Will we survive the oil crisis?
Sunday, 28 December 2014
Abdulrahman al-Rashed/Al Arabiya
The Saudi government, like the rest of the oil exporting countries, has lost 50 percent of its daily revenues ever since the price of the barrel dropped below $60. This shocker is only momentary. The Saudi government is wealthy enough to compensate for the shortfall and reduce some expenses, allowing the stock market to be minimally affected and the problem to pass. But no, in reality, the problem hasn’t passed – it hasn’t even begun and it will resurface one day. This is not a prophecy but a realistic reading of the situation.
“What’s the value of money if it’s not spent on building a society capable of standing on its feet tomorrow without oil?”Logically thinking, will we be able to survive if the oil price drops to $30 or less and if such a situation prolongs for the next decade or longer?
In this scenario, government revenues will not be enough to cover state employee wages and will therefore be incapable of subsidizing the prices of rice, bread, water and power and the funding of universities, hospitals, trade industries and transport. The government would then consume its saved financial reserves and increase its local debt while those with hefty bank accounts will transfer their funds to foreign banks.
So shall we wait until we reach the edge of the abyss to reform the situation? Or isn’t this the best time for such reforms, with a currently stable political situation and the government having around a trillion dollars in savings and not being in debt?The Saudi government’s recent steps are temporarily an acceptable solution but they are based on the strategy of waiting for the oil market to recover and for the barrel price to rise again to a $100. However, it is not unlikely that the current oil plunge last for years, especially with the booming shale industry, among other factors. In this case, will Saudi Arabia – which currently operates with an annual state budget of $230 billion – still operate in the future with a state budget worth $100 billion or less? I think managing the state with such low funds is impossible without radical economic changes. The best news to come out of this has been the decrease in oil revenues, and I am not saying this sarcastically. This decrease is what may lead us to understand the potential catastrophe and force is to think up a strategy now, rather than later.
Huge oil revenues have corrupted our capability to plan a present and a future free of oil resources. These easy revenues have become the best means to satisfy people at the expense of something else – there are dozens of universities and hundreds of thousands of students, but without any real prospects to find productive jobs.
What’s the value of money if it’s not spent on building a society capable of standing on its feet tomorrow without oil or with smaller oil revenues? Can any of us suggest a practical vision on how to fund daily services when financial deposits end and oil prices are still low? It’s only when we see a single plan that shows us how to do so that we will be convinced we are on the right track no matter what the future holds. The government will need to change its philosophy and management style and it needs to grant its apparatuses and officials more responsibility and then harshly hold them accountable if they fail. Many successful, wealthy countries are not oil-rich, such as South Korea, Singapore, Malaysia and Finland. Most Arab oil-rich countries are incompetent because they are addicted to their easy free resources.
The difference begins within each person. For example, the construction of Saudi Arabia’s Princess Noura bint Abdulrahman University in Riyadh is more luxurious than that of Britain’s Cambridge University, but the students of the former mostly become teachers after graduating – within the context of the government’s support for them – and the rest go home and don’t get a job. Therefore, the decrease of revenues is a positive chance to reconsider many things. The abundance of oil won’t last, and if oil prices continue as such for more than a decade, we’d reach the tough point of having a state unable to finance the needs of most people. By then, the population, job seekers and those in need of education and healthcare will have increased.
So is it possible to test the state’s capabilities by managing the country with less than $100 billion?