Editor's Note:
The Group of Twenty key industrialized and developing countries completed a two-day Summit in late September agreeing to launch a new framework for strong, sustainable and balanced growth by this month. This past weekend G-20 finance ministers and central bankers agreed to keep stimulus measures in place until economic recovery was assured.
In the Summit communique the leaders, from the European Union and 19 countries that contain most of the world’s population and economic power, claimed success in pulling the global economy back from the “the edge of depression” faced when they last met in April. The
Saudi Arabian delegation was led by Foreign Minister Prince Saud Al-Faisal, and included Minister of Finance, Dr. Ibrahim Al-Assaf and the Governor of the Saudi Arabian Monetary Agency (SAMA), Dr. Muhammad Al-Jasser.
The Summit communiqué called for reform of the global economic architecture including designation of the G-20 as the “premier forum for international economic cooperation” and the establishment of a Financial Stability Board to coordinate and monitor progress in strengthening financial regulation. The International Monetary Fund quota system will be revised to reflect “dynamic emerging markets and developing countries” and recognize those countries that are currently under-represented. In the energy sector the communiqué called for the phasing out of fossil fuel subsidies and promoting energy market transparency and market stability as part of a wider effort to avoid market volatility.
To get insights into Saudi Arabia's role in the G-20 and measures at the Summit that affect the Kingdom we called upon Professor Jean Francois Seznec, a Visiting Professor at Georgetown University. He has over 25 years experience in international finance and banking, including a decade in the Gulf. He regularly shares his expertise on Middle East affairs through numerous articles and television and radio appearances, and previous SUSRIS interviews.
Saudi Arabia's Role in Global Economic Leadership: The G20 Summit
A Conversation with Jean Francois Seznec
SUSRIS:
The closing "Leaders' Statement" at the Pittsburgh Summit of the Group of Twenty declared the G20 to be the "premier forum" for international cooperation. What does it say that Saudi Arabia -- the only Middle East country, the only Arab country and the only Opec member -- is among the 19 countries and the EU in the Group?
Seznec: It is recognition of Saudi Arabia on the world stage and recognition of the Kingdom's importance as a major, stable, credible economic power. Such is not the case with other Arab countries. The fact that Egypt is not included is very telling. Although it is a very large country with a large number of well educated people it has not been chosen, which speaks to the lack of vision of the government. Saudi Arabia, however, is moving in a direction that appeals to the others in the Group, and the Kingdom’s view of the world is consistent with other G-20 members.
SUSRIS: The primary focus of the Pittsburgh G-20 Summit was to calibrate the recovery efforts the Group agreed to at the Washington and London Summits over the last 12 months. There was also agreement on issues of particular interest to Riyadh, such as the measure to "phase out and rationalize the medium term inefficient fossil fuel subsidies." Energy and Finance Ministers were asked to produce their strategies by the next G-20 meeting. Some of the language gets a bit arcane but what do you see as the impact on Saudi energy policies from measures such as this?
Seznec: The word "arcane" is probably an understatement. There are two things here to consider. On the one hand there are probably a number of experts in Saudi Arabia who worry if there was a major effort to cut subsidies, to cut emissions in the world as well, that it would mean less crude oil consumption, with a negative impact on the Kingdom.
On the other hand some Saudis are quite in favor of these prospects given the direction the Saudi leadership wants to take the economy. They might favor worldwide subsidy and emission cuts. Saudi Arabia wants to move away from being seen as the "Central Bank" of oil --they tell everybody that they are not the "Central Bank" of oil.
They are increasing production capacity a little but in practice they are not exporting as much oil as all that. Don’t get me wrong; they are exporting a lot of oil. They are still the leading exporter, but they are using a lot of their oil for their own economic development. It is going into value-added production.
In the long run some in Saudi Arabia would like to transfer the mantle of being the largest exporter of crude oil to Iraq and Iran. That may be counterintuitive but they each have the ability to increase their production to around six million barrels per day and could together replace Saudi Arabia as the major crude producers. Such a shift would be part of Saudi Arabia’s drive to be a global leader in petrochemical production. They would be under less pressure from the world to produce more crude oil at any cost. In the long term it is much more important for their population and their economy not to be dependent on one commodity and not to be dependent on the vagaries of the world energy market.
In twenty years the world’s changing energy mix for transportation and so forth could mean a major decline in the use of crude oil. That would hurt those producers largely dependent on oil exports – Iraq and Iran – and not so much for Saudi Arabia. That is if they have moved, as they are doing now, to value-added production. It would hurt Iraq and Iran and would relegate them to third world country status. Meanwhile Saudi Arabia would become the Germany of the region.
SUSRIS: How would you assess the Kingdom’s progress in this area – the drive to diversify the economy?
Seznec: The Saudis have made great strides in diversifying its economy and they have been very successful. Consider some examples. The Petro Rabigh joint venture with Sumitomo is underway. They are moving forward with the Dow Chemical venture, the largest chemical project in the world, worth some $20 billion. There is the Maaden Ras Al Zawr diammonium phosphate, or DAP, fertilizer project north of Jubail in the Eastern Province. There’s the development of Sabic worldwide. These are among many examples of successes the Saudis are having in turning to value-added production.
The sale of chemicals from Saudi Arabia to the world today is probably in the neighborhood of $45 billion. That's a lot of money. There were many years Saudi Arabia did not make that much money selling crude oil. That fact is often forgotten since the price of oil jumped to over $50 a barrel in recent years and the Saudis started making the kind of money they are making now.
So by 2015 as Petro Rabigh comes fully on stream, by 2018 as Dow Chemical comes fully on stream and all the new projects of Sabic are on stream you'll see Saudi Arabia making in the area of $100 billion in the sale of chemicals. At that point they will not want to spend too much effort in increasing production of oil for export.
The Saudis will want to use what they have for themselves and let Iraq and Iran be the third world nations that are going to be dependent on oil going up and down.
SUSRIS: Let's talk about the business component of the U.S.-Saudi relationship. We recently spoke with National US-Arab Chamber
President David Hamod about American business participation in the Saudi "boom." He said, "Saudi Arabia is still one of the best-kept secrets of the Middle East. Some American companies have lost ground to the competition, particularly from China, which has been expanding aggressively in this part of the world. But we see new-to-market U.S. companies coming to the Kingdom every day, and there are still many untapped opportunities for U.S. firms here." What is your assessment of the health of the American business-to-business relationship in the Kingdom?
Seznec: It's not as good as it should be. Indeed the prospects for business in Saudi Arabia are great but the opportunities are not as widely known as they should be. Nobody talks much about it.
The Kingdom is the most important market in the region. It's one of the easiest to access because of the new WTO regulations; you don't even need an agent anymore in Saudi Arabia. It's now very easy to get visas, unlike the old days. U.S. companies are not taking sufficient advantage of the opportunities, and that's because we tend to be quite insular here. We're not as export oriented as the Europeans or the Chinese. However because of the financial crisis we're going through that's changing.
A lot of the medium sized companies have no choice but to look around and they see Saudi Arabia. It is frustrating that there’s not more business being done as there's a beautiful market there for the U.S. In spite of the political issues and any tensions there might be over government policies the Saudis like to work with American companies. They really do. It's more natural. The language is a lot easier. A lot of Saudis have been educated in the States. There's a lot in common and business works very well there.
Hopefully we will see more business development especially of the middle-sized companies if they can make the effort. But it is expensive. That's a problem for the middle-sized companies.
SUSRIS: What other observations do you have about the Pittsburgh G-20 Summit?
Seznec: I found the Summit "Leader's Statement" very interesting. A lot of it isn't the most exciting reading but if you drill down to page 13 of that statement there is a section called "Energy Security and Climate Change." I could read the fingerprints of the Saudis in that section. It is a commitment by the G-20 to ensure market transparency and market stability in the energy business and I think that's very important.
The Saudis feel strongly that a lot of the instability in the oil market has been due to speculation, especially speculation in the hedge funds and the large banks in the United States. Of course a lot of these people have gone bust – a lot of the hedge funds have had to shut down so that has cut some of the speculation. But I think the Saudis really wanted to have that language in there.
Speculation, it doesn't say it in those words, but speculation is one of the causes of instability in the oil markets. The language in the statement says the G-20 should make all efforts to limit this by publishing complete, accurate and timely data on oil production and the Saudis already have something called the
JODI -- The Joint Oil Data
Initiative. It is based in Riyadh, and has been there for a number of years. It hasn't really done much so far, but they do publish a very good database, which is very useful. It's promoted by an organization called the International Energy Forum, which was previously known as the Dialogue between Producers and Consumers. The Saudis have been concerned that it has not received sufficient attention. But of course when the prices are high the producers don't really care and when the prices are low the Europeans don't want to talk about it.
I'm sure the Saudis were very happy to see that the Joint Oil Data Initiative was in the Summit statement, that it is now part of the G-20 and is viewed by everyone as such.
SUSRIS: Thank you again for your time in addressing the G-20 Summit and the business aspects of the relationship between the U.S. and Saudi Arabia.
Seznec: You are very welcome.
|
About Jean-François Seznec
Dr. Seznec is a Visiting Associate Professor at Georgetown University. His research centers on the influence of the Arab-Persian Gulf political and social variables on the financial and oil markets in the region. He is focusing on the industrialization of the Gulf and in particular the growth of the petrochemical industry. He holds a MA from Columbia University [1973], a MA and his Ph.D. from Yale University [1994]. He has published and lectured extensively and is interviewed regularly on national TV, radio and newspapers, as well as by the foreign media.
Dr. Seznec has 25 years experience in international banking and finance of which ten years were spent in the Middle East, including six years in Bahrain as a banker. Dr. Seznec is a founding member and Managing Partner of the Lafayette Group LLC, a US based private investment company. He uses his knowledge of business in the Middle East and the United States to further his analysis of the Arab-Persian Gulf.
|
Related Items:
Related Items - Jean-Francois
Seznec:
EXCLUSIVE
INTERVIEW