Faced with declining oil revenues, the government of Saudi Arabia has decided to do some riyal-pinching.
To a considerable extent, this squeeze will be felt by foreign businessmen. The tighter and balanced budget announced by King Fahd late last month assumes less spending on mega-projects -- the type of deal usually won by the Bechtels, Fluors, and Mobils of the West.
``We are willing to respond to the realities of the situation,'' says Dr. Abdulrahman al-Zamil, the Saudi deputy minister of commerce. ``Our country is run by an elite and we have brains. We are not living in a dream world.''
In a telephone interview, he added: ``Our income is enough for a small country.'' With oil sales less than half their 1980 peak of 10 million barrels daily, Saudi budget revenues last year were $46 billion, down from $100 billion in 1981. Nonetheless, Dr. Zamil figures the average income of the 8 million Saudis remains about $18,000 a year. That is around $5,000 more than the average per capita income of Americans.
Saudi Arabia's high income level indicates that the kingdom will remain a good market for American and other foreign businessmen. The United States has been exporting about $10 billion a year to Saudi Arabia.
``Mega-projects will need mega-maintenance for a long time,'' noted Pamela M. Kesting, managing editor of a weekly newsletter, Saudi Report.
A Commerce Department expert commented: ``A lot of people are sounding the alarm bells unnecessarily.''
For the fiscal year that began March 20, Saudi government expenditures will drop to $55.4 billion from $59 billion the previous year, or some 6 percent. In the United States, Congress has been fighting over a 5 percent trim in the budget.
``Fortunately,'' noted King Saud in a televised address on the budget, ``the changes in the oil market have occurred at a time when we have completed most of our major projects, while the rest are about to be completed. . . .''
Says Abdallah T. Dabbagh, secretary-general of the Council of Saudi Chambers of Commerce and Industry: ``We have a beautiful infrastructure now.'' Roads, schools, airports, ports, power plants, and hospitals are ``state-of-the-art,'' he says.
Zamil, who like Mr. Dabbagh was in Washington accompanying a group of 49 Saudi businessmen on a business mission in the US, expects Saudis, on their own or in joint ventures with foreigners, to win a bigger share of government contracts. Though amounting to some $12.5 billion in the new budget, these will tend to be smaller and fewer than in the past. Thus Saudi businessmen, who were not big enough or technically sophisticated enough to manage the mega-projects, will be more likely to win bids for these projects.
``Saudi businesses have a tremendous advantage and opportunity to grow,'' says Dr. Zamil. ``Foreign companies who failed to establish themselves in partnership with Saudis will hardly have any chance.''
King Fahd, in a recent talk to Saudi businessmen, said: ``I don't see any problem in making use of foreign experience, giving foreign firms a percentage of the business, and having some sort of integration.''
Those foreign companies that do win contracts are now required to subcontract 30 percent of their project to wholly owned Saudi companies.
Moreover, the competition is keener. The king has insisted on public bidding for most government-financed projects, rather than sending out invitations to a limited number of companies. As a result, Zamil says, prices on many projects have been shaved 20 to 30 percent as perhaps 30 companies scramble for the business.
The visiting Saudi businessmen are especially interested in finding American partners for high-technology ventures, agribusiness, and downstream chemical industry investments. The Saudi Basic Industries Corporation, a government-backed entity, has been constructing for several years a basic chemical industry in the new cities of Yanbu and Jubayl, on opposite coasts of the Arabian Peninsula. Some of these plants are now in production.
With its massive oil reserves and limited other natural resources, Saudi Arabia will be highly dependent on its petroleum revenues for decades to come. But oil provides only a limited number of jobs, and the government does not want its people to become a nation of welfare recipients or coupon-clippers. So it has been promoting manufacturing through an industrial development fund, with some success.
King Fahd has called on Saudi businessmen to repatriate some of their hoards abroad for investment at home, and speaks of ``lessening our dependence on the export of crude oil as the sole source of income of the state.''
Some of the new small and medium-size manufacturing plants produce goods that substitute for imports. Industrial production has grown from not quite $1 billion 10 years ago to about $10 billion today, Zamil notes. The non-oil sector amounts to about 8 percent of total national output now and is planned to rise to 15 percent by 1990.
Many of these plants also export to countries in the region, such as Kuwait, Somalia, Sudan, Iraq, North Yemen, Egypt, Syria, Jordan, the United Arab Emirates, and so on. Manufactured exports amounted to about $600 million last year.
The Saudi economic slowdown has also hurt foreign workers. Several years ago, noted Mr. Dabbagh, a foreign construction worker might have cost $400 a month. Now he can be hired for $250.
One of the expectations in the Saudis' fourth five-year plan, also announced last month, is to reduce the number of foreign workers by some 600,000 over five years. There are some 2 million foreigners in the kingdom at present. But Saudis expect to need skilled foreign workers for decades to come while their education level rises. More than 3,000 Saudis graduate from American universities alone each year. And, unless the Saudi aversion to manual labor changes, the nation will need foreigners to do construction work, garbage collection, etc., for an indefinite time.
To bring its new budget into balance, the government has taken some measures that would be considered drastic in the US. Customs duties have been raised from 4 to 7 percent. Wheat subsidies for farmers were slashed from 3.5 riyals per kilo (almost $1) to 2 riyals. Electricity and water rates were doubled or tripled for usage above an amount considered normal for 80 percent of the population.
Some observers suspect the budget is too optimistic in its revenue estimates, up 17 percent from last year. If so, the government would have to draw down further its monetary reserves, as it did for the last two years. These are said to be still about $100 billion, down from a peak of about $150 billion.