Facing the New Economic and Sustainable Development Challenge

  • Middle East Policy

    Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.

Ambassador Richard J. Schmierer

Boardmember, Middle East Policy Council | Remarks as prepared for delivery

Thank you for the invitation to participate in this very important conference and to address the issues of trade and economics and how our two countries can cooperate and gain mutual benefit in these two key areas.

I am pleased to be back in Riyadh, a city I have fond memories of from my three year diplomatic assignment as the Minister-Counselor for Public Affairs at the U.S. Embassy from 1997 through 2000.  That tour of duty brought to a total of 8 years my time living in Saudi Arabia, having first arrived here in 1977.  I and my family have spent many enjoyable years in the Kingdom, and have much appreciated the friendliness and exceptional hospitality of the Saudi people.

At the outset, let me note that there are many important areas of economic and commercial cooperation between the U.S. and Saudi Arabia, and there are also some economic areas in which both of our countries face common challenges.  Our two countries have long cooperated in such key fields as energy, security, infrastructure and human resource development.  And, today, we also face several common economic challenges, perhaps most notable in the area of employment.  Both of us — and, indeed, the entire global economic system — are still coming out of the deepest economic recession since the Great Depression of some 80 years ago.  One consequence of the deep recession has been high unemployment.  

Related to the continuing challenge of employment are the issues of education and job skills.  In both of these areas the U.S. and Saudi Arabia are taking steps to provide educational training opportunities, in particular for young people new to the labor market, to prepare them for the kinds of jobs currently available and likely to become available in the coming years.  In this area we are already working closely together.  Several years ago the late King Abdullah launched an ambitious program to provide thousands of young Saudis the opportunity to study abroad.  Perhaps some of you in the audience today have been participants in this program.  This wise investment on the part of the Saudi leadership will pay great dividends for the Kingdom, both in terms of the educational accomplishments of the Saudi students as well as in broadening and deepening the Kingdom’s knowledge base.  From the U.S. perspective, this program has two important aspects.  First, it provides thousands of young Americans an opportunity to gain first-hand knowledge of the Saudi people and, through them, greater insight into and understanding of the Kingdom. And on an economic level, the universities which host the Saudi students, and their communities, receive considerable financial benefit.  So this area of Saudi-U.S. cooperation is clearly a win-win for our two countries.

In the area of human resource development, the Kingdom has a very strong track record, both in terms of developing its domestic educational system — including a large and impressive group of universities — most recently opening the world-class King Abdullah University of Science and Technology — and its commitment to providing qualified Saudis with the opportunity to pursue higher education abroad.  The 70,000 or so Saudi students currently in the U.S. — and the tens of thousands who have already completed their higher education there and returned home — are a testament to the Kingdom’s commitment to invest in its greatest resource — Saudi youth.

Another important area of cooperation between the Kingdom and the U.S. — and also one with a significant economic component — is security cooperation.  Saudi Arabia has been a leader in promoting a robust, integrated regional security framework, and through this leadership has ensured a capable, credible regional defense structure.  This effort has allowed the states of the Gulf to counter regional aggression and to provide deterrence.  As you are certainly aware, the U.S. has been a strong and committed partner in this effort.  U.S. military experts and American defense firms have worked closely with Saudi security and defense officials and institutions on this quite successful effort, and the economic impact in the U.S. communities which host the U.S. firms involved have been considerable.  Given the instability and turmoil in many parts of the region, and especially in areas on or close to the Kingdom’s borders, this area of U.S.-Saudi cooperation is likely to deepen going forward.

Turning to another key area of cooperation between our two countries — the energy sector — as the world’s largest oil exporter, the Kingdom of Saudi Arabia has been affected by the significant decline in oil prices since last summer.  This development brings to mind one of the challenges which volatile energy prices has presented to the Kingdom’s leaders over the past several decades:  how to ensure predictable, consistent budgetary planning and expenditures in the face of uncertain, and often wildly varying, oil prices.  Over the decades during which it has dealt with this challenge the Kingdom has succeeded in developing successful mechanisms for dealing with this issue, and in light of its large current fiscal reserves — more than $735 billion — and almost no public debt — less than 2% of GDP — the Kingdom is in a strong position to maintain consistent budgetary outlays even in the face of constrained revenues.  Indeed, its current budget is the Kingdom’s largest ever. 

In managing its considerable oil resources — some 16% of the world’s proven oil reserves — the Kingdom has also faced the need to ensure inter-generational equity concerning the country’s wealth.  It has done this well through its sovereign wealth funds as well as through its investment in infrastructure and education.  And the Kingdom’s reliance on a single commodity for the bulk of its economic activity — Saudi Arabia derives more than 90% of its revenues from oil — has spurred the country to work towards diversifying its economy, which it has done with some success in recent years.  While high oil prices can mask improvements in economic diversification, in fact Saudi Arabia’s non-oil economy has grown at more than 7% annually in recent years.

The energy sector is, of course, one of the largest and most important areas of economic cooperation and interest between our two countries.  Changes in energy markets, energy sources, and energy consumption have all affected both of our countries, as well as global energy markets in general.  Recent declines in world oil prices are affecting budgeting decisions in oil exporting countries such as Saudi Arabia, are affecting energy production as more costly oil resources become non-competitive, and are affecting the viability of alternative energy sources, such as renewables.  Likewise, changing consumption patterns — with greater efficiencies in transportation, and alternative energy sources for both transportation and electricity generation — are affecting global oil and gas demand.  But certain fundamentals remain unchanged.  Both the Kingdom and the U.S. are committed to ensuring free and open international energy markets, with prices determined by market conditions.

There is thus considerable area for strengthened cooperation between our two countries in the energy sector, whether it is a continued role by U.S. corporations in the Kingdom’s ongoing effort to expand its activity in downstream production of petroleum products, or new cooperation using ever-improving U.S. renewable energy technologies to help the Kingdom utilize its considerable potential in this area.  And there is a greater and greater convergence between our two countries on environmental issues, which likewise impact our cooperation in the energy sector. So while much has been written about increasing U.S. energy independence — based on increased domestic oil and gas production in the U.S. — the fact is that the partnership between our two countries in ensuring adequate energy resources and smooth transitions as global energy consumption patterns change remains as strong as ever.

In looking at areas for continued and expanded economic and commercial cooperation between our two countries, it is important to keep in mind that each of our countries faces a number of domestic economic and budgetary challenges which impact the prospects for such enhanced cooperation.  On the Saudi side these include educating and employing the country’s large youth cohort, ensuring adequate access to the labor market on the part of Saudi women, seeking further steps in Saudi-ization, and addressing issues related to subsidies and social welfare programs.

There are also considerable economic and fiscal challenges on the U.S. side which effect the overall context in which our two countries seek to maintain and deepen their economic and commercial cooperation. These include:

• continuing and projected large federal budget deficits;

• increasingly costly and, ultimately, unsustainable entitlement commitments;

• an increasing wealth and income gap, with a middle class under economic strain;

• a need for tax reform and possibly further reform in the health care sector;

• high higher education costs and education debt levels among young people; and,

• increasing public skepticism concerning trade liberalization and free trade.

Thus, each of our countries must address certain domestic economic challenges to ensure that each sustains a strong and growing economy and brings that strength to the many areas of economic and trade cooperation and engagement which has characterized the partnership between our countries for some 8 decades now. As an optimist, I am confident that we will be able to meet these challenges and not only continue but indeed deepen this long-standing and mutually-beneficial partnership.

Thank you for your attention. I look forward to engaging in a robust discussion of these important issues.

  • Middle East Policy

    Middle East Policy has been one of the world’s most cited publications on the region since its inception in 1982, and our Breaking Analysis series makes high-quality, diverse analysis available to a broader audience.

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