The Saudi Arabian economy is dominated by oil, which accounts directly for nearly forty percent of gross domestic product (GDP).1 Indirectly, however, considering that petroleum production allows the government to subsidize manufacturing, agriculture, and services in much of the private sector, it is estimated that the oil sector controls eighty percent of the desert kingdom's economy. That said, official general policy since the oil boom two decades ago has been to diversify the economy. Agriculture, for example, is subsidized in order to decrease dependence on imports of foodstuffs in this arid, mostly non-arable land that requires vast amounts of irrigation. As a result of such subsidies, agricultural production has increased about 8 percent a year since the 1980's, but costs are far above international market levels. For instance, the country is now self-sufficient in wheat, but its cost is nearly five times the world price. And industry too has received similar subsidies in the national effort to diversify economically away from oil. Thus, the Saudi economy is dominated away from oil, but official policy is to lessen dependence on the "black gold" via subsidization to the agricultural and manufacturing (and increasingly service) sectors.
Industrially, diversification efforts by the Saudi government, which owns or controls most of the economy, have been largely fields related to oil--petrochemicals, refining, oil shipping, and the like.2 But as in agriculture, so far these endeavors have not been profitable vis-a-vis international competition. Indeed, without heavy public subsidies, such enterprises would have folded by now. As for the remaining twenty percent of the economy that is not oil-related or government-subsidized, the main industrial areas are paints, construction, soft drinks, furniture, and processed foods. And the main problem here is the diminutive domestic market, which forces such enterprises to seek ...