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DOMESTIC DEVELOPMENT AND THE MANAGEMENT OF OIL REVENUES IN THE ECONOMY OF SAUDI ARABIA
Abstract
With the sharp increase in oil prices which began in late 1973, Saudi Arabia acquired enormous financial resources. A country like Saudi Arabia with limited means of production and a backward economy faces tremendous difficulties in spending this revenue wisely. This study, therefore, addresses itself to this problem: the management of Saudi Arabia's oil revenue during the period, 1974-78. It attempts, first, to analyze critically the allocations of the country's total expenditures and its economic achievements in light of the goals postulated by two five-year development plans, (1970-80). It also aims to determine empirically the allocation of the country's surplus revenue for the fore-mentioned period. Finally, the study seeks to develop a strategy for managing Saudi Arabia's foreign investments. This strategy is not designed solely to maximize the financial rate of return; it also seeks to satisfy a mix of qualitative objectives, including technology transfer, security of the country and stability of the region.^ The findings of the model suggest that 62 percent of the Saudi public investments in the U.S. should have gone into treasury bonds, 29 percent into direct investments, and the remainder into other forms of assets. It was found also that Saudi Arabia's investment of its surplus revenues has not been profitable. Because of the decline in the foreign exchange value of the dollar plus other effects of the worldwide inflation, Saudi Arabia experienced real losses from investment of its surplus revenues estimated to be nearly $10 billion in 1978. The country's limited absorptive capacity resulted in the level of development being less than the planners intended and expected.^ Real improvement was registered in the construction, transportation, and communication sectors. However, a sizable amount of waste is believed to have accompanied the growth of these sectors, primarily because of overbidding by contractors, outright corruption, and through resort to lavish and cosmetic undertakings.^ Domestic developments turned out to be perplexing and slow. Financial surpluses turned out to be unattractive. These developments lead to the conclusion that Saudi Arabia has no sound alternative but to economize in the production of its exhaustable oil. Furthermore, the rapid depletion of world oil reserves has ushered in a serious energy crisis. On this basis, Saudi Arabia's policy of continuing high levels of oil production and relatively low prices, in the over-all context of OPEC policy, does not, in the longrun, serve the interests of either Saudi Arabia or the international community. ^
Subject Area
Economics, Finance
Recommended Citation
MARTAN, SAID S, "DOMESTIC DEVELOPMENT AND THE MANAGEMENT OF OIL REVENUES IN THE ECONOMY OF SAUDI ARABIA" (1980). ETD collection for University of Nebraska-Lincoln. AAI8105844.
https://digitalcommons.unl.edu/dissertations/AAI8105844