Population Growth is Forcing Changes to Saudi Arabia's Economy

In 1938, oil was discovered in Saudi Arabia with the help of American oil engineers. This was only a few years after the country of Saudi Arabia had been founded by Abdulaziz Al Saud, from whom the current rulers of the country are descended. At the time, the major source of income for the royal family was collecting fees from pilgrims to the holy site of Mecca. Oil revenue changed all that, and that the world is a different place as a result. 

But here's the problem. In 1938 there were fewer than 3 million Saudis. In 1950, there were still only slightly more than 3 million because because, despite the high fertility (7 children per woman), death rates were also very high, especially among infants. But Saudi connections to the US and Europe also brought death control and so by 1985 the population had swelled to 14 million, as women continued to have nearly 7 children each, but more were surviving. As of 2015, the average Saudi woman was having "only" 3 children, but nearly all survive to adulthood and so the population is currently estimated to be almost 32 million--10 times what it was in 1950. UN demographers project the population to increase to 46 million by the middle of this century. When 90% of your national revenue is from one non-renewable source--in this case oil--population growth of this kind is going to be a problem. The Economist sat down with Prince Muhammad bin Salman (the Deputy Crown Prince) last week for a fascinating look into the changes that he foresees for the country, as it tries to cope with the population/resource ratio in the future.

The Al Sauds have survived by making three compacts: with the Wahhabis to burnish their Islamic credentials as the custodians of the holy places of Mecca and Medina; with the population by providing munificence in exchange for acquiescence to absolutist rule; and with America to defend Saudi Arabia in exchange for stability in oil markets.

But all three of these covenants are fraying. America is semi-detached from the Middle East. The plummeting price of oil, which provides almost all of the government’s revenues, means the old economic model can no longer sustain the swelling and unproductive population. And the alliance with obscurantists brings threats, because they provide intellectual sustenance to jihadists, and form an obstacle even to modest social reforms that must be part of any attempt to wean the country off oil and create a more productive economy.

The most notorious plan is to sell shares in Aramco (originally the Arab American Oil Company), but other plans are underway to increase economic activity in the private sector including getting more women into the labor force.

The prince says that he supports women working, not least to reduce the fertility rate: “A large portion of my productive factors are unutilised,” he says. “I have population growth reaching very scary figures.” These days Saudi Arabia has more women in the workplace, but female labour-force participation is still very low, at 18%. Prince Muhammad thinks women are not taking full advantage of the opportunities they already have: “A large percentage of Saudi women are used to the fact of staying at home. They’re not used to being working women.” Still, he is in no mood to challenge the ban on women driving—even though some might want to lay off their chauffeurs in such straitened times. “I do not want to get involved in this issue as it is Saudi society that will decide whether to accept it or not.”

The question, of course, is whether these changes will come quickly enough to save Saudi Arabia or whether its population growth will simply add to the demographic pressure that has been a huge factor in the regional violence that we've been seeing over the past decades.