Unintended Consequences

Bloomberg Story

Why would a rich man in Saudi Arabia need to borrow $6 Billion from banks in Europe and the United States?   The answer is that Saudi Arabia has been going broke, and on the edge of financial collapse for some time.  CitiGroup is on the hook for $500 million just to this one company.

Saudi Arabia has virtually no resources other than oil.   They know the oil can’t last forever, so they’ve been engaged in very expensive long term projects like farms to grow their own food with hydroponics, desalinization plants to make fresh water from the ocean, building a rail line to get Islamic visitors to the holy sites, etc… 

Most of the actual work of all of the above is being done by foreigners, mostly from Pakistan and other Islamic countries.   The draconian repression of women and other religions, and a legal system that punishes people by stoning them to death and cutting their heads off is not helpful in trying to develop a modern society.   Those Saudi people with a good university education got it from being sent to universities in other countries.   It’s very hard to be a teacher in a country where the only book that matters is the Holy Book.

Other than pumping out oil, the only other economic activity going on in Saudi Arabia is pumping out babies.  Since 1980, the population has grown from 9 million to more than 25 million.  Close to 40% of the population is under 15 years old.  Only 2% are 65+ years old.   (In the United States, those numbers are 20.1% and 12.7%)

Jobs that involve manual labor or maintaining households are considered beneath the dignity of a Saudi, and are done by about 6 million non-Saudis (mostly single males).   Young Saudi men are largely unemployed and living on the money from government handouts, which gives them lots of time to think about blowing up skyscrapers in New York and hating Jews.

The large population growth and the lack of any other economic activity means the GDP per person is only about $17k.   (U.S. GDP/Person is $46k) 

The world’s banks have been more than willing to advance Saudi Arabia loan money against future oil revenues, so Saudi Arabia has huge debts.   Since 2003, their external debt has risen from $25 billion to $58 billion.  I’ve heard the figure thrown around that below $60 barrel, Saudi Arabia gets into serious problems.  If oil stayed below $40/barrel for a long time, the entire oil business falls apart.  Oil is currently about $68/barrel.