August 17, 2008 / 12:08 AM / 9 years ago

Suffering is relative for inflation-hit Saudis

RIYADH (Reuters) - With inflation rising across the Gulf Arab region, Saudi Arabia’s perennial problem of unequal distribution of wealth has never been so obvious.

<p>Saudi Migbil al-Anezi looks outside his shanty near Riyadh in this June 8, 2006 file photo. With inflation rising across the Gulf Arab region, Saudi Arabia's perennial problem of unequal distribution of wealth has never been so obvious. REUTERS/Sultan Al Fahed</p>

While poor Saudis queue for hours to obtain water in the kingdom’s second city Jeddah, others are able to take advantage of America’s new-found disdain for gas-guzzling four-wheel-drives by snapping up imported cars.

Thousands of couples are cutting costs by forgoing individual weddings in favor of mass ceremonies carried out by a charity backed by Saudi princes. But the affluent are still going on holidays, albeit opting for cheaper stays in neighboring Arab countries rather than trips to Europe or Asia.

Surging oil prices have triggered a turnaround in Saudi Arabia’s economic fortunes and a return to some of the big spending -- by wealthy individuals and the monarchy -- that characterized the 1970s and 1980s.

But the economic boom has also stoked prices for food and fuel, leading to discontent in a rapidly changing country where around two-thirds of the 17 million-strong local population are under 30, educated and outspoken and aware of events abroad.

This has put the royal Al Saud family -- which runs the U.S. ally along with clerics who administer Islamic sharia law -- under greater scrutiny.

In June, inflation in the world’s top oil exporter hit a 30-year high of 10.6 percent, mainly on increases in food and housing costs.

“It hasn’t reached the point that it’s barred us from traveling. We will still travel like we used to and maintain the same lifestyle,” said Ohoud, a bank manager from Riyadh who did not want to give her last name.

However, she said she had noticed that salaries were not keeping pace with prices.

John Sfakianakis, chief economist at SABB bank, HSBC’s Saudi subsidiary, said the government could not raise wages to match inflation if it wanted to avoid adding inflationary pressures, but it risked angering workers.

“Public sector workers don’t understand why the government is not raising wages to match inflation; there is a disconnection between expectations and what the government delivers and so there is discontent,” he said.

THE WEALTH GAP

A January wage hike of 5 percent for government employees disappointed those Saudis who earn less than 10,000 riyals ($2,666) a month, especially after Gulf neighbors moved more quickly to raise wages by larger amounts.

Saudis earning less than that figure would still expect to employ a driver and at least one maid. They are not taxed and receive free health and education and other benefits.

“I don’t feel it has affected me too much because my family’s financial situation is good,” said Najla, 22, a bank intern in Riyadh, who did not give her last name.

“But I’ve noticed we don’t buy as many things as we used to, like laptops. In every home, each person has to buy at least one a year, that’s the usual demand. But not for us this year.”

At the other end of the spectrum is Lulwah, 36, a mother-of-five who sells snacks on a mat at a park in Riyadh. She recently had to take out a loan from a charity.

“This is the second time I have done it and I have used the money to chip in with six other women to start a catering business,” she said. “I have also taken to sewing clothes, some to sell and some to dress my children with, and it has helped me a lot. But things are still difficult for my husband and me.”

Saudis are careful about expressing public criticism lest it be taken for dissent. But in anonymous Web forums, and in private, those who really suffer ask where the money has gone.

“Saudi Arabia is about to enter an era where there is no middle class, you will either find extremely rich people or extremely poor people, unfortunately,” read a comment on a popular business news portal, www.alaswaq.net.

Another contributor, who went by the name “subjugated Saudi,” said: “The Saudi people now know the extent of graft at the administration and the squandering of the budget.”

The question of how many people live in poverty remains taboo in a kingdom fabled for its tremendous wealth. But half the population rents its home, and 10 billion riyals has been set aside for low-cost housing.

ROYAL SPENDING

As the wealth divide widens, the spotlight inevitably turns to the amount of money eaten up by the royal family, whose members run into the thousands.

Some, like Prince Alwaleed bin Talal, are on lists of the world’s richest people, compiled by magazines such as Forbes.

In the late 1990s, when oil was around $10 a barrel, King Abdullah, then crown prince, said publicly that state finances -- generally understood to include living expenses for the royals -- should be reined in.

Since taking the throne in 2005, he has been credited with launching a drive to reduce royal spending -- visible in opulent palaces, yachts and extravagant lifestyles -- as well as an effort to rein in corruption in state bodies.

Riyadh faced international pressure for social and political reforms after the September 11, 2001 attacks, in which 15 of the 19 attackers were Saudi. Analysts noted that many of those men came from the poor south of the desert nation.

The attacks came at the beginning of the six-fold surge in oil prices that has so dramatically changed the country’s fortunes. Now, some analysts say the need to change the way the kingdom is run is ever more pressing.

A Saudi economist, who has worked with the government, said there should be more transparency to allow Saudis to understand how the state allocated revenue from oil.

“Nobody knows how much the government takes in from oil,” said the economist, speaking on condition of anonymity because he was not authorized to comment on the subject.

“We know how much is in the budget, but not how much (state oil firm) Aramco got in the first place. The budget figure is a cheque Aramco gave to the government,” he said. “You can make some calculations; there is a 20-22 percent difference.”

But as long as massive revenue flow continues, government spending and royal largesse can ensure dissent stays muted.

“We are passing through a very critical stage. You are talking about a state with more than a billion dollars every 24 hours. They can buy anyone,” said a liberal reformer who was detained in 2004 and who also requested anonymity.

There are, however, signs that the rising cost of living may be having an effect.

Anecdotal evidence suggests crime has risen in Saudi cities, with a sharp rise in the number of executions in 2007 to 143. The Saudi press has singled out an alleged plethora of Bangladeshi mafias as the cause.

More than 7 million foreigners work in Saudi Arabia, mostly blue-collar workers from Asia. They have been among the hardest hit by rising prices, although analysts say there is no major movement of labor out of the kingdom.

“Saudi Arabia is still considered a country where you can make larger savings than in the UAE (United Arab Emirates) or Qatar despite rising inflationary pressures,” said Sfakianakis.

Additional reporting by Farah al-Sweel and Souhail Karam; Editing by Clar Ni Chonghaile

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