Think of Saudi Arabia and what comes to mind — probably oil and sand, perhaps the odd camel. It is a familiar cliché but one that tells only a fraction of the story. Saudi Arabia is the world's largest oil producer, but there is far more to its landscape than a sea of oil cranes gently nodding in the desert. Riyadh, the capital, is a sprawling metropolis, home to three million people and with a skyline that is changing fast. The high-rise towers that puncture the air are symbols of a new age and a new brand of thinking in the Arabian Gulf's largest and most important state.

Photo by Marco Venditti

Standing 875 feet high, the Faisaliah complex is visible from most of the city's vantage points. Just up the road is the even more ambitious 985 foot Kingdom Center, the brainchild of international investor Prince Alwaleed Bin Talal. But it is not just the scale of these new real estate developments that marks them as harbingers of a new era: the detail is revealing too. The Faisaliah complex is home to department stores such as Britain's Harvey Nichols, while Harrods has already booked its place in the Kingdom Center. Once a desert retreat, Riyadh is preparing for its future as a cosmopolitan capital.

This outward change in style — the emergence of an overt and unexpected glamor — is more than matched by a change in the business climate. Saudi Arabia is now on the fast track to reform.

While subtle changes to laws governing international investment have been pushed through over the past year or so, the full scale of the government's willingness to grapple with the core issues became apparent in early June. The award to three international consortia of $30 billion-worth of natural gas development projects has demonstrated — to those who doubted it — that Saudi Arabia's doors are well and truly open to foreign businesses.

If further proof was needed, progress in a host of other areas has been rapid. Advisory teams have been appointed to prepare for the privatization of the national flag carrier, Saudi Arabian Airlines. The scattered electricity sector is in the process of being consolidated into a single entity — the Saudi Electricity Company — that is itself likely to be privatized in the future, with the ultimate aim of reducing government subsidies. The telecommunications sector is experiencing a revolution in which privately owned companies are setting the pace as much as the Saudi Telecommunications Company, the initial public offering of which is slated to take place early next year.

The commitment to the principle of private sector participation — both domestic and international — in infrastructure development is firm and radical. For example, government estimates that more than $60 billion will be invested in the electricity-generating sector, over the next 20 years, are backed up by the assertion that all new major generating projects will be conducted by the private sector. In such a context, it is no surprise that international developers have already had frequent-visitor visas stamped into their passports.

Perhaps the most interesting angle — and one that has surprised the hordes of experienced Saudi watchers — is that the radical reforming agenda is being pushed through during a period of economic boom rather than bust. In the past, the voices clamoring for reform grew louder as the economy nose-dived into recession, only to fall mute as the green shoots of recovery became visible. But this time it has been different, and the old paradigm defining the relationship between international oil prices and the domestic political will for reform has been broken.

The oil crash which started in 1998, and saw prices hit a nadir of less than $10 a barrel in early 1999, was the forerunner for unprecedented cohesion within the ranks of OPEC, of which Saudi Arabia is a dominant player. It was also the stimulus for a new wave of reformist thinking in Riyadh's halls of power. So profound has been the transformation that OPEC-induced booming oil prices since mid-1999 have done nothing to unbundle the restructuring agenda.

In fact, in sharp contrast to the echoes of previous attempts at reform, fast-filling government coffers have been viewed as an opportunity to push further ahead, rather than rein in the economic revolution. The evidence for this can be seen in the fact that last year, Saudi Arabia reported its first budget surplus since 1982 — revenues exceeded spending by a whopping $12 billion — and all the signs suggest the budget will be balanced this year.

In addition to surging oil revenues, one of the main reasons for fiscal surpluses has been the realization that the old routine of feast or famine in public spending could not address the underlying questions posed by Saudi Arabia's demographic situation. With the young, fast-growing population already in excess of 22 million people, the state is unable to provide a cradle-to-grave welfare system while simultaneously offering employment opportunities to all nationals. With this in mind, the oil price recovery did not automatically lead to slack government purse strings. As those active in Saudi Arabia's construction sector can confirm, the time lag between healthy government revenues and new project spending has been longer than ever before, and the fresh initiatives more judicious than some in the past. The most important factor has been that the private sector is now the driving force.

That it will continue to be so is no longer even controversial. Led by King Fahd and Crown Prince Abdullah, the political elite has swallowed whole the principles that support market economic theory. For local businesses the time is ripe for expansion, for international investors the door has been opened wide and the opportunities are rich.

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