Saudi Arabia - Economic development

AS-82a HILE Cu?Y INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPROACH TO THE ECONOMIC DEVELOPMENT OF SAUDI ARABIA November 1,. 1960  CURRENCY EQUIVALENTS SINCE JANUARY 8, 1960 1 U.S. $ = 4. 50 Saudi Riyals 1 Saudi Riyal = 0. 22 U. S. dollars  APPROACH TO THE ECONOMIC DEVELOPMENT CF SAUDI ARABIA IMDEX SUM ERY i I. ECONOMIC BASIS FOR DEVELOPMENT 1 The Country and its People 1 Production 2 Trade and Finance 3 Natural and Human Resources for Development 6 Financial Resources for Development 6 TI. APPROACH TO ECONOMIC DEVELOPMENT 8 III, INTERIM PROGRAM 13 Organization and Staff 13 Completion of Projects nao under Construction 14 Explorations and Pre-investment Surveys 15 New Projects 18 Power and Industry 19 Cost of Interim Program 20 IV, ORGANIZATION FOR DEVELOPMENT 22 Central Planning Body 22 Ministry of Water Resources 24 Ministry of Agriculture 25 Ministry of Communications 27 V. WATER RESOURCES 31 Principal Elements of Water Resources Program 31 Potential Water Resources 32 Rainfall and Runoff 32 Runoff and Shallow Groundwater 32 Groundwater 33 VI. AGRICULTURE 47 Agricultural Program 47 Agricultural Extension Service 50 Special Projects 53 Research 58 Marketing 60 Agricultural Credit 61 VII. COM1MUNICATIONS 62 Roads 64 Civil Aviation 66 Ports and Coastal Shipping 67 Railways 69 Telecommunications 70  VIIIo PaJER AND INDUSTRY 71 Power 71 Industry 72 APPEND1X: AGRICULTURAL PRODUCTION, IPIORTS AND EXPORTS 7 TABIES 80 MAPS  -i - SUNHARY 1. Saudi Arabia is most fortunate in having a sizeable recurring foreign exchange income that can be devoted to the development of the Kingdom and the welfare of its people. The financial position of the country has im- proved substantially during the past two years, is now viable and with the continuation of good management should be further strengthened0 There is a strong desire on the part of both the Government and the people to util- ize more fully the resources of the country to improve the standard of living. Saudi Arabia can prudently start a modest economic development program, accelerating it from year to year. 2, The mission suggests that Saudi Arabia be guided by the following general principles in its approach to economic development: (a) Financial and economic stability should be maintained as an essential prerequisite to sound economic development. (b) The Kingdom should begin with a modest development program and increase it progressively, (c) Initial investments should be made in a relatively few projects of high economic priority that will disseminate maximum benefits to the largest number of people* (d) Investments by the Government should be made in projects that private enterprise is not prepared to undertake. (e) A competent staff should be engaged to plan and execute economic development works before they are started. This is the most important single factor for success in economic development, (f) Public investment should be confined initially to: (i) The development of wa-ter resources; (ii) The improvement of crop and livestock production; (iii) The improvement of communications facilities; (iv) Education and health, (g) The economic development projects should be carried out by the ministries concerned and not by the economic development planning organization. 3. The mission recommends that the Government carry out a two-year Interim Program during 1380/81 (1961) and 1381/82 (1962) that mould serve as a foundation for future investment programs of longer duration,  - ii - 4. The mission recommends that the Interim Program consist of: (a) The recruitment of adequate and competent staff on a broad inter- national basis to strengthen the existing staff available for the planning, coordination, execution' and operation of economic dev- elopment activities, In addition. the mission. recommends that the Government engage consulting engineering firms of international repute to prepare feasibility surveys, engineer projects, super- vise construction and, in some instances, advise on the operation of the major development projects, (b) The establishment of a separate ministry to prepare and carry out a program for the development and conservation of the Kingdomls water resources. 1Tater is Saudi Arabia's most vital asset and of sufficient importance to the Kingdom to merit a separate ministry. Water concerns both urban and rural comrunities and requires strict regulation as well as-development; the administration of a water program is therefore, vastly different from the adminis- tration of agricultural development. (c) A reorganization of the Ministry of Agriculture to carry out a more comprehensive program for the improvement of the rural welfare and eventually to ma1k the Kingdom largely self-sufficient in food and fibero Major emphasis should be placed, in the first instance, on improving and expancling the scope of operation, staff and facilities of the agricultural extension service which should play a major role in carrying out this objective. (d) The establishment of a-Central Planning Body in the office of the Prime Minister to plan, cocrdinate and ensure the effective im- plementation of all economic development activities in the public sector. This body should consist of an Economic Development Board and a Secretariat, The Economic Development Board should consist of the Prime Minister, as Chairman, the ministers responsible for economic development subjects, and the Governor of the Monetary Agency. The Secretariat should prepare the development program for consideration by the Board, study the factors relating to the economic development of the Kingdom and assist in the coordination and implementation of the development program. (e) The completion of the following projects now under construction: (i) Qatif drainage and water control project; (ii) Municipal wqater supply systems actually under way; (iii) Riyadh-Khurais road; (iv) Arafat-Taif road;  - iii - (v) Riyadh-Marat road; (vi) Dammam port. (f) The undertaking of pre-investment surveys and explorations in the following sectors: (i) Water Resources: Improved water system and sewJage dis- posal system in Riyadh; water control scheme for Al Hasa; water resources project in the Qasim; a small dam at Abha; water evaluation in the Tebuk-Jawf-Sakakah area and of Wadi B-shah, 1Jadi Turabah, Al Aflaj, Wadi Dawasir and Wadi Fatima; improved water supply and sewage disposal system in Taif; and sewage disposal systems in Mecca, Jidc6ah, Hufuf and possibly Madinah. (ii) Agriculture: Wadi Jizan irrigation project; drainage and dune stabilization'in Al Hasa; irrigation and drain- age projects for Qasim, Tebuk-Jawf-Saakakah basin, Al Aflaj ard Wadi Fatima if water evaluations confirm water poten- tial; and the fishing industry with a view to encouraging and promoting private enterprise. (iii) Communications: Taif-Abha-Jizan and Riyadh..Qasim roads. feeder road from Jizan into the Mukaylah Valley, and the ports of Jiddah, Jizan and Yanbu. (iv) Minerals: Iron deposits in Wadi Fatima; secondary copper sulphide deposit at Aqiq northeast of Mahdahd Dhahab; zinc and silver deposits at Al Amar; asbestos- chromite deposits at Jabel al Wask; copper deposits in the Belad Chamat; and the silver and lead deposit east of Qunfidhaho (g) The starting of the following new projects, subject to project feasibility and adequate preparation, during the next two years: (i) Water Resources: the Abha dam; the Qasim water project; the Tebuk-Jawf-Sakakah basin water project; improved water systems in Riyadh, Taif, Hufuf, Jiddah and Mecca; and sewage disposal systems in Riyadh, Jiddah and Hufuf, (ii) Agriculture: I?adi Jizan irrigation project; Al Hasa drainage and dune stabilization project; and the irriga- tion, drainage and settlement project in the Tebuk-Jawf- Sakakah basin. (iii) Communications: construction of Taif-Marat road; con- struction of Taif-Abha-Jizan road; improvement of Dammam- Qatif road; improvement of Riyadh-Qasim road; and con- struction of the ports of Jiddah, Jizan and Yanbu as may be determined in accordance with feasibility surveys.  _ iv - (h) In the social field, the expansion of the eduzcation program - with special emphasis on teacher training, technical training and vocatioinal agriculture - and the continiuation of the health programa (i) Stimulation and encouragement of private enterprise with a view to meeting the pozer and industrial requirements of the Kingdom and regulation of poger and other enterpr-ses given monopolistic franchises in orcler to ensure adequate services at reasonable rates. 5, The mission's preliminary estimate of tne cost of the Interim Program in the next two years is of the order of SR 400 million (<,?89 million) of which approximately one-half will be expended in each budget year. The allocation for development ahd special projects in the current budget is SR 200 million (6fih million).  I. ECONOMIC BASIS FOR DEVELOPMENT 1. Saudi Arabia is most fortunate in having a sizeable recurring foreign exchange income that can be devoted to the development of the Kingdom and the welfare of its people. The financial position of the country has im- proved substantially during the past two years, is now viable and with the continuation of good management should be further strengthened. There is a strong desire on the part of both the Government and the people to utilize more fully the resources of the country to improve the standard of living. Saudi Arabia can prudently start a modest economic development program, accelerating it from year to year. 2. The Country and its People. The Kingdom of Saudi Arabia is a large country of about o65,000 square miles that occupies most of the Arabian Peninsula. It consists mainly of a narrow coastal plain along the Red Sea, an adjoining mountain range extending the length of the country and a large plateau that slopes gently towards the Persian Gulfe The southern part of this plateau is the Rub-al-Khali, or the "empty quarter",o Com- munications over such a wide area are both difficult and expensive* Rainfall does not generally exceed 100 mm. (4 inches) a year except in the southwest where it is 250-300 mm0 (10 to 12 inches). Underground water is being used for cultivation in a nmber of areas throughout the Kingdom. 3e The Kingdom is sparsely populated with approximately 5 million people averaging only six per square mile. More than half of the population are nomadic or semi-nomadic Bedouin. Probably one-fourth reside in the principal population centers around the capital at Riyadh, the Red Sea port of Jiddah, the holy places at Mecca and Madinah, and the oil-producing region on the Persian Gulf. The remainder are engaged in settled agri- culture in the area of relatively heavy rainfall in the southwest and aroumd oases dotted over the country, with the notable exception of the Rub-al-Khali where only a very few Bedouin live. Only a small portion of the population is fully employed throughout the year. Considerable progress has been made in health and education during the past decade, but the illiteracy rate is still very higho 4. Saudi Arabia was established as a monarchy in 1932 with the Sharia, or Islamic law, as the law of the land. Royal decrees are issued on the advice of the Council of Ministers. There is a Majlis Shora, or Consultative Council, made up of representatives of various tribes and other groups in the Kingdom, which advises the Government on various legislative and other measures. 5. There are four provinces in the country - Hejaz in the northwest with an area of 135,000 square miles, Asir in the southwest wmith an area of 40,000 square miles, Najd in the central plateau with an area of 650,000 square miles, and Al Hasa in the east with an area of 40,000 square miles. Provincial and district governors (Amirs) are responsible to the King and their field of activity is confined principally to internal security and administration. The country is largely governed by the  central government in Riyadh. Considerable progress has been made in the establishment of ministerial secretariats but further improvement in goverDnental administration is one of the most urgent problems facing the country. 6. Production, Most of the people in the Kingdom are engaged in the original pastoral-agricultural economy which is still largely on a subsistence basis; they raise crops and livestock to meet their own needs for food and to some extent for clotlling and shelter, The principal crops grown are dates, wheat, barley, millet, various fruits and vegetables and alfalfa, and the more important livestock raised are camels, sheep, goats, cattle and donkeys FAppendix I 7. There are virtually no data to indicate the trend of agricultural production, but there are some indications that it may have decreased during the past decade. 7. In addition to the subsistence economy there is the monetized sector of the economy which is primarily based on oil, although it also receives some income (varying from year to year but averaging perhaps $30-35 million annually) from the traditional annual pilgrimage of Moslems to the holy places of Mlecca and Madinah which has long provided an important contact with the outside world. The origin of money incomes in the monetized sector is largely foreign exchange earnings. Also, this sector relies heavily upon imports of food and clothing since domestic production is insufficient to meet these needs. 8. The oil sector is comparatively new and provides the dynamic element in the economy of the Kingdomo Oil production has increased rapidly since World War II - from 60 million barrels in 1365/66 (1946) to 421 million barrels in 1378/79 (1959) /Table I 7. Oil revenues to the Governrent increased from $10 million to $308 million during the same period /Table 2-J. Production increased at an average annual rate of nearly 50% between 1361X/65 (1945) and 1371/72 (1952) but levelled off during the following 7 years at 4%, which was substantially less than the rate of increase in other Middle Eastern countries. Production last year, however, was 9% more than the preceding year. 9. The Arabian American Oil Company (ARAMCO) is by far the largest pro- ducer of oil in Saudi Arabia, producing 95% of the total production of 421 million barrels last year. It also processes 60-80 million barrels per year in its refinery at Ras Tanura /Table 3 7. Getty Oil Company started production in 1373/74 (1954); it produced 21 million barrels last year and contributed $12 million to the Governmentts oil revenues, The Arabian Oil Company (Japanese) has struck oil in the offshore Kuwait-Saudi Arabian neutral zone. 10. Local consumption of petroleum products has increased to more than 3 mi.llion barrels A year CTable 4J, despite the rather high price to consumers, which includes a large tax. Liquified gas is now being bottled and distributed in Saudi Arabia and facilities nearing completion that will permit the exportation of 400 barrels per day. Facilities are also being constructed for the utillization of some gas for the production of cement,  - 3 - in the Eastern Province and consideration is being given to the utilization of additional gas for the production of power. A substantial volume of gas is being reinjected and is, therefore, available for future use but more than 200 million cubic feet per day are being wasted, 11 Expenditure of oi.l revenues has led, over the past decade, to a broad expansion in some other sectors of the economy, particularly in commerce, finance and construction. Such expenditures combined with relatively low labor mobility have induced a steep rise in wages in the major population centers where most of the oil revenues have been spent. Unskilled labor is presently earning as much as SR 6-10 ($132-2.20) per day in these localities -- a level well above that prevailing in other Middle East countries , 12. This factor, together with others which will be discussed later in the report, has probably been a discouraging element in the development of local industry. Industrial enterprise is new in the Kingdom and the level of production is still quite low. All of Saudi Arabia's capital goods, most of her building materials, and a wide range of manufactured consumer goods, chemicals and pharmaceutical products are purchased abroad. Re- cently some relatively large industrial ventures have been undertaken. For example, the first Saudi Arabian cement plant, with a capacity of about 450 tons per day, is now in operation near Jiddah and a second cement plant is under construction at Hufuf with an initial capacity of 300 tons per day. A gypsum factory with a capacity of 30,000 tons per year is under construct- tion near Riyadh. 13. Trade and Finance. Oil is the dominant factor in Saudi Arabia's trade and finance / Table $J. Total receipts on current accopnt in recent years are estimated at approximately SR 1,688 million ($375 million) annually, of which about SR 1,350 million (O3O0 million) was from oil revenues, SR 112 million ($25 million) from the purchase of riyals by the oil com- panies and their staff for local expenditures, and SR 135-160 million ($30-35 million) from pilgrims. Half of Saudi Arabia's oil has gone to Europe in recent years, about one-quarter to Asia and most of the renlainder to Canada and the United States CTable 6]7. Exports other than oil are negligible. l1. Imports amount to approximately SR 1,012 million ($225 million) an- nually, about one-third of which is for foodstuffs, one-quarter for machinery and transport equipment, one-eighth for textiles and the remainder for such miscellaneous items as building materials and pharmaceuticals JTable 7]7. Europe supplies Saudi Arabia with about two-fifths of its imports, the United States about one-fourth, and the Middle East and Asia one-sixth each FTable 8]. 15. The margin between current earnings and imports leaves a substantial amount of income for such invisibles as travel and remittances abroad, both of which have presumably been very heavy. In recent months, however, the capital outflow has not been very large, and national reserves of foreign exchange have shown a material improvement. In any case, there  - 4 - is a clear need to provide better and more diversified opportunities for domestic investment; Saudi capital could play an important part in the development of the private sector of the Kingdomts economy. 16. Internal finances of the Government are closely related to the ex- ternal finances of the economy because oil revenues are very important to both. Last year 84% of total Governmient receipts were from oil revenues, 9% from customs duties, and 7% from various fees, registration dues and a tax on petroleum products. 17. Government spending in excess of revenues is quickly translated into additional demand for imports since, as stated earlier, the monetized sec-tor of the economy is almost completely dependent on imports, There- fore, budget and balance of payments surpluses or deficits usually coincide. Consequently, serious budgetary and balance of payments problems arose when oil revenues that had risen from SR 214 million ($57 million) in 1369/70 (1950) to SR 1,271 million ($339 million) in 1374/75 (1955) suddenly levelled off at a somewhat lower level without a corresponding curtailment of expenditures. 18. The substantial Government deficits incurred in 1375/76 (1956) and 1376/77 (1957) were financed by borrowing both internally, primarily from the Monetary Agency, and externally. By May 1958 the Government debt to the Monetary Agency, which is responsible for the currency issue and holds the Kingdom's foreign exchange reserves, amounted to SR 678 million ($181 million). The expenditure of these loans by the Government weakened the balance of payments position, increased domestic prices and resulted in a steady depreciation of the exchange value of the riyal in the free market. The demand for imported consumer goods was high. This could not be adequately checked by exchange and import controls, and foreign ex- change holdings were only 14% of the total currency in circulation on January 20, 1957; the riyal depreciated from the official rate of SR 3.75 to the U.S. dollar to a free market rate of SR 6.2. 19. The Government, therefore, in 1377/78 (1958), with the help of officials of the International Monetary Fund, introduced a drastic stabi- lization program which provided principally that expenditures were not to exceed revenues and for a reform of the exchange system. Strict budgetary controls were established. This program was sound and its execution remarkably swift and effective. Whereas the Government had a deficit of SR 300 million ($80 million) in the first part of 1377/78 (1958), a surplus for debt retirement was realized by the end of that year. In the 1378/79 (1959) budget revenues were estimated to exceed ordinary expenditures by SR 305 million ($81 million), SR 145 million ($38 million) of which was allocated for development and SR 160 million ($43 million) for servicing the Government debt to the Monetary Agency. In 1380/81 (1960) a balance of revenues over ordinary expenditures of SR 440 million ($98 million) is budgeted, of which SR 205 million ($46 million) is earmarked for develop- ment and SR 235 million ($52 million) for debt service ETable 9_].  20. The monetary effect of the debt retirement soon became apparent. Purchasing power of the private sector was also siphoned off by the new system which reintroduced a liberal import policy but made foreign ex- change available for such imports only at the free market rateo Profits fromn the sale of foreign exchange were also used to retire the Governmentts debt to the Monetary Agency. 21. These measures had a rapid effect on the balance of paymlents, parti- cularly since, as the rate of the riyal was gradually appreciating, flight capital wihich had left during the financial crisis began to return0 The Government debt to the Mionetary Agency was totally repaid by the end of 1959 and at the same time gold and foreign exchange holdings had increased from 14% to over 100% of the currency issue. Meanwhile, wholesale prices had fallen 15-20%. At this stage the Government established a new official exchange rate of $1 SR 4e50. This represented a devaluation of 16,7% from the previous official rate, Part of the budget surplus created as a result of revaluation, which is included in the 1960 budget figures mentioned above, was used to retire Government debt, 22. The stabilization program was further strengthened in 1379 (January 1960) when the Monetary Agency was made responsible for maintaining gold and foreign exchange reserves at least equal to the currency it issued. Since that date the Agencyts reserve holdings have substantially exceeded the note issue STable 10]7. Table 10 also shows that after the devaluation there was a pronounced decrease in the money supply, mainly due to the buildup of inventories and some outflow of speculative funds following the introduction of a fixed exchange rate for the Saudi riyal. Conse- quently at the time of the mission's visit, banks were not very liquid. Some of the banks, wJho during the period of high liquidity had made large commitments, found themselves in difficulties. In order to help tide over the period of emergency, the Monetary Agency came to the assistance of some banks on a selective basis, but, of course,its assistance was condi- tional on the observance of sound banking policies in the future. A larger than average number of pilgrims this year has, however, helped to reduce inventories, and this, coupled with some cash payments made by the Govern- ment to its domestic creditors, including banks, has helped in restoring bank liquidity to more normal levels. 23. The Monetary Agency has been gradually extending its control over commercial banks. In early 1958 they were required to submit statements of their financial position to the Monetary Agency every month, Since 1958 they are also obliged to maintain 15% of their total deposits as statutory reserves with the Monetary Agency. On the basis of the monthly returns, the Monetary Agency asks the banks to make necessary changes in policy. It is understood that the Agency is contemplating the issuance of a law for the establishment and control of banks, The mission believes that this would be a step in the right direction. 24. On balance the Kingdom's present internal and external financial position is satisfactory and should improve even further provided sound fiscal and monetary policies continue to prevail.  25. Natural and Hu-man Resources for Development. Aside from petroleum, Saudi Arabia does not have a great abundance of proven natural resources that are ready for exploitation. There is ample potentially fertile land but the low precipitation in most of the Kingdom prevents rainfed cultiva- tion and most of the settled agriculture is based on irrigation from limited groundwater resources, The Kingdom has various mineral deposits, but fur- ther exploration is required to determine whether production is commercially feasible. 26, The shortage of people with adequate training and experience is an- other factor limiting the early achievement of the Kingdom's development potentialities. Relatively few people in Saudi Arabia have had the advantage of an education and only a small number of them have any technical or vocational traininge Approximately one-fifth of the school-age males are now receiving an elementary education and schools are being established for girls. The shortage of skilled and semi-skilled labor in the Kingdom has necessitated the payment of large premiums for all skills, and both the private and public sectors have had to recruit skilled labor and technicians from abroado This situation also affects the standards of government administration. 'lhere is a serious lack of competent staff at virtually all levels throughout the government0 Therefore, the Kingdom's effort to improve and expand its educational program deserves continued high priority. 27. Financial Resources for Development0 Most public revenues are in foreign exchange and, therefore, Saudi Arabia should not encounter foreign exchange problems to the same extent as other countries striving for rapid economic growth by a public investment program. 28. In the 1379/80 (1960) budget the Governaent provided about SR 200 mil:Lion ($44 million) for various projects CTable 11]7. Of this amount, some SR 40 million ($9 million) was for projects that are not directly productive. 29. Saudi Arabia may reasonably allocate a somewhat larger amount for development in each of the next two years than in 1378/79 (1960) and in- crease this allocation from year to year as more financial resources can be made available and as the country's non-financial resources are prepared for development. 30. It is very difficult at this time to predict whether or not Saudi Arabia's oil revenues will continue to show any appreciable increase. Based on experience in the first five months of 1960 there are indications that increased production will probably more than compensate for the price reductions in Middle East oil made early in August of this year. Prospects for future years are clouded by the substantial finds of oil in North Africa as well as the world wide surplus, Getty and the Arabian Oil Company may increase their production, but the latter may displace some of ARhAMCO's market since Japan, the foreign participant in Arabian Oil, is AIMviCOls largest customer. Nevertheless, the size of its reserves and the low cost of oil production in Saudi Arabia should ensure the Kingdom's participation in the future expansion of the market for Middle East oil which may be  - 7 - estimated at about 5% per year, lIowever, in view of price uncertainties, it would be advisable to program the countryts financial and development operations on the basis of the present level, or at most only a very modest rise, in oil revenues for the next few years. 31. The Government would be well advised to devote any lump sum or special payment which it may receive from the granting of new concessions for the exploitation of minerals, including oil, or for the transmission or handling of these minerals, in the first instance, to the retirement of the Govern- ment's outstanding indebtedness and reserve the remainder for future economic development m 32. There is probably little prospect of any increase in Government income from other sources in the near future. However, there is a good prospect that over the years the portion of non-oil revenues could be increased rather substantially. Wide disparities in the distribution of income and wealth in the Kingdom provide a sound basis for levying graduated taxes and duties that can provide substantial income to the Government without affect- ing the income of the majority of the people or impeding the economic growth of the Kingdom. Specifically, the Government may wish to give consideration at an early date to increasing customs revenues on luxury goods; the possibility of introducing a universal graduated income tax should be explored, 33. Recurring Government expenditures for education and health should continue to increase over the next few years but other Government expend- itures should be kept under tight control. It is also most important that the total Government expenditures be kept within the limits of total Govern- ment receipts. Some savings may be achieved by a more efficient adminis- tration. Additional savings will occur from the abolition of import subsidies on essential commodities (some basic foodstuffs and pharmaceutical products) for which SR 42,5 million ($9 million) was set aside in the 1379/80 (1960) budget,, Since prices have been generally decreasing in the Kingdom, there is no reason to continue this subsidy system with its administrative and budgetary drawbacks and its negative effects on the production of certain competitive home-grown crops* 34L The Government's plan to repay its remaining, mainly external, indebt- edness during the next four years is sound. When this debt is completely repaid the amount now allocated for debt service could be used for economic development, if at that time such funds can be effectively absorbed for this purpose. 35, The mission, therefore, considers that the Kingdom's financial position and prospects warrant the Government's proceeding with the Interim Program recommended in Chapter III. In addition, there appears to be sufficient flexibility in the Kingdom's financial position to merit proceeding sub- sequently with the orderly and balanced execution of the projects prepared during the Interim Programo  - 8 - II. APPROACH TO ECONOMIC DEVELOPMENI 36. The mission has suggested an approach to the economic development of Saudi Arabia instead of a detailed blueprint of a long range balanced and integrated development program. At the present time Saudi Arabia has few of the facilities required for the preparation and execution of an economic development program, such as basic economic data, project feasibility surveys and adequate administrative and technical staff. Therefore, the mission has taken an approach that should help lay a solid foundation upon which a more substantive economic development program can be built. Simultaneously some activities can be launched that would contribute greatly to the economic welfare of the Kingdom. Specifically, the mission recommends: (1) Some general principles which it believes Saudi Arabia should follow in its approach to development (set forth in the following part of this chapter); (2) The organizational set-up and staffing requirements of the principal government agencies that will be involved in economic development (Chapter IV); (3) Pre-investment surveys necessary to evaluate the viability and economic priority of various development possibilities (Chapter III); (4) Economic development projects now under construction that should be completed and new ones that should. be launched shortly (Chapter III). (5) A program for the development and a survey of the Kingdomts water resources (Chapter V); (6) A program for the improvement of rural welfare and for increased production of food and fiber (Chapter VI); (7) Improvements in the field of communications (Chapter VII); (8) The stimulation and encouragement of private enterprise in the fields of power and industry (Chapter VIII). 37. General Principles. The mission suggests that Saudi Arabia in its approach to economic development be guided by the following general principles: (1) Financial and economic stability is a prerequisite to sound economic development. The financial progress made in the past two years should not be jebpardized by the development program. Indeed, the size and nature of the program should be such as lwould contribute to a further strengthening of the Kingdom's financial position.  ._ 9 _ (2) Begin modestly with progressive increases, Thle program should be rel~ted to current and prospective financial, physical, managerial and other resources available for economic development. This would permit Saudi Arabia to build its development program on a sound and Systematic basis and to move fonward with a minimum of the inevitable delays and hazards inherent in economic development. (3) Initial investments should be made in a relativel few top prior- it' projects that will disseminate maximum benefits to the largest number of peopleo In launching its development program the Govern- ment should avoid becoming involved in too many projects and pro- gramso It would be more beneficial to concentrate on a relatively few top priority projects that can be successfully managed and completed than have a much larger number started iTth few comple- tions. Incomplete projects are a financial burden, an adminis- trative problem and a disappointment to both the Government and the people. Extreme care snould be exercised to avoid over- extending the staff and facilities available for developmento It is recommended that the public resources be concentrated, in the first instance, on those projects that will benefit the largest number of peopleg such as development of additional water supplies and the employment of veterinarians to prevent such tremendous losses of livestock as occurred this year in the north central part of the country, The nature of Saudi Arabia's physical resources largely pre- cludes a major emphasis on grandiose and spectacular projectso There are a number of intriguiing possibilities that should be explored in due course but which are not sufficiently advantageous for the Kingdom to divert its attention at this time from the more important and urgent areas of economic developmento These possibilities include the utilization of part of the Kingdomts enormous reserves of cheap energy to desalinize water for the irrigation of some of its abundant fertile land. This is in the category of longer range projects but developments in this field should be wratched closely, particularly in relation to the cost of desalinizing water as compared to the cost of producing under- ground water0 The development of petrochemicals is possibly a more immediate prospect but should be left to private local and foreign enterprise with the necessary technical and managerial experience, (4) Public investments should be made in economic and social overhead projects that private enterprise is not prepared to undertake. The Government shzould continue its policy of leaving the fields of power and industry to private enterprise which has already made significant investments and indicated an interest in making Ourth- er investments. Private enterprise has the initiative and the capital necessary to exploit the power and industrial opportunities of the Kingdbm if given a favorable investment environment and, consequently, there is no need at this stage for any substantial public credit to the private sector. The Government should  - 10 - encourage and prbmote private paoer and industry by providing technical advice, incentives and basic communications and other facilities for rapid ancl sound graqth; it should also facilitate po,,,rer and industrial development by keeping Government regulation to the minimum consistent with the public interest. Consequently the Government should confine its investments to economic and social overhead projects such as development of water resources, improvement of crop and livestock production, construc- tion of transport and communications facilities and the improve- ment of education and health, A comtent staff should be engaged to plan and execute economic development works before such works are launched, This is the most important single factor for success in economic development. The Government has some able administrators and technicians on its staff, but these need to be substantially augmented. The proper planning, coordination and supervision of an economic development program are very complicated and difficult tasks re- quiring great skill and executive capacity. It will be difficult and time-consuming to recruit a qualified staff to assist the Goviernment in its economic development activities; nevertheless, it is exceedingly important that this be done before a substantial development program is launched. This staff should have the dual purpose of assisting the Government in carrying out its projects and. at the same time training Saudi Arabian counterparts to take over its functions and responsibilities as soon as possible. Confine public investment initially to: (a) The development of water resources. lWTater is the very life- blood of the Kingdom and its most important resource; its management during the next few years will determine to a very large extent the future growth and prosperity of Saudi Arabia. Much of the limited supply of water now available in Saudi Arabia is wasted and very stringent controls are urgently needed for the conservation of a resource vitally important to agriculture, industry and the very existence of the Kingdom. Geological and other studies indicate that Saudi Arabia has a substantial additional water potential which, if properly managed and controlled, can greatly en- hance Saudi Arabia's productive capacity. (b) Improvement of crop and livestock production. The raising of crops and livestock is a direct source of livelihood for more than three-fourths of the people, most of whom are using centuries-old methods and techniques. The improvement of practices and the introduction of modern facilities could substantially increase their production. This would improve the standard of living of these people and indirectly have a  - 11 - favorable impact on the standard of living of the remainder of the Kingdom, In adclition, new areas can be brought under cultivation to provide an opportunity and incentive to the Bedouin to take up settled agriculture, (c) Improved conmunications facilitiese Communications are fundamental to ec e development, Good and adequate ports are a prerequisite to the efficient and economic handling of goods enitering and leaving the country, and to the pilgrim traffic0 Roads are basic to the transporting of people and goods within the country and uniting the country into a more colhesive economic and social entity. The airlines play a particularly important role in Saudi Arabia by reaching remote areas that will not be accessible by road for a considerable time0 Telecommunications are essential to modern govern- mental and business transactions. (d) Education and health. Education and health hnave a direct bearing on the capacity of the people to produce and on their economic c-llIt-being,, Appropriate education and healt;h programs should be given high priority and aceelerated to the maximum extent possible. Particular attention should be given to vocational education, especially agriculture, (7) Economic development projects sholuld be carried out by the minis- tries concerned and not by the econr.;. c developmnent planning organization0 The engineering ancl p:-eparation of specifiLc pro- jects, as well as their execution and operation, are a part of the normal responsibilities of the ministries to which the pro- jects are assigned. Therefore, it is desirable that the necessary staff for this work be built up at the earliest possible oppor- tunity, The ministries, hownever, should keep the central planning body fully informed of the progress made in the execution of the rrojects, including expenditures. The central planning body recommended in Chapter III should. have responsibility for: (a) Planning and cbordinating all economic development activities in the Kingdom, including Government policyj writh respect to development in the private sector. Such planning and co- ordination would include all new capital investments in projects currently uncder wqay as well as in new projects; for example, new expenditures for the civil airlines or for the railwfays or for the agricultural extension service would be included. The central planning body would also coordinate the execution of economic development activities in the several ministries to prevent unnecessary duplication and to ensure the related projects are fully integrated,  - 12 - (b) Folloirng up on the progress of the implementation of all economic developmient activities to ensure completion of the development program on schedule with maximum results, mini- mum investment and in the shortest time feasible. (c) 'Maintaining a continuing assessment of the Kingdom's re- sources, recommending their apportionment and relating development programs to changing circumstances.  - 13 - III. INTERIM PROGREAM 38. The mission recommends that the Government launch its economic develop- ment program with a 2-year Interim Program to be carried out during 1380/81 (1961) and 1381/82 (1962). Such a program would be a significant step in the economic development of the Kingdom. The mission suggests an Interim Program along the following lines: (1) Establishment of Ministry of Water Resources. The mission recom- mends the establishment of a separate ministry to carry out a water resources program and to regulate the conservation of the Kingdomts most vital asset0 The development and regulation of water are closely related to agriculture in Saudi Arabia, but substantively are vastly different and, therefore, should be sep- arated from the present Ministry of Agriculture, Wrater requires an entirely different approach and setup from agriculture since it has to be regulated and controlled as well as developedo Also, water concerns both urban and rural communitieso In addition, the paramount importance of water resources justifies the estab- lishmient of a separate ministry. The mission recommends that the Ministry immediately under- take an assessment of the water potential in the Kingdom and of the rate at which it can be safely used to ensure water for succeeding generations, engineer a program for exploration and production in accordance with sound water conservation principles, recommend a water conservation poli?y and regulations for its implementation, and conduct a program for the education o