Journal of South Asian and Middle Eastern Studies, Vol. IX, No.2, Winter 1985

The Evolution and Evaluation ofSaudi Arabian Economic Planning

Robert E. Looney and P.e. Frederiksen

Introduction

Almost fifteen years ago the Saudi Arabian Monetary Agencyquoted the Qur'an in its annual report: "Verily, never will Godchange the condition of a people until they change it themselves."Throughout the first four Saudi Arabian development plans(1970-1990) themes of change and responsive participation havedominated the Kingdom's development philosophy: "strategic pri­ority to structural change rather than to growth" and "the sponta­neous response from sQciety . . . to the opportunities offered bydevelopment."I

In March 1985 the Fourth Development Plan (1985-1990) wentinto effect. At the time, King Fahd noted that:

Fortunately, th~ changes in the oil market have occurred at a timewhen we have completed most of our major projects, while the restare about to be completed, which will help us in bettering the qualityof our output, which in turn will bring prosperity to the citizens ...What is going on in the oil market is practical evidence of the wisetargets which have been determined by all of us in the developmentplans, in addition to the wise policies which we have followed incarrying out the economic and social goals. 2

1. Howard Bowen-Jones, "The Third Saudi Arabian Five-Year Plan," The ArabGulfJournal (October 1981), p. 55.2. Saudi Report (April I, 1985), p. 4.

Drs. Robert E. Looney and P.e. Frederiksen are Associate Professorsof Economics, National Security Affairs, and Defense ResourcesManagement Education Center, respectively, Naval PostgraduateSchool, Monterey, California.

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Since the first Plan was introduced in 1970, the government hasfollowed an overall policy to increase output so as to sustain thegrowth ofemployment and increase standards of living but at levelswhich will not create serious dislocation or social instability in thecountry. The Plans have outlined multifaceted approaches to themany problems endemic to a developing country. The focus hasbeen to expand the national resource endowments of the country,to rectify shortages, and to spread the benefits growth throughoutthe economy. The recent economic growth in Saudi Arabia isundoubtedly due in a major way to successful government planningand subsequent intervention.

The completion of the Third Plan in early 1985 and the initiationof an ambitious Fourth Plan in the wake of declining oil revenuesand weakening OPEC solidarity is evidence that Saudi Arabia hasreached a possible water-shed in its development efforts. Thispaper reviews the evolution of Saudi planning since 1970 and eval­uates the country's unique approach to economic-development.

The Introduction of Economic Planning

The public and private sectors each have separate but significantroles in the Saudi Arabian economy. Inasmuch, devlopment plan­ning has been termed "perspective" for the former but only "indic­ative" for the latter. 3 State planning has encouraged the growth ofboth sectors by allocating oil revenues to direct public domesticinvestment and by pointing the way for private investment. Thegovernment has thus become a traditional entrepreneur; undertak­ing acitivites unattractive to the private sector for reasons such aslarge capital entry requirements. At the same time, the Plans havebeen supplemented by a variety of orthodox policy instruments(such as tax incentives and subsidies) to encourage as much privateactivity as possible.

While informal economic planning had begun in the 1950's, itwas King Faisal's foresight4 and persuasion which introduced eco-

3. For a description of this general type of economic system see )ahangir Amuze­gar, Comparative Economics: National Priorities, Policies and Performance(Cambridge, Mass.: Winthrop Publishers, 1981), Ch. 4.4. A fascinating account of King Faisal's insights into the country's developmentprocess is given in Savad Abdul-Salam AI-Farsy, "King Faisal and the First Five YearDevelopment Plan," in Willard A. Beling, ed., King Faisal and the ModernizationofSaudi Arabia (Boulder, Co.: Westview Press, 1980), pp. 58-71.

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nomic planning. An initial planning apparatus had been establishedin 1958 and formal planning began a year later when the Prime Min­ister expanded the economic development committee. In 1961 thiscommittee was replaced by the Supreme Planning Board whichdesigned a development policy in cooperation with various minis­~ries. In 1965 this board was replaced by the Central Planning Orga­nization (CPO) whose leader had close contact with the King.~

While economic policy prior to King Faisal had been primarilyshort run in nature, under his rule it was understood to cover theentire economic process over the long run. At the time, develop­ment policy objectives in Saudi Arabia were to maintain religiousand moral values, to raise the living standards of the people, to pro­vide national security, and to maintain economic and social stabil­ity This was to be accomplished by increases in the growth ofGrossDomestic Product (GOP), the development of human resources,the diversification of the economic base, and a reduction in thedependence on oil revenues. t

• These objectives and means have notfundamentally changed since then. To carry the objectives out, thefunctions of the CPO (as defined in the Council of Ministers Resolu­tion 430) were to: write periodic economic reports, formulate eco­nomic and social development plans, estimate needed overallresources, aid other ministries, supply the King with technicaladvice, help establish planning units in other ministries, and moni­tor and report on planned projects to the Council Ministers.'

In the early 1970s, the CPO consisted of four departments: Plan­ning, Research, Follow-Up, and General Administration. H On Octo­ber 13, 1975, by Royal Order No. A-326, the CPO was elevated tothe Ministry of Planning. By then, the country was prepared to effi­ciently assimilate the vast increase in oil revenues.

The First Development Plan: 1970-1975In 1970, the CPO introduced the First Five Year Plan. 9 The targets

of the plan, while perhaps modest by present standards, were to

5. Yusif A. Sayiah, The Economics ofthe Arab World (New York: St. Martin's Press,1978), pp. 177-78.

6. Ibid.7. Ramon Knaverhase, The Saudi Arabian Economy (New York: Praeger Pub­lishers, 1975), pp. 316-20.

8. Ibid.9. See Centroll Planning Organization, [Jel1elojJment Plan, 1390 A. H. (Riyadh,Saudi Arabia: Central Planning Organizalion).

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