T he history of Saudi Arabia’s economic transformation can be broken down into three distinct periods. During the first period, starting with the establishment of the modern  Kingdom of Saudi Arabia in 1932 and ending in 1969, the government focused on developing the Kingdom’s hydrocarbon reserves and depended on oil as the engine of the economy. The second period, beginning with the introduction of the first of the five-year development plans in 1970, brought about a concerted effort to consolidate the infrastructure that would be needed to realize economic development.

Saudi Arabian companies manufacture computer components 

and other high-tech products

The third and most important period of  Saudi Arabia’s economic transformation covers the past two decades, a period of time corresponding to the first 20 years of the rule of the Custodian of the Two Holy Mosques King Fahd bin Abdulaziz. It has been in this era that Saudi Arabia has developed a fully diversified economy.

At the time of the establishment of the modern Kingdom in 1932, Saudi Arabia was an agrarian society dependent on subsistence farming and commerce, and lacking the infrastructure necessary for the economic growth and social development envisioned by its founder, King Abdulaziz bin Abdulrahman Al-Saud.

Saudi Arabia is self-sufficient in the production of many dairy products.

The discovery of oil in commercial quantities in 1938 and its steady export soon after World War II provided the funds the Kingdom needed to build the basic infrastructure — roads, airports, seaports, schools and hospitals.

In 1970, Saudi Arabia introduced the First Five-Year Development Plan to build a modern economy capable of producing a wide range of consumer and industrial goods that, up until then, had to be imported. Bringing cohesion and a long-term outlook to economic growth and expansion, each of these five-year plans served as the foundation for the next level of growth and development.

Rolls of cable at a plant in Jeddah await shipment to customers 

in Saudi Arabia and abroad.

During his tenure as Crown Prince, King Fahd was deeply involved in the planning and implementation of the development plans. The first three plans (1970-84) focused on establishing a modern infrastructure capable of servicing a thriving economy. A network of modern roads, airports and seaports was established that not only made possible travel from one part of the country to the other but also more importantly, allowed industrial and commercial activities to flourish.

At the same time, Saudi Aramco, the national oil company, invested in new production facilities, pipelines, plants and shipping facilities, while exploring for new deposits outside the traditional producing areas of the Eastern Province to maximize earnings from the oil sector, which would be vital to fund further growth of social services and the continued expansion of the non-oil industrial sector.

A modern banking system serves consumers and businesses.

Meanwhile, the government founded the Saudi Arabian Basic Industries Corporation (SABIC) in 1976 to establish non-oil industrial facilities that would use as feedstock natural gas and natural gas liquids manufactured by the oil industry. The company soon set up a network of 15 giant factories that use the byproducts of the oil industry to manufacture plastic resins and steel, as well as fertilizers that are sold to the agricultural sector.

During the last 20 years, the development plans have focused on further strengthening the rapidly growing private sector and diversifying the economy away from oil. An important tool to achieve these objectives was the establishment of specialized credit institutions that provide long-term interest-free loans that can be used to finance up to 50 percent of the cost of new ventures, whether in industry, agriculture or commerce.

The agricultural sector provides as much as 70 percent of the nation's needs.

The development plans have produced spectacular results. Industrial exports have risen steadily, growing 10.2 percent in 2000 to 24 billion riyals (6.4 billion dollars). The private sector accounted for almost 42 percent of the nation’s gross domestic product (GDP) of 618 billion riyals (164.8 billion dollars) in that year.

There are more than 3,300 industrial factories in the Kingdom.

Saudi Arabia’s economic transformation has been all encompassing, including agriculture, commerce, banking and other non-industrial fields. Agricultural production has grown more than 30-fold in the past three decades to more than 15 billion U.S. dollars annually. There are now nine private commercial banks with some 1,200 branches, and net capital and reserves of 12 billion dollars. There are 9,800 firms, mostly joint stock companies, involved in commercial activities in the Kingdom. Their total invested capital is estimated to be more than 170 billion riyals (more than 45 billion dollars).

A worker at a metal factory operates an aluminum smelter.

With the economy firmly on the road to sustained growth and expansion and the private sector playing an increasingly important role, King Fahd introduced a series of measures in recent years to enable the country to better deal with the challenges and opportunities of the 21st century. In September 1999, he formed the Higher Economic Council (HEC) to bring about greater qualitative and quantitative economic growth, and in January 2000 established the Supreme Council for Petroleum and Minerals (SCPM) to oversee the operations of the Kingdom’s oil industry.


Many Saudi firms have benefited from joint ventures with American and European firms through the transfer of advanced technology.

In April 2000, King Fahd established the Saudi Arabian General Investment Authority (SAGIA) to encourage greater domestic and foreign investment in the Saudi Arabian economy, and introduced the new Foreign Investment Law that gives foreign investors the same benefits, incentives and guarantees that are offered to Saudi individuals and companies, and allows foreign investors full ownership of projects and their related property. That same month, he also formed the Supreme Commission for Tourism (SCT) to encourage investment in, and expansion of tourist facilities. The opening of Saudi Arabia’s huge energy sector to foreign oil companies in June 2000 is expected to further boost economic development in the years to come.

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