Saudi 2010: empire in the making

If you take a quick look at the map of the Arabian Peninsula, Saudi Arabia appears to engulf the entire region. It is the largest country in the GCC with the biggest population, economy and military. It is the world's leading producer of crude oil, and the single most important religious destination for the world's billion-plus Muslims.

All the factors necessary for phenomenal growth and wealth are available in Saudi Arabia, yet other states in the GCC seem to be outshining their hefty neighbour. The United Arab Emirates is attracting far more foreign investment and its investment funds appear to be more active locally and globally. Qatar, the region's top producer of natural gas, has established multiple revenue streams and has emerged as an education and media centre. Bahrain, Oman and Kuwait are all charging along with a variety of financial and real estate ventures that augment its oil proceeds.

Yet while Saudi Arabia is lagging behind, it cannot be ignored. The GCC benefits greatly from the surge in liquidity, and Saudi Arabia invests heavily in all the economies in the region. Saudi has not realised its economic potential yet, but it is a major player in the region and the world. When HRH King Abdullah addresses issues in Lebanon, Israel, Palestine and Iraq, the Arab League and world powers take its positions seriously. Saudi Arabia is one of the few Arab states that remains a close US ally and a credible voice in the region, a near-impossible balancing act. Nevertheless, the Kingdom recognises the ephemeral nature of its power and is aggressively moving towards a new economy, and perhaps a new identity.

In this special report, Arabian Business explores the current status of the Saudi economy, with in-depth coverage of its diversification from an oil-based economy, the development of its healthcare sector, and profiles of the political and business leaders directing the Kingdom's transformation.

The recent oil boom has filled the coffers of all oil producing countries, and the largest producer received the greatest influx. According to the Economist Intelligence Unit, Saudi's GDP has nearly doubled since 2002 from US$118.6bn to US$347.3bn in 2006. While analysts debate the ‘peak oil' theory and look towards alternative sources of energy, Saudi Arabia continues to expand its current capacity and explore for more wells. With around 25% of global oil reserves and plentiful natural gas reserves, Saudi Arabia ranks fourth in the world in natural gas reserves, and Aramco claims that only 15% of the country has been "adequately explored for gas". Few analysts predict that oil prices will drop below US$60 per barrel over the next two years (oil is currently US$77 per barrel); oil and gas will remain the main source of revenue and the economic driver in the Kingdom.

The only player in oil production in Saudi Arabia is state-owned Saudi Aramco, the world's largest oil exporter. The company has been managing oil exploration and extraction for the Kingdom over the last 70 years and has become one of the largest state-controlled companies in the world.

In 2006, Saudi Aramco markedly enhanced its operations to achieve its goal of increasing crude oil production capacity to 12.5 million barrels/day (b/d) by the end of the decade. Underdeveloped fields throughout the Kingdom are coming on stream within the next two years which will triple the number of oil rigs in operation and should increase production by two million b/d.

Saudi Aramco is also increasing its gas exploration efforts. A myriad of onshore and offshore exploration and extraction is ongoing, which will go far to feed the voracious appetite for natural gas of power, desalination and petrochemical plants.

Natural gas is what brings us to another Saudi giant: Saudi Basic Industries Corporation (SABIC). While Aramco will invest nearly US$70bn in the petrochemicals industry in the next five years (the company recently teamed up with Dow Chemicals to build a US$20bn plant in Ras Tanura), SABIC has been a leader in the petrochemicals sector over the past 30 years, and is the largest non-oil producing company in the Middle East.

Not only is SABIC a regional giant, it is also a major global player. The company is among the world's market leaders in the production of polyethylene, polypropylene, glycols, methanol, and fertilisers, as well as the fourth largest polymer producer. Fuelled by impressive profits - profits rose to a record US$5.4bn in 2006, a 6% increase on 2005, while first quarter 2007 profits remained strong at US$1.7bn, an increase of 50% compared to the same period in 2006 - SABIC has gone on an aggressive acquisition spree.