Identifier
Created
Classification
Origin
01RIYADH1771
2001-06-27 12:09:00
CONFIDENTIAL
Embassy Riyadh
Cable title:  

THE AL SAUD AND CHALLENGES TO STABILITY

Tags:  PGOV ECON SOCI SA 
pdf how-to read a cable
P 271209Z JUN 01
FM AMEMBASSY RIYADH
TO SECSTATE WASHDC PRIORITY 5185
INFO USDOC WASHDC 1894
ARAB LEAGUE COLLECTIVE
DEPT OF TREASURY WASHDC
USDOE WASHDC
AMEMBASSY LONDON 
AMEMBASSY PARIS 
SECDEF WASHDC
JOINT STAFF WASHDC
NSC WASHDC
USCINCCENT MACDILL AFB FL
C O N F I D E N T I A L SECTION 01 OF 06 RIYADH 001771 

DEPARTMENT PASS TO USTR FOR BUNTIN
CENTCOM FOR POLAD
LONDON FOR STUPHIN; PARIS FOR O'FRIEL
USDOC FOR 4520/ITA/MAC/ONE/LOUSTAUNAU
TREASURY FOR OASIA/KIFAYAT
ENERGY FOR INTERN AFFAIRS WASHINGTON/COBURN

E.O. 12958: DECL: 06/27/11
TAGS: PGOV ECON SOCI SA
SUBJECT: THE AL SAUD AND CHALLENGES TO STABILITY

CLASSIFIED BY CHARGE D'AFFAIRES CHARLES H. BRAYSHAW.
REASON: 1.5 (B) AND (D).

SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 06 RIYADH 001771

DEPARTMENT PASS TO USTR FOR BUNTIN
CENTCOM FOR POLAD
LONDON FOR STUPHIN; PARIS FOR O'FRIEL
USDOC FOR 4520/ITA/MAC/ONE/LOUSTAUNAU
TREASURY FOR OASIA/KIFAYAT
ENERGY FOR INTERN AFFAIRS WASHINGTON/COBURN

E.O. 12958: DECL: 06/27/11
TAGS: PGOV ECON SOCI SA
SUBJECT: THE AL SAUD AND CHALLENGES TO STABILITY

CLASSIFIED BY CHARGE D'AFFAIRES CHARLES H. BRAYSHAW.
REASON: 1.5 (B) AND (D).

SUMMARY
--------------


1. (C) AT PRESENT, SAUDI ARABIA ENJOYS AT LEAST
SUPERFICIAL STABILITY. THERE IS NO DEBILITATING
DISUNITY AMONG SENIOR AL SAUD PRINCES, REGIME CRITICS
HAVE BEEN EXILED OR MARGINALIZED ABROAD AND CO-OPTED
OR MUZZLED AT HOME, AND A LARGELY APOLITICAL CITIZENRY
SHOWS NO INCLINATION TO DEMAND GREATER PARTICIPATION
IN PUBLIC LIFE. FACTORS SUCH AS THE HISTORICAL
CONTINUITY OF AL SAUD RULE, A LONG TRADITION OF
OBEDIENCE TO THE RULER AND A CORRESPONDING ABHORRENCE
OF DISORDER, AND A DEARTH OF POLITICAL ALTERNATIVES
BODE WELL FOR CONTINUED STABILITY AND REGIME SURVIVAL.


2. (C) IN THE INTERMEDIATE/LONGER-TERM, HOWEVER, THE
MAINTENANCE OF STABILITY WILL DEPEND LARGELY ON HOW
THE AL SAUD DEAL WITH A NUMBER OF FESTERING ECONOMIC,
POLITICAL AND SOCIAL PROBLEMS, AMONG THEM: A LOW-
GROWTH ECONOMY OVERLY DEPENDANT ON OIL; THE
EXPECTATIONS AND ASPIRATIONS OF AN EXPLODING YOUTH
POPULATION; AN EMERGING STRUGGLE BETWEEN A MINORITY OF
ISLAMIC CONSERVATIVES AND A MORE MODERATE MAJORITY
OVER THE KINGDOM'S DIRECTION; AND LATENT REGIONAL AND
TRIBAL TENSIONS. WHILE TOP LEVEL SAG LEADERS APPEAR
TO BE AWARE OF THESE CHALLENGES AND ARE MOVING IN THE
RIGHT DIRECTION TO CONFRONT THEM, IT REMAINS TO BE
SEEN WHETHER THEIR MEASURES WILL SUFFICE IN PACE AND
SCOPE. OTHER SENIOR LEADERS ARE ENGAGED IN POLICIES
OR BEHAVIOR THAT COULD UNDERMINE STABILITY.


3. (C) AT ALL TIMES, THE "WILD CARD" IN ANY ANALYSIS
OF SAUDI STABILITY IS ROYAL FAMILY DYNAMICS. WHILE
THE CONTINUED REIGN OF 80 YEAR-OLD KING FAHD CASTS AN
OUTWARD APPEARANCE OF STABILITY AND CONTINUITY, IT IS
ACTUALLY A SOURCE OF UNCERTAINTY AND POTENTIAL
INSTABILITY. IN THE NEAR/INTERMEDIATE-TERM, THE
KINGDOM WILL LIKELY EXPERIENCE AT LEAST ONE ROYAL
SUCCESSION, THE RESULTS OF WHICH COULD THREATEN THE
INDISPENSABLE ELEMENT OF AL SAUD VIABILITY: ROYAL
FAMILY UNITY. END SUMMARY.


ROYAL DYNAMICS
--------------


4. (C) LARGELY INCAPACITATED AND A SHADOW OF HIS

FORMER SELF, KING FAHD - AND MORE IMPORTANTLY, FAHD'S
SONS AND COURT SYCOPHANTS - HAVE NO APPARENT INTEREST
IN HIS ABDICATION. FAHD'S STUBBORN GRASP OF THE
RULING SCEPTER (AND, INDEED, OF LIFE ITSELF) IS
IMPEDING THE TRANSITION PROCESS AND MAY HAVE NEGATIVE
FUTURE CONSEQUENCES FOR AL SAUD RULE. (A SAUDI JOKE
HAS IT THAT FAHD IS CALLED "THE CONQUEROR OF DEATH"
BECAUSE THE ANGEL OF DEATH FEARS TO APPROACH HIM.)


5. (C) IN A NARROW SENSE, FAHD'S CONTINUED PRESENCE
ON THE THRONE DEPRIVES CROWN PRINCE ABDULLAH OF THE
FULL AUTHORITY OF A SAUDI MONARCH, THUS INHIBITING HIS
ABILITY TO IMPLEMENT REFORMS. AMONG SENIOR SONS OF
THE LATE KING ABD AL-AZIZ, ABDULLAH IS PROBABLY THE
BEST QUALIFIED TO LEAD THE KINGDOM THROUGH CHANGING
TIMES. HE POSSESSES GREATER POPULAR CREDIBILITY AND A
MORE PROGRESSIVE, PRAGMATIC OUTLOOK THAN POWERFUL
HALF-BROTHERS DEFENSE MINISTER SULTAN OR INTERIOR
MINISTER NAIF. EVEN IF HE WERE KING, HOWEVER,
ABDULLAH WOULD BE OBLIGED TO SLOWLY AND CAREFULLY
DEVELOP CONSENSUS FOR HIS MODEST REFORM INITIATIVES:
ABDULLAH'S CURRENT CIRCUMSTANCES ONLY INCREASE HIS
BURDEN OF CONSENSUS-BUILDING.


6. (C) IN A BROADER SENSE, THE CONTINUED PRESENCE OF
THE 80 YEAR-OLD KING FAHD ADDS AN ELEMENT OF
UNCERTAINTY INTO THE SUCCESSION PROCESS AND MAY HINDER
A SMOOTH TRANSITION AFTER HIS EVENTUAL PASSING. AFTER
ALL, 78 YEAR-OLD ABDULLAH AND 77 YEAR-OLD SULTAN (THE
APPARENT THIRD IN LINE) ARE ONLY SLIGHTLY YOUNGER THAN
FAHD AND BOTH SUFFER FROM AILMENTS COMMON TO
SEPTUAGENARIANS LONG-ACCUSTOMED TO A SEDENTARY,
LUXURIOUS LIFESTYLE (ABDULLAH ALSO WORKS LONG HOURS
AND LABORS UNDER CONSIDERABLE STRESS). IT IS POSSIBLE
THAT FAHD COULD REMAIN IN PLACE RIGHT THROUGH THEIR
REMAINING PRIME WORKING YEARS AND POSSIBLY EVEN
OUTLIVE ONE OR BOTH. SHOULD FAHD SURVIVE ABDULLAH, HE
WOULD HAVE THE EXCLUSIVE RIGHT UNDER THE 1992 BASIC
LAW TO APPOINT A NEW CROWN PRINCE, AND FAHD'S SONS
WOULD PROBABLY HAVE A MAJOR ROLE IN THE DECISION-
MAKING PROCESS. WHILE CONVENTIONAL WISDOM HOLDS THAT
FAHD WOULD LIKELY TAP ONE OF HIS FULL "SUDAYRI SEVEN"
BROTHERS (SULTAN, DEPUTY DEFENSE MINISTER ABD AL-
RAHMAN, NAIF AND RIYADH GOVERNOR SALMAN, IN ORDER OF
SENIORITY),IT IS AT LEAST REMOTELY POSSIBLE THAT HE
COULD APPOINT ONE OF HIS SONS, PERHAPS HIS YOUNGEST
SON, 28 YEAR-OLD ABD AL-AZIZ BIN FAHD, CURRENT
MINISTER OF STATE, AS CROWN PRINCE.


7. (C) TO A LARGE EXTENT, THE AL SAUD ARE MASTERS OF
THEIR OWN RULING DESTINY AND ARE PROBABLY MOST
VULNERABLE TO SELF-INFLICTED THREATS: THE
DISINTEGRATION OF UNITY AMONG SENIOR ROYAL FAMILY
MEMBERS; CONDUCT BY THE KING OR SENIOR PRINCES WHICH
IS WIDELY PERCEIVED AS UN-ISLAMIC; AND PERCEIVED
EGREGIOUS ROYAL CORRUPTION AND/OR NEGLECT OF THE
PUBLIC WEAL, PARTICULARLY IF ECONOMIC TIMES ARE
DIFFICULT. THESE VULNERABILITIES ARE LOW UNDER
CURRENT CONDITIONS AND IN THE CASE OF AN ABDULLAH
KINGSHIP. CREDIBLE RUMORS OF CORRUPT PRACTICES,
HOWEVER, HAVE LONG SWIRLED ABOUT DEFENSE MINISTER
SULTAN AND HIS ELDEST SON KHALID, THUS INCREASING THE
PROSPECTS FOR INSTABILITY DURING A POSSIBLE SULTAN
REIGN. ALL THREE VULNERABILITIES COULD BE EXPOSED IF
FAHD WERE TO TRY TO PLACE ONE OF HIS OWN SONS ON THE
THRONE, NONE OF WHOM POSSESS RESPECT EITHER WITHIN THE
ROYAL FAMILY OR AMONG THE PUBLIC. THIS IS
PARTICULARLY TRUE OF ABD AL-AZIZ, WHO IS WIDELY
CONSIDERED TO BE AT THE BOTTOM OF THE ROYAL BARREL IN
TERMS OF PERSONAL PROBITY AND DECORUM.


THE ISLAMIC POLITY AND LACK OF INSTITUTIONS
--------------


8. (C) AS ONE OF THE TWO BEDROCK COMPONENTS OF THE
SAUDI RULING CONTRACT, THE AL SAUD ACQUIRED LEGITIMACY
IN EXCHANGE FOR ENFORCEMENT OF SHARI'A LEGAL/SOCIAL
STRICTURES, CUSTODIANSHIP OF ISLAM'S HOLIEST SHRINES,
AND ALLOWING THE ISLAMIC ESTABLISHMENT TO DEFINE
SOCIAL MORES AND CONTROL SOCIAL AND EDUCATIONAL
INSTITUTIONS. REGIME ACCOMMODATION OF THE VIEWS OF
RELIGIOUS CONSERVATIVES HAS PROVEN TO BE A RELATIVELY
LOW-COST PROPOSITION, AND SOME BELIEVE THAT THE SAG
CYNICALLY ALLOWS THE ISLAMIC ESTABLISHMENT TO DIVERT
PUBLIC ATTENTION TO RELATIVELY TRIFLING MATTERS (E.G.
THE ALLEGED ANTI-ISLAMIC NATURE OF POKEMON PRODUCTS,
THE APPROPRIATE SPECIFICATIONS FOR WOMEN'S ABAYAS,
ETC.) LEST IT FOCUS ON VITALLY IMPORTANT TOPICS SUCH
AS THE REGIME'S ABILITY TO DELIVER JOBS OR EVEN
ADEQUATE SUPPLIES OF POTABLE WATER IN THE FUTURE.
HOWEVER, THIS APPARENT BENEFIT HAS CONTRIBUTED TO THE
RANKS OF GRADUATING YOUTH WITH NOTHING BUT RELIGIOUS
TRAINING WHO ARE ILL-PREPARED TO CONTRIBUTE TO A
MODERNIZING ECONOMY.


9. (C) STILL, THE AL SAUD, MOST OF WHOM PURSUE A MORE
LIBERAL, EVEN DISSOLUTE, LIFESTYLE IN PRIVATE, CAN ILL
AFFORD TO BE PERCEIVED AS LESS DEVOUT OR ZEALOUS THAN
THEIR HAND-PICKED ISLAMIC LEADERS AND SCHOLARS: THUS,
WE SEE LITTLE NEAR OR INTERMEDIATE TERM SAG MOVEMENT
ON SOCIAL ISSUES WHICH CARRY SIGNIFICANT EMOTIONAL
BAGGAGE SUCH AS WOMEN'S RIGHTS. THE AL SAUD'S
INDULGENCE OF THE RELIGIOUS ESTABLISHMENT ALSO
CONTRIBUTES TO THE SLOW PACE OF ECONOMIC REFORM, SINCE
THE 'ULAMA OPPOSE OPENING THE SAUDI ECONOMY, FEARING
THAT IT WILL LEAD TO GREATER FOREIGN, PARTICULARLY
WESTERN, INFLUENCE.


10. (C) THE SEEDS OF FRICTION WITHIN SAUDI SOCIETY ARE
GROUNDED IN CONFLICTING VIEWS ABOUT THE KINGDOM'S
MORAL DIRECTION IN GENERAL, AND THE PERVASIVE SPREAD
OF WESTERN (PRIMARILY AMERICAN) CULTURE AND WHAT SOME
SAUDIS PERCEIVE AS THE CONCOMITANT EROSION OF ISLAMIC
AND TRADITIONAL ARABIAN VALUES IN PARTICULAR. SOME
SAUDI CONTACTS HAVE SUGGESTED THAT THERE IS AN ONGOING
EFFORT BY A VOCAL, INFLUENTIAL, AND HIGHLY-MOTIVATED
RELIGIOUS CONSERVATIVE MINORITY TO PLACE LIKE-MINDED
PEOPLE IN AS MANY POSITIONS OF DAY-TO-DAY
ADMINISTRATIVE, EDUCATIONAL, AND SOCIAL AUTHORITY AS
POSSIBLE BEFORE A RELATIVELY MODERATE (BUT SILENT)
MAJORITY GAINS ASCENDANCY. IF THIS IS INDEED THE
CASE, A SITUATION SOMEWHAT AKIN TO THE PRESENT
ENVIRONMENT IN IRAN COULD DEVELOP, WHERE A RELATIVELY
MODERATE AND LARGELY YOUTHFUL MAJORITY STRUGGLES WITH
AN ENTRENCHED CONSERVATIVE MINORITY FOR CONTROL OF THE
COUNTRY'S DIRECTION.


11. (C) ALTHOUGH THE KINGDOM'S INCREASING URBANIZATION
(ACCORDING TO WORLD BANK STATISTICS, 85 PERCENT OF
SAUDIS LIVE IN TOWNS OR CITIES AND THE PERCENTAGE IS
GROWING) HAS SOMEWHAT DIMINISHED THE IMPORTANCE OF
TRIBAL IDENTITY, IT REMAINS A POWERFUL FACTOR IN SAUDI
SOCIETY, AND INTER-TRIBAL FRICTION COULD BECOME A
SOURCE OF FUTURE INSTABILITY, PARTICULARLY IN TIMES OF
ECONOMIC HARDSHIP. A POTENTIALLY GREATER SOURCE OF
INSTABILITY IS REGIONAL IDENTITY AND A WIDESPREAD
PERCEPTION THAT THE LEAST PRODUCTIVE AND ECONOMICALLY-
VIABLE AREA OF THE KINGDOM, THE ARID AND CENTRAL
NEJD/QASSIM REGION (HOME OF THE AL SAUD, SUCKS UP THE
OIL WEALTH OF THE EASTERN REGION AND THE TRADING
WEALTH OF THE WESTERN HIJAZ REGION. IN ADDITION, THE
SOUTHERN PROVINCES OF NAJRAN, JIZAN, AND ASIR, SEIZED
FROM YEMEN IN THE EARLY 1930'S, HAVE NEVER BEEN
EFFECTIVELY INTEGRATED INTO THE SAUDI MAINSTREAM,
EITHER ECONOMICALLY OR CULTURALLY. AGAIN, THE TREND
OF STEADILY DECLINING LIVING STANDARDS HAS THE
POTENTIAL TO FUEL LATENT REGIONAL RESENTMENTS,
PARTICULARLY IF SAG LEADERS CONTINUE TO FUNNEL
INCREASINGLY SCARCE RESOURCES DISPROPORTIONATELY TO
THE NEJD.


12. (C) THE AL SAUD HAVE TAKEN STEPS TO ESTABLISH
INSTITUTIONS SUCH AS THE SHURA COUNCIL WHICH HOLD THE
POTENTIAL TO ALLOW GREATER PUBLIC PARTICIPATION IN
GOVERNANCE. AT PRESENT, HOWEVER, SUCH INSTITUTIONS
HAVE NO SIGNIFICANT VOICE IN SAUDI PUBLIC LIFE. IN
ADDITION, THERE IS NO "CIVIL SOCIETY" AS THE CONCEPT
IS GENERALLY UNDERSTOOD. COBBLED TOGETHER FROM
DISPARATE TRIBES AND INFLUENTIAL CLANS 80 YEARS AGO,
SAUDI SOCIETY IS MADE UP OF A PATCHWORK OF REGIONAL
AND TRIBAL INTERESTS HELD TOGETHER BY THE POWER OF THE
AL SAUD, AND THE MODERNIZING ACHIEVEMENTS OF THE LAST
FIFTY YEARS, AND LITTLE ELSE. PROFESSIONAL SOCIETIES,
LABOR ORGANIZATIONS, AND INTEREST GROUPS ARE GENERALLY
EITHER CREATED BY THE GOVERNMENT OR BANNED COMPLETELY.
WHILE WE DO NOT CURRENTLY DETECT A GROUNDSWELL OF
INTEREST IN POLITICAL PARTICIPATION AMONG THE MOSTLY
APOLITICAL SAUDI PUBLIC, FACTORS SUCH AS A NEW-FOUND
AVAILABILITY OF OUTSIDE SOURCES OF INFORMATION AND
COMMUNICATION COULD CHANGE THIS, PARTICULARLY IF
COMBINED WITH AN ECONOMIC DECLINE AND ATTENDANT
FRUSTRATIONS.


THE DEMOGRAPHIC TIME BOMB
--------------


13. (C) THE AL SAUD'S PUBLIC DISTRIBUTION OF A
SIGNIFICANT PORTION OF THE KINGDOM'S WEALTH IN RETURN
FOR THE CITIZENRY'S OBEDIENCE IS THE OTHER COMPONENT
OF THE SAUDI RULING CONTRACT. THIS DISTRIBUTION IS
FACILITATED BY THE CONCENTRATION OF THE ECONOMY IN THE
PETROLEUM SECTOR. HOWEVER, AS CROWN PRINCE ABDULLAH
FAMOUSLY WARNED TWO AND A HALF YEARS AGO, THE EASY
YEARS HAVE PASSED.


14. (U) THE MOTIVATION FOR THE SAG'S ECONOMIC REFORM
EFFORT IS CLEAR. WITH A POPULATION GROWTH RATE OF
CLOSE TO 4% DURING MUCH OF THE LAST 20 YEARS AND OVER
HALF THE SAUDI POPULATION UNDER THE AGE OF 18, SAUDI
ARABIA IS FACING A DEMOGRAPHIC TIME BOMB. (THE SAG
ESTIMATES THAT THE RATE OF POPULATION GROWTH HAS
RECENTLY DROPPED TO AROUND 3%.) UNEMPLOYMENT FIGURES
FOR WORKING AGE SAUDI MALES RANGE FROM THE OFFICIAL
RATE OF 14% TO A SAUDI NEWSPAPER COMMENTATOR'S
ESTIMATE OF 46%. IN ANY CASE, NEITHER WOMEN NOR
UNDEREMPLOYMENT ARE TAKEN INTO ACCOUNT. BECAUSE OF
THE VOLATILITY OF OIL PRICES, THE OIL AND
PETROCHEMICAL SECTORS EXPERIENCE WIDE FLUCTUATIONS IN
GROWTH AND ARE HEAVILY CAPITAL INTENSIVE. THUS, THE
GOVERNMENT HAS PINNED ITS HOPES ON THE NON-OIL,
PRIVATE SECTOR TO PROVIDE JOBS FOR THE 100,000 SAUDI
MALE JOB SEEKERS (MANY WITHOUT POST SECONDARY
EDUCATION) ENTERING THE LABOR MARKET EVERY YEAR.
(CURRENTLY, ONLY ABOUT 50,000 NEW EMPLOYEES PER YEAR
ARE HIRED, ALMOST ALL BY THE SAG.) THE CROWN PRINCE
RECOGNIZES THAT THE GOVERNMENT CAN NO LONGER AFFORD TO
ACT AS EMPLOYER OF LAST RESORT OR PROVIDE FREE MEDICAL
CARE AND EDUCATION TO ALL SAUDIS.


15. (U) THE GOVERNMENT'S PURPOSE OVER THE PAST THREE
YEARS IN SEEKING TO MODERNIZE THE ECONOMY BY REVISING
MOST OF THE BASIC ECONOMIC AND COMMERCIAL LAWS,
ACCELERATING EFFORTS TO JOIN THE WORLD TRADE
ORGANIZATION, AND OFFERING MAJOR INTERNATIONAL OIL
COMPANIES THE OPPORTUNITY TO INVEST IN THE GAS SECTOR
IS ALSO CLEAR -- TO SPUR ECONOMIC GROWTH AND
DEVELOPMENT. THE EXPECTATION IS THAT AN OPEN, LIBERAL
ECONOMY WILL ATTRACT FOREIGN INVESTMENT AND, EVEN MORE
IMPORTANT, BRING SAUDI OVERSEAS CAPITAL (ESTIMATED AT
BETWEEN $600-800 BILLION) HOME. (NOTE: AS A POINT OF
REFERENCE, 2000 SAUDI GDP WAS USD 173 BILLION.) THE
SAUDIS HOPE THIS WILL GENERATE PRIVATE SECTOR GROWTH
AND CREATE JOBS.


SO LITTLE, SO LATE
--------------


16. (C) THE PACE OF REFORM IN SAUDI ARABIA IS SLOW
AND THE RESULTS IN TERMS OF NEW INVESTMENT AND JOB
CREATION EVEN SLOWER TO MATERIALIZE. THE CROWN
PRINCE'S GAS INITIATIVE, LAUNCHED IN SEPTEMBER 1998,
IS MOVING FORWARD PRETTY MUCH ON SCHEDULE, BUT THE
GOVERNMENT AND THE INTERNATIONAL OIL COMPANIES ARE NOT
EXPECTED TO REACH AGREEMENT ON THE COMMERCIAL TERMS OF
THE PROJECTS UNTIL THE END OF THIS YEAR OR EARLY NEXT
YEAR. WITH ARAMCO'S PROVEN GAS RESERVES OFF LIMITS,
THE OIL COMPANIES WILL HAVE TO FIND GAS TO RUN THE
DESALINATION AND POWER PLANTS THEY HAVE COMMITTED TO
BUILD. THE THREE CONSORTIA OF INTERNATIONAL OIL
COMPANIES THAT WERE SELECTED TO PARTICIPATE IN THE GAS
INITIATIVE ARE EXPECTED TO INVEST $25 BILLION DOLLARS
OVER A TEN-YEAR PERIOD. MUCH OF THAT INVESTMENT MAY
BE DELAYED UNTIL THE INVESTORS FIND AND DEVELOP THAT
GAS. SAUDI ARABIA IS UNLIKELY TO SEE ANY OF THAT
MONEY UNTIL SOMETIME NEXT YEAR.


17. (C) THE PROCESS OF OVERHAULING SAUDI ARABIA'S
LAWS IS A DIFFICULT AND TIME-CONSUMING PROCESS.
PROGRESS HAS BEEN MADE -- A NEW FOREIGN DIRECT
INVESTMENT LAW WAS ADOPTED, THE ELECTRICITY SECTOR WAS
RESTRUCTURED, A PRIVATIZATION STRATEGY WAS ADOPTED,
TOURIST VISAS ARE BEING GRANTED, FOREIGN INVESTORS CAN
INVEST IN THE SAUDI STOCK MARKET THROUGH MUTUAL FUNDS
MANAGED BY LOCAL BANKS, TARIFFS ON MOST IMPORTS WERE
CUT TO 5%, AND NEW REGULATIONS FOR THE
TELECOMMUNICATIONS SECTOR WERE ADOPTED. MUCH MORE
REMAINS TO BE DONE -- NEW LAWS COVERING CAPITAL
MARKETS, TAXES, COMPANY LAW, AGENCY LAW, LABOR
RELATIONS, AND IPR ARE ALL UNDER PREPARATION. WE ARE
FINDING, HOWEVER, THAT EVEN WHEN A NEW POLICY OR LAW
IS ADOPTED, THE IMPLEMENTATION MAY NOT LIVE UP TO
EXPECTATIONS. THE NEW FOREIGN DIRECT INVESTMENT LAW
HAS NOT RENDERED THE INVESTMENT PROCESS APPRECIABLY
MORE TRANSPARENT OR INVESTOR FRIENDLY. HOPES WERE
HIGH FOR PRIVATIZATION AS A PATH TO ECONOMIC REFORM A
YEAR AGO, BUT ANY POSSIBILITIES OF PRIVATIZATION
(E.G., THE SAUDI TELECOM COMPANY OR SAUDI ARABIA
AIRLINES) ARE YEARS AWAY.


18. (C) THE MOMENTUM FOR WTO ACCESSION APPEARS TO BE
FLAGGING. ALTHOUGH WE BELIEVE THE CROWN PRINCE'S
COMMITMENT TO GAINING WTO MEMBERSHIP REMAINS FIRM, THE
DIFFICULTY OF MOVING LEGISLATION AND THE NECESSARY
IMPLEMENTING REGULATIONS THROUGH THE SYSTEM HAS SLOWED
THINGS TO A CRAWL. THE CROWN PRINCE'S APPOINTMENT OF
PRINCE NAIF TO OVERSEE ACCESSION NEGOTIATIONS DOES NOT
APPEAR TO HAVE GALVANIZED THE BUREAUCRACY. THE ONLY
MAJOR PIECE OF LEGISLATION APPROVED BY THE COUNCIL OF
MINISTERS SINCE THE LAST WTO ACCESSION WORKING PARTY
MEETING IN OCTOBER 2000 WAS THE NEW TELECOM
REGULATIONS APPROVED IN MAY. KEY LAWS AND REGULATIONS
DESIGNED TO BRING THE SAUDI TRADE AND INVESTMENT
REGIME INTO COMPLIANCE WITH WTO STANDARDS ARE MONTHS
AWAY FROM COMPLETION.


IS IT ENOUGH?
--------------


19. (C) SAUDI ARABIA SHOULD BE COMMENDED FOR ITS GOOD
INTENTIONS. BUT SHOULD SAUDI ARABIA BECOME A WTO
MEMBER AND IMPLEMENT THE BULK OF THE REFORM PROGRAM AS
CURRENTLY ENVISAGED, IT WOULD STILL FACE SERIOUS
ECONOMIC CHALLENGES. IT IS DOUBTFUL WHETHER THE PACE
AND SCOPE OF REFORMS WILL BE SUFFICIENT TO ATTRACT
SIGNIFICANT SAUDI OR FOREIGN INVESTMENT INTO THE NON-
OIL PRIVATE SECTOR AND GENERATE THE ECONOMIC GROWTH
NEEDED TO REDUCE UNEMPLOYMENT. THERE ARE FUNDAMENTAL
ECONOMIC DEVELOPMENT ISSUES THESE REFORMS AND WTO
MEMBERSHIP DO NOT AND WILL NOT ADDRESS. THESE INCLUDE
THE SIGNIFICANT AMOUNT OF OIL REVENUES THAT NEVER MAKE
IT TO THE MINISTRY OF FINANCE FOR INCLUSION IN THE
GOVERNMENT BUDGET; THE LACK OF A MODERN, LEGAL
FRAMEWORK FOR SETTLING COMMERCIAL DISPUTES; THE LACK
OF A SAUDI INCOME TAX (PERSONAL OR CORPORATE) TO
PROVIDE THE GOVERNMENT WITH A MORE STABLE REVENUE
BASE; THE GOVERNMENT'S POLICY OF REQUIRING BUSINESSES
TO HIRE SAUDIS WHO, IN MANY CASES, LACK SKILLS AND
MOTIVATION; FEAR OF ARBITRARY, CONFISCATORY ACTIONS BY
THE ROYAL FAMILY; AND CORRUPTION IN GOVERNMENT
PROCUREMENT. ALL THESE FACTORS DRIVE WEALTHY SAUDIS
TO INVEST OVERSEAS LIMITING THE NUMBER OF FOREIGN
INVESTORS WHO ARE WILLING TO PUT MONEY INTO SAUDI
ARABIA.

CONCLUSION
--------------


20. (C) THE AL SAUD'S ABILITY TO FULFILL THE
EXPECTATIONS OF THE KINGDOM'S GROWING YOUTH POPULATION
WILL BE A KEY FACTOR IN OVERALL STABILITY. THE PUSH
TO EMPLOY SAUDIS IN PLACE OF THE SEVEN MILLION FOREIGN
WORKERS MAY HELP, IN SPITE OF THE LACK OF BASIC
QUALIFICATIONS FOR EMPLOYMENT WHICH PERVADES THE
YOUNGER GENERATION. WITH FALTERING AND UNEVEN PUBLIC
SUPPORT FOR WTO ACCESSION AND ECONOMIC REFORMS AND THE
STILLBORN PROGRAM TO PROVIDE VOCATIONAL TRAINING, THE
AL SAUD FAMILY FACES MAJOR CHALLENGES IN DELIVERING ON
THE ECONOMIC PART OF THE RULING BARGAIN, WHICH IN TURN
COULD HAVE A MAJOR IMPACT ON STABILITY.


21. (C) STILL, ALL BUT A DWINDLING NUMBER OF ELDERLY
SAUDIS HAVE KNOWN NOTHING BUT AL SAUD RULE, AND IT IS
PROBABLY DIFFICULT FOR MOST SAUDIS TO IMAGINE LIFE
WITHOUT AN AL SAUD FAMILY MEMBER ON THE THRONE.
BARRING FALLOUT OVER SUCCESSION SURPRISES OR A
CATASTROPHIC REGIONAL POLITICAL UPHEAVAL, THE ROYAL
FAMILY SHOULD BE ABLE TO MAINTAIN ABSOLUTE CONTROL OF
THE KINGDOM FOR THE FORESEEABLE FUTURE. HOWEVER,
FACED WITH A SITUATION WHERE THEY MUST GRANT MORE
FREEDOM TO FOSTER PROGRESS, BOTH ECONOMIC AND
SOCIETAL, THE AL SAUD RUN THE RISK THAT THIS SAME
FREEDOM WILL UNDERMINE THEIR MUCH-CHERISHED DISCIPLINE
AND CONFORMITY. THE AL SAUD'S ABILITY TO ADAPT TO
CHANGING CIRCUMSTANCES WILL BE PUT TO THE TEST AS THE
FRUITS OF RAPID POPULATION GROWTH, POOR ECONOMIC
PERFORMANCE, AND CODDLING OF THE ISLAMIC ESTABLISHMENT
BECOME EVER APPARENT.


22. (U) THIS CABLE FULFILLS A REQUIREMENT OF POST'S
REPORTING PLAN.


BRAYSHAW