Executive Summary

Texas leads the nation in manufactured equipment and services exports for the Saudi energy industry.  Texas exports also include information technology (IT) sector equipment, parts, accessories and services.  In 2003, integrated circuits and data processing equipment led the way while drilling and sinking equipment followed in third place.  The thriving Texas IT economy, led by Dell and EDS benefit as much as oilfield service providers from the plethora of new development projects across Saudi Arabia.  Because of its diverse economy and ability to match Saudi import demand, Texas enjoys a 20% share of total U.S. exports to Saudi Arabia, more than any other state.

We forecast that annual manufactured goods and services exports from Texas to Saudi Arabia will more than double to $2.03 billion by 2013.  Manufactured goods exports to Saudi Arabia currently provide 17,000 jobs in Texas. High paying services jobs linked to IT, consulting and legal services support an additional 7,000 jobs as Texas continues send both drill bits and data bytes to Saudi Arabia. 

Legislation targeting Saudi imports such as the Saudi Accountability Act of 2003 and onerous midnight politicking, such as the Weiner of New York Amendment, threaten Texas exports more than any other state.  The job of "brush cutting" legislative and legal tumbleweeds that choke Texas-Saudi trade has fallen upon a few key Texas legislators and diplomats.

Texas Merchandise Exports to Saudi Arabia

During the years 1998-2002, drilling and oilfield equipment comprised 3% of total U.S. exports to Saudi Arabia. Over the same period, U.S. exports of IT and telecom equipment were just under 4% of total U.S. exports to the Kingdom.  Growing Saudi demand for U.S. IT equipment and services is driving new economic growth in Texas.  Sales of networking equipment, servers, personal computers (PCs) and telecom hardware also bring in additional revenue from service contracts in the form of software, systems integration consulting and extended warrantees.

Among the top three Texan global export categories, IT hardware occupies both the first and second place with drilling and sinking machinery now taking third place.  (See Exhibit #1.)

Exhibit #1 Year 2003 Texas Major Merchandise Export Categories
(Source: US Census Bureau and IRmep 2004)  

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IT accounts for 14% of the major export categories itemized above.  However, even minor category manufactured goods utilize a great deal of Texas-produced IT components.

Many IT vendors headquartered in Texas have arranged distributorships in Saudi Arabia not only to provide the expected high level of customer service, but also to show long-term commitment to the market.  Texas merchandise exports to Saudi Arabia increased on average 3.3% annually between the year 2000 and 2003.  If Texas sustains its market share of the growing Saudi import market, annual merchandise exports should reach $1.3 billion by the end of the decade.  We also believe that Texas service export revenue will keep pace, reaching half a billion dollars in the year 2008.  (See Exhibit #2.)

Exhibit #2 Forecast Texas Merchandise and Service Exports to Saudi Arabia
(Source: IRmep 2004)  

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For Texan workers, the translation of export revenue figures into jobs and take-home pay is what matters most.  Using the U.S. Department of Commerce "rule of thumb" calculation of 17,000 jobs per billion dollars in export revenue, total service and manufacturing jobs tied to Saudi imports in Texas totals just under 24,000.   In June 2004, Texas drove the state unemployment rate below 6%  for the first time since the year 2001.  This is partially, though directly, attributable to Saudi Arabia’s import demands.  (See Exhibit #3.)

Exhibit #3 Forecast Texas Service and Manufacturing Jobs tied to Saudi Imports
(Source: IRmep 2004)

Although export forecasts are rosy, some "brush cutting" is needed to clear away brambles of disinformation that threaten the Texas-Saudi trade relationship.

The Saudi Accountability Act Brushfire

The Saudi Arabia Accountability Act of 2003 languishing in Congress is one such tumbleweed. Although the bill enjoys little credibility or legislative support as an effective means to combat the global scourge of terrorism, winds from isolated ideological proponents of the bill continue to blow.

Popular support that the bill needs to break out of a slow wilt in the Senate Foreign Relations Committee may come from unexpected quarters -- American movie theatres.

Michael Moore's new film Fahrenheit 9/11 has done a tremendous favor to critics of U.S.-Saudi relations and accomplished what endless pages of neoconservative op-ed pieces, panel discussions and books have not -- spill gasoline on anti-Saudi sparks in the United States.

Moore's film lambastes the Saudis not only for business relationships but also for leaving the United States after the attacks of September 11, 2001.  Although the film's account is largely inaccurate, facts have been overtaken by perception. The overwhelming popularity of this film takes the anti-Saudi message to a whole new market. In spite of its progressive producer and target audience, Fahrenheit 9/11 falls lock-step in line with the stated agenda of neoconservative hawks -- generate further conflict in the Middle East by jettisoning U.S.-Saudi relations.  Preventing this growing brushfire of disinformation will rely on the actions of Texan constituents and their representatives.

Texan Brush Cutters in Saudi Arabia and Congress

The U.S.-Saudi trade relationship remains under a Texan duet of diplomatic stewards:  Texans James Curtis Oberwetter, current U.S. Ambassador to Saudi Arabia and Alfred F. Fonteneau, American consulate general.  James Curtis Oberwetter, who grew up in Houston and studied at Texas Southern University, served as Vice President of Governmental and Political Affairs for Hunt Consolidated, Inc.  Fonteneau joined the Department of State in 1982 and is also a native Texan from a small town south of Houston.

Texan representatives in Congress have also worked to prevent defective legislation affecting diplomatic and trade relationships like the Accountability Act by withholding sponsorship.  Not a single member of Congress from 30 Texas districts or either senator sponsored the Act.  This lack of broader sponsorship reveals the source of the majority of anti-Saudi legislation: isolated representatives from the East Coast (and especially New York) with little experience or stake in the U.S.-Saudi relationship.  However, even Texan legislator support for U.S. exports to Saudi Arabia is not always unanimous.

The Weiner of New York Amendment to the Foreign Operations, Export Financing, and Related Programs Appropriations Act 2005 stripped $25 million from U.S.-Saudi export financing.  This amendment narrowly passed on July 15 (217 for/191 against) with the support of 11 Texas representatives.  (See Exhibit #4.)

Exhibit #4 Texas Members of Congress Voting Against Financing US Exports to Saudi Arabia
(Source: Thomas Legislative Information – Library of Congress 2004) 

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The Weiner of New York Amendment is short but not sweet -- "An amendment to prohibit any U.S. assistance to Saudi Arabia."  It was introduced in the evening of July 15 and narrowly passed with limited debate or discussion 90 minutes later.  Unfortunately for Texas, by cutting export financing for U.S. manufactured goods, the amendment can only hurt Texas as other countries with more abundant export financing step in to fill the breach.  Other challenges to the U.S.-Saudi relationship exist on the visa and immigration front.   

Visitor flow between Saudi Arabia and Texas drives innovative educational exchanges and development projects, such as the Dar-Al Hekma College in Jeddah, which was developed in partnership with the Texas International Education Consortium.  Visa processes that delay consultant and professor flow between Saudi Arabia and Texas also jeopardize future innovation in education and cultural exchanges.

As U.S. representatives with a broader view than those currently on sale at the box office, America’s Texan representatives to Saudi Arabia and Congress are well positioned to maintain a vital trade and diplomatic relationship.  Maintaining growing ties forged over drill bits, data bytes and educational exchanges will help guarantee a future of Texas sized growth and prosperity in the United States and Saudi Arabia.

ABOUT THE AUTHOR

Grant F. Smith is Director of Research at the Institute for Research: Middle Eastern Policy (IRmep) in Washington, D.C. (http://www.IRmep.org).    Before joining the Institute, Smith served for 3 years as senior analyst and later program manager of international research at The Yankee Group Research, Inc., a Boston based research and consulting firm owned by the Reuters PLC group.  He worked closely managing business plan development and financing due diligence with the International Finance Corporation of the World Bank, Inter-American Development Bank, and many consortium investors and corporations on over $3.0 billion in investment projects in over forty countries. 

Preceding his tenure at Yankee Group, Smith taught graduate level finance and marketing courses for five years at Colombia’s most prestigious business school, the Colegio de Estudios Superiores de Adminstracion (CESA).  He coordinated executive seminars, exchanges, simulations and programs between CESA and Harvard, Berkeley, and other U.S. universities. He also served as president of Smith & Sefair Zaher Ltda., a Bogota based technology and management consulting firm.  While there, he consulted clients in the insurance, banking, and industrial sectors on business process improvement, business planning, and information systems technology strategies.  Before that he was marketing manager at American Express Financial Advisors corporate headquarters.

Smith received his Master’s degree in International Management from the University of St. Thomas in St. Paul, Minnesota.  He has a B.A. in International Relations from the University of Minnesota and has completed post graduate certificate work in information systems at New York University.

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