PARTNER-ATLAS

SAUDI ARABIA

As a partner for safeguarding our prosperity via free trade and innovation

01 — The key questions for the Partner-Atlas

RELEVANCE: What relevance does Saudi Arabia have for Germany with regards to “safeguarding our prosperity via free trade and innovation”?

The relevance of Saudi Arabia for Germany’s economic interests results from the country’s fundamental importance for stability and development in the Near and Middle East, the efforts to modernise its economy, and its oil wealth.

The Kingdom, which has been ruled by the Al-Saud family since it was founded in 1932, is the most populous of the Sunni Gulf states with around 30 million inhabitants (including 20 million Saudi citizens). As the home of the two holy cities of Islam, Mecca and Medina, Saudi Arabia also has an ideological claim to leadership in the Arab-Muslim world. In the phase of upheaval, which the region has been experiencing with particular intensity since the Arab Spring of 2011, Saudi Arabia has also been able to distinguish itself as an anchor of stability.

The regime’s concentration of power, which goes hand in hand with the narrowing of political space, is just as controversial as the increasingly robust Saudi foreign policy of recent years, as is evident, for example, in the Yemen intervention. Nevertheless, today and in the foreseeable future, Saudi Arabia is one of the few Arab policy-shaping powers that could make any contribution to stabilising the region (and thus to securing trade routes, raw material supply and sales markets).

The Vision 2030 development plan, with which the young Crown Prince Mohammed bin Salman has been pressing ahead since 2016, aims for social liberalisation as well as to open up and diversify the Saudi economy. One of the hoped-for effects is to reduce the country’s dependence on oil. With large-scale infrastructure projects, such as the futuristic city project, Neom, on the Red Sea, the Crown Prince wants to modernise Saudi Arabia and attract private international investors.

This creates opportunities for the German economy, despite the continuing constitutional and political uncertainty. The transformation of a rentier state based on raw material income into an investment and innovation-based economic system, which Saudi Arabia is striving for, is also necessary for other countries in the region. A partnership with Saudi Arabia and German economic projects in this area could have a corresponding impact in the Near and Middle East as a whole. However, it remains questionable how sustainable Saudi modernisation can really be without political reforms.

Saudi Arabia is one of the three largest oil producers in the world. No other country exports as much oil as the Gulf State, which (together with Venezuela) also has the largest currently known reserves. Although most of it is delivered to Asia, with Germany hardly purchasing any Saudi oil, the Kingdom plays a key role in the global economy (and in the OPEC oil production cartel) – at least until the post-fossil era comes about.

WILLINGNESS: To what extent is Saudi Arabia willing to work with Germany in realising this interest?

Riyadh’s traditional alliance with Washington was impressively affirmed by Donald Trump, when he honoured Saudi Arabia with his first trip abroad as US President in 2017. Nonetheless, over the past decade the Saudis have been increasingly diversifying their international relations; the disappointment over an allegedly too revolutionary and Iran-friendly Obama was too great – as was the concern regarding Trump’s unpredictability. The Saudi leadership is evermore looking east to countries such as China, India and South Korea and – in terms of security policy – also to Russia.

Nevertheless, there is a fundamental willingness to work more closely with Europe and especially Germany, whose economy and culture are highly regarded in Saudi Arabia. Admittedly, the image of Germany in Saudi Arabia, where they feel they are being unjustly and overly criticised by German politics and the German public, has deteriorated somewhat in recent years. However, the Saudi leadership knows that it also needs Western partners to implement its ambitious plans for economic transformation and the opening-up of society. This pressure to reform is exacerbated by the drop in oil prices and the economic damage caused by the coronavirus crisis.

STATUS QUO: How close is Germany and Saudi Arabia's current cooperation in this area?

Germany is the fourth most important supplier country for Saudi Arabia (after China, USA and the UAE). However, German exports have a fairly low volume (around 6 billion euros for 2019), showing a downward trend since 2016.

Large German companies such as Siemens, Bayer or Allianz have been active in the Kingdom for decades, but many medium-sized companies continue to shy away from risking investments. After the diplomatic crisis caused by German criticism of Saudi foreign policy, which began in November 2017 and lasted almost a year, a stable dialogue has now been reestablished at the political level.

POTENTIAL: What is the potential for strengthening the partnership between Germany and Saudi Arabia in this area?

The German economy has by no means exhausted the potential resulting from the transformation of the Saudi economy, the young population, which is also large in Saudi Arabia as far as the Arabian Peninsula is concerned, and the opening-up of society in conjunction with its own financial resources. German expertise is emphatically in demand for the transport and healthcare sector, for example. In addition, other fields can be developed with a view to the post-oil age that Saudi Arabia is preparing for, for example renewable energies. With the opening-up of society, the country will also become more of a consumer society with new business opportunities, for example in the entertainment industry.

The safety of the sea routes around the Arabian Peninsula (including the Strait of Hormuz) is essential for the German export industry, just as it is for Saudi Arabia, which relies on it for its oil exports. There is room here for joint initiatives which would ideally form part of a European-Arabian Gulf collaboration and which could also contribute to de-escalation in the region and be a building block for a regional security structure.

POLICY RECOMMENDATION: What in German foreign policy has to change in order to fully exploit this potential?

The German Federal Government should use sureties and other support programmes to support small and medium-sized companies in particular in making a greater contribution to Saudi Arabia’s economic transformation. In the field of science, private and public sponsors can develop initiatives, such as a joint tech or MINT campus. Social exchange programmes, including in the educational, cultural or sports sectors, can help to create the necessary knowledge and basis of trust for German-Saudi economic cooperation.

For this, there must be a consistent and honest dialogue, as in the political discourse as a whole. On many issues, such as governance and civil rights, Germany and Saudi Arabia have different ideas that can – and must – be critically discussed within the appropriate framework. However, this does not exclude cooperation and specific projects in socio-economic and technological fields.

At the political level, Germany must strive to work with Saudi Arabia in order to stabilise the region. On the one hand, the Kingdom should be persuaded to adopt a regional policy that de-escalates conflicts, such as the Yemen conflict, and on the other hand, Germany should take Saudi Arabia’s security concerns seriously and propose or support joint initiatives, for example in the area of maritime security.

Edmund Ratka was Policy Advisor for the Middle East and North Africa in the European and International Cooperation Department. Since November 2020 he is Resident Representative to Jordan.

SAUDI ARABIA

  • Population: 34,813,871
  • Capital: Riyadh
  • Interest: Safeguarding our Prosperity via Free Trade and Innovation
  • Region: The Middle East and North Africa
  • Potential partner countries: Egypt, Israel, Saudi Arabia, Tunisia, United Arab Emirates

04 — The region

The Middle East and North Africa

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SAUDI ARABIA

The relevance of Saudi Arabia for Germany’s economic interests results from the country’s fundamental importance for stability and development in the Near and Middle East, the efforts to modernise its economy, and its oil wealth.

  • Population: 34,813,871
  • Capital: Riyadh
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IRAQ

Iraq has the world’s fifth largest oil and twelfth largest natural gas reserves. The country is a founding member of the Organisation of Petroleum Exporting Countries (OPEC) and, in recent years, has become its second largest producer. The Iraqi government considers to further expand the oil and gas sector in the coming years, thereby increasing production capacities even more, although experts as well as members of the government call for diversifying the Iraqi economic and energy sector.

  • Population: 40,263,275
  • Capital: Bagdad
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ALGERIA

In terms of area, Algeria is the largest country in Africa and a key security player in the Sahel. Algeria works intensively with the countries of the region on security issues. This is undertaken within the framework of the respective bilateral relations as well as via regional mechanisms, such as the Nouakchott Process of the African Union (AU), which supports the security policy cooperation of eleven states in West Africa, the Maghreb, and the Sahel.

  • Population: 43,886,707
  • Capital: Alger
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TUNISIA

Secularisation and modernisation have shaped Tunisia’s policies since independence in 1956, especially under the leadership of then President Habib Bourguiba, and continue to have an impact today. Recent representative surveys show that Tunisians feel that they belong first and foremost to their country, then to Islam, and only to a much lesser extent to the Arab world. A clear majority, especially in comparison to the neighbouring countries of Libya, Morocco, and Algeria, favour the separation of state and religion.

  • Population: 11,824128
  • Capital: Tunis
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