investing in mega industries. Furthermore, other private industries have benefited from the increasing individual income in the country. In an example, a large population of expatriates combined with increased demand for high end products has seen the Saudi economy grow at a remarkable growth in the past five years. After learning from the previous fluctuations in oil prices, the country has started supporting local industries and other external investors. This aspect has played an important role in supporting state-building activities. Currently, the automobile is very promising (Jones 127). Several car parts manufacturers have established their base in the country. The country is also investing in the sector through the Saudi Arabian Public Investment Fund. With the vehicle sector expected to grow by 3.6 percent this year, the government has invested $1 billion in the sector (House 94). This aims at targeting the young people who have a disposable income. This aims at closing the gap that has existed between production and revenue collection. State-building cannot happen when the government ignores the interests of the young people. Saudi Arabia has invested little on its youth. As a result, the country has a large population of unemployed people. Furthermore, the country has been facing a housing crisis, and high inflation rates. This has forced many young people to become a target for terrorism groups. Therefore, while other countries were investing heavily on their young generation, Saudi Arabia failed to do so. Therefore, due to the high levels of insecurity and other social challenges, it has become very hard for the country to achieve any remarkable economic growth for years. The discovery of oil meant that the country was to become wary of the economic stability of other Middle East countries. Since 1938, the country has been involved in different peace keeping missions in order to stabilize the region. The recent involvement has been in Yemen where the government has been participating in the war. The reason is that oil production is a very sensitive sector which depends on the stability of the global economy (Hertog, Hertog, and Steffen 76). The war in Yemen, Iraq, Syria, etch has destabilized the global oil market. Participating in these missions requires huge investment. As a result, Saudi Arabia has been using a lot of its resources in the region’s stability. This has been affected the level of nation-building in the country. In conclusion, Saudi Arabia has recorded remarkable growth since the discovery of oil. However, analyst argues that effective utilization of resources obtained from oil could have enabled the country to achieve better results. Corruption and misplaced priorities are some of the factors that have made the country not to achieve economic prosperity. Furthermore, the country has over-relied on oil revenues and ignored the benefits that could have been accrued from the diversification of the economy. In addition, the country has failed to invest on its people because it has underestimated them as an important source of revenue. As a result, the country has been relying heavily on external subordinates, majority of whom have been sending money back to their country. This has been depriving Saudi Arabia critical resources that could have spearheaded more growth and development. Works Cited Hertog, S., Hertog, and Steffen. Princes, brokers and bureaucrats: oil and the state in Saudi Arabia. Cornell University Press, 2011. Print. House, K. E. On Saudi Arabia: Its people, past, religion, fault lines--and future. New York: Alfred A. Knopf, 2012. Print. Jones, T. C. Desert kingdom: How oil and water forged modern Saudi Arabia. Cambridge, MA: Harvard University Press, 2010. Print. Lippman, T. W., and Council on Foreign Relations. Saudi Arabia on the edge: The uncertain future of an American ally. Washington, DC: Potomac Books, 2012. Print. Selby, J. "Oil and Water: The Contrasting Anatomies of Resource Conflicts." Government and Opposition 40.2 (2005): 200-224. Web. Simmons, M. R. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Somerset: Wiley, 2011. Print. Vassiliev, A. The history of Saudi Arabia. London: Saqi, 2000. Print. Read More