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 
------- 
 
¶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