CONFIDENTIAL Saudi Arabia has in fact established herself as the major Arab power; though she has had the economic muscle for some time she has only recently begun to use it in a political context. 5. The economic development of the country has been the major internal preoccupation in Saudi Arabia for a number of years. The second Five Year Plan was approved in May 1975 and covers the period July 1975 to May 1980. It allocates $142 billion during this period to develop the country's human resources, expand the physical infrastructure and to develop private enterprise in conformity with wider social interests. It is recognised that the development of ports, roads, aviation, housing, telecommunications and other items of physical infrastructure is necessary before the goal of an industrial economy can be achieved. On the industrial side priority is given to oil based developments followed by energy intensive projects such as the manufacture of steel and aluminium products. This section of the development will be concentrated in the new industrial complexes at Yanbu on the West Coast and at Jubail on the East linked by an oil and gas pipeline. 6. 1976 was characterised in Saudi Arabia by a worsening of certain difficulties associated with rapid development: a very high rate of inflation, congestion in the ports and a very heavy load on the country's administration. Although certain measures have been taken to try to improve the acute shortage of labour, eg by making it easier to get work permits and by allowing non Saudis to drive commercial vehicles, the cost of labour continues to rise steeply. Other bottle-necks in the economy are also beginning to appear. Electricity supply in an increasing number of parts of the country is under strain and there is likely to be a shortage for at least three or four years. Water supply is also likely to be restricted and, because of the port congestion, certain basic foodstuffs have been temporarily in short supply. The outcome is likely to be a greater concentration on the infrastructure sectors in the immediate future, with a number of public sector industrial projects being rephased or reduced in size. There are signs that some of the worst problems (especially the port congestion and housing prices) are beginning to improve; but given the shortcomings of Saudi Arabia's /administration CONFIDENTIAL
