Saudi Arabian Industrial Development and Manpower Requirement: Problems and Prospects

The shortage of qualified Saudi manpower has arisen as the most serious obstacle to Saudi industrial development and economic diversification. This study addresses the labor problem by projecting the industrial sector's manpower needs and the availability of such labor in the indigenous population, then by projecting the number of expatriate workers required to ensure the industrial sector's steady growth and prosperity. In addition, the educational system is examined and the number of higher and vocational education graduates are projected to show to what extent the educational system can supply the necessary workers. The rationale behind industrialization, the reasons for the manpower shortage, and the negative aspects of depending on expatriate workers are also discussed. The primary finding of this study is that the industrial sector will continue to depend largely on expatriate workers, particularly in the private sector, i.e., non-oil manufacturing establishments. Secondly, this study concludes that graduates of the educational system will be able to fill a relatively large number of job openings, especially for middleand high-level positions. Nonetheless, there will not be enough Saudi workers to create a self-sufficient economy in terms of manpower in the near future. Finally, this study finds that there are many current practices and policies negatively affecting the growth of new manpower for the development process and some corrective policies have been proposed.

• 116 iv List of Tables   Chapter II   II-1 Government Revenues 1944(Selective Years Prior to 1974

INTRODUCTION
Purpose of the Study Saudi Arabia's economy has been largely dependent on crude oil exports. When world demand for oil increased and oil prices began to rise in the 1970's, more revenue became available, which in turn enabled the kingdom to accelerate its economic and social development process. However, the increased development in turn created an increased demand for manpower. Furthermore, because oil is a depletable resource, one of the primary goals of the planned development process is a reduction of the country's dependence on crude oil exports by creating a variety of additional sources of national income, which further taxes the labor pool.
The domestic population cannot adequately provide the number of workers or the wide range of skills required. These skills will take considerable time to develop because of th~ many social, historical, and administrative factors involved. (These we will discuss in later chapters.) When the industrial sector was chosen to be the central arena for the diversification of the country's sources of revenues, the manpower problem arose as the most serious obstacle to industrial development, and as a result, to Saudi Arabia's diversification objective.
This study addresses the labor problem by projecting the industrial sector's manpower needs and the availability of such labor in the indigenous Saudi labor market, and by projecting the number of expatriate workers required to ensure the industrial sector's steady growth and prosperity. In addition, the educational system is examined and the number of higher and vocational education graduates are projected to show to what extent the educational system can supply the workers with the necessary skill levels. The rationale behind industrialization, the reasons for the manpower shortage, and the negative aspects of reliance on expatriate workers are also discussed.

Outline of the Study
Chapter II begins with a brief background of Saudi Arabian geography, language, religion, population, and climate, followed by a Chapter V deals with the role of the educational system in supplying the needed manpower. A summary description of the educational system's developmental stages and enrollment is provided.
The number of graduates are projected through 1990, based on the growth rate of enrollments and graduates of higher education in prior years. The same procedure is followed for the vocational education system. Also in this chapter, some analysis is provided of the the qualitative and quantitative issues affecting the Saudi educational system.
In Chapter VI the major facts about the manpower situation in Saudi Arabia are summarized. The main focus of this Chapter is the analyses of certain factors and practices (past and present) that has effected the availability of Saudi manpower to the various sectors of the economy. It concentrates on the effects some administrative, social and educational practices have had on the manpower supply. This is followed by proposals that could contribute to more efficient utilization of the available Saudi manpower that could be achieved primarily through the restructuring of the existing employment system.

Data and Projection Limitations
Finally, it should be noted that the study was faced with extremely limited available data, which in turn limited the analysis in many ways. Had enough data been available, more analysis and fewer assumptions would have appeared in this study. This limitation also has effected the availability of detailed studies which the Saudi economy is in urgent needs in order to have an adequate planning.
However, the available data have been utiljzed to meet the study's objective.
Certain assumptions were made in projecting the population, industrial sector labor needs, supply of Saudi industrial labor, and the numbers of enrollments and graduates from higher and vocational education. The primary assumption was that the same trends that occurred during the previous years will continue to apply.
Saudi Arabia has the largest proven oil reserves in the world, which continue to grow as the oil companies expand their exploration efforts (see Figure II- 1944(Selective Years Prior to 1972 Year 1944 1948 1952 1956 1962 1964 1970 1972 1973 1974 1975 1976 1977 1978 1979 1980 Revenues (in million riyals) sector, the country has been described a-s having a single commodity economy. According to one source, "The dominance of oil in the country's foreign exchange earnings, government revenue, and as a source of growth of the national income, is the most obvious 7 characteristic of the economic system." Furthermore, a comparison between the pre-and post-oil era economies is meaningless. The two are of totally different dimensions.
Until recently, Saudi Arabia has been able to depend almost entirely on crude oil production for its prosperity. This is an attractive state of affairs, but not necessarily a healthy one. To free itself from such economic obstacles as lack of foreign exchange and an adverse balance of payments due to disturbances in the crude oil market, the government shifted its emphasis to the diversification of the Saudi economy. The industrial sector was chosen as the cornerstone of achieving this objective.

Objectives of Industrialization:
Less developed countries (LDCs) view industrialization as the major path to rapid economic growth and to a high standard of living, To accelerate the rate of development of the industrial sector and broaden the range of manufactured goods produced; To develop greater economic independence; To ensure that new investment in each branch of industry makes appropriate use of the economies of large-scale production and modern technology;

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To make maximum use of the opportunities for regional co-operation in the field of industrial development; To direct new investment into those branches of industry or projects that have government priority; To develop and maintain the desired balance between public and private ownership of industrial projects; To achieve certain balance-of-payments objectives; for example, by developing an appropriate mix of import substitution and export-oriented industrial production; To promote the desired geographical distribution of new industrial activity; To promote a more equitable distribution of income and wealth, and a wider spread of ownership of industrial projects; To ensure that a sufficient volume of finance is available on appropriate terms and conditions for the industrial sector; To ensure the development of a growing and adequate body of experienced entrepreneurs and trained industrial managers; To ensure the development of an adequate supply of engineers, technologists and technicians; To promote the development of national technology and research, suited to the conditions and resource endowments of the country.
It seems that many LDCs are determined to achieve industrial development, whether or not it will help them accomplish the above mentioned objectives with certainty. Saudi Arabia, which has only recently entered into the industrial field, is one such nation. In this chapter, I will survey and analyze the steps it has taken to accomplish its goals and discuss the results thus far.

Industrialization in Saudi Arabia
Manufacturing Activities-History Saudi Arabia has only recently begun its manufacturing industry.
Therefore, in order to evaluate its present state and future prospects, it will be necessary to survey past activities.

Principal Activities
Saudi Arabian industry was originally dominated by a large number of independent shopkeepers, metalsmiths, carpenters, and pedlars catering to a small number of regular customers. Individual artisans or small industrial entrepreneurs, primarily male, worked alone or with a few workers in small workshops, or even in their homes. In cottage industries, female family members made products which were either sold or used by the households. 9 Selected products and their production locations are presented in Table II

Reasons Behind Industrialization
As has been mentioned in the beginning of the chapter, Saudi Arabia's economy is presently dominated by the production and export of crude oil, which generates about 90% of the government's revenues and more than 90% of total foreign exchange receipts. Due to large increases in oil production and prices since 1973, oil has come to account for more than 99% of the country's total exports. The sharp increases in government revenues that the country enjoyed were more than sufficient for the developmental process. Consequently, there was an increase in the amount of international financial assets held by the kingdom.
On the other hand, the increase in oil production has greatly accelerated depletion of the country's major natural resource and its chief source of national income. Consequently, the broadening of the sources of national income and the reduction of dependence on crude oil became the primary objectives of planned development in the kingdom.
The industrial sector has been assigneQ a considerable role in the realization of economic diversification. The goal is to develop only those industrial projects most likely to have long-term advantages.
Such efforts will be focused primarily on: 1.

4.
Hydrocarbon-based industries Import substitution of essential commodities for which the domestic market is large enough to justify operation 14 Agro-industries as part of the massive agricultural development the country is experiencing Mining to be explored in the short-run, the results of which later will be supplied to the national economy.
Saudi Arabian hydrocarbon-based industry was built for valid reasons. For years, large amounts of associated gas were wasted in the process of producing the crude oil. In 1978, 4,374 billion cubic meters of associated gas were produced, however, only 22 percent of that was put into use (see Table II-3). Thus the development of a gas-gathering and distribution system will have to effectively utilize the associated gas. Another reason to develop the petrochemical industry in the country is the very high comparative cost advantage with respect to energy cost (see Table II-4) that the Saudi Arabian industry will enjoy.
Furthermore, because the established plastic and chemical plants now depend on imported raw material, the new petrochemical industry will contribute to the establishment of more of such plants for both import substitution and export. The number of such manufacturers has already doubled three times in the last two years. It is expected that the dependence on imported raw materials will rapidly decrease during the next few years as the Saudi petrochemical industry enters its rapid expansion stage.
However, economic factors were not the only rationale behind the industrialization process. Government officials have insisted that the most important and valuable cornerstone of the nation is the development of highly-trained Saudi manpower. As one official put it, .•• large-scale hydrocarbon-based projects .•• will contribute to the creation of a new class of trained Saudi managers, entrepreneurs, and technicians--to the establishment of new work attitudes and discipline-all of which can be readily transferred to other expanding sectors as 1 5he oil sector declines in relative importance.  Still, there are other reasons behind industrial development in the kingdom. The great wealth in the form of financial assets that Saudi Arabia holds outside the country is not the safest or most productive kind of investment. In the long-run worldwide inflation always decreases the value of currency, cre~ting less purchasing power for money holders. Saudi Arabia holds most of its financial assets in United States dollars--it is the single largest United States treasury 17 note holder --but unfortunately, the doilar is never stable. The depreciation of the U.S. dollar between January, 1977 andApril, 1978 was very extensive--by more than 22 percent against the Swiss franc, 21.5 percent against the Japanese yen, and 10 percent against the pound. 18 . • . the order of magnitude of OPEC losses during the December, 1976-April, 1978 period can be conservatively put at about $15 billion. To this figure should be added the loss of buying power of OPEC's estimated $70 billion in liquid re19rves, and of some $80 billion in foreign placement.

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Furthermore, any outside investment of assets could be adversely affected by political consequences in foreign nations, such as nationalization of facilities or freezing of assets. As a result, Saudi Arabia has chosen to invest inside the country, such as in education, health services, and the industrial sector, in order to provide a protectaive mechanism for its wealth and to increase the country's capital stock. This shows that industrialization for Saudi Arabia is not merely a choice between development options, but rather is a means for survival in the long-run and also a means of achieving the quality of life toward which the Saudis aspire.

Manufacturing Sector
Most non-oil-related manufacturing establishments are in the private sector, located mainly in the major urban areas.  Table IV-1). In 1966, it accounted for approximately 28% of the total and in 1972 some 27% (see Table II-6). Its share of total employment declined from approximately 29% in 1972 to slightly over 10% in 1981.

•
Text i 1 es , wear i n g a pp are 1 and 1 ea t.h er The main characteristic uf this sub-sector is the small size of the units that make it up. Even though it represents approximately 35% of manufacturing establishments in 1981, only 1.3 percent of these b ' 22 usinesses employ more than 10 workers.

Wood, wood products and furniture
This sub-sector is also comprised of a number share of small establishments totally dependent on imported raw materials.

Paper and paper products 22
This sub-sector is comprised of medium and large units, totaling 608 in 1981, with approximately 7,900 workers. It depends totally on imported raw material.

Chemical and plastic products
This sub-sector is comprised of highly capital intensive units which produce a larger volume of output. In 1966, it represented less than three percent of total number of establishments, and approximately four percent of total employment. In 1981, not only did the percentages change, the number of establishments employing more than 100 workers was the highest of all industries in manufacturing sub-sector. The chemical and plastic products industry has the brightest future of the entire manufacturing sub-sector, especially after the new petrochemical . projects enter the production stage. The new petrochemical plants will supply this industry with its raw materials at lower prices than those currently imported.

Fabricated metal products and machinery
At present this sub-sector is comprised of a high percentage of large establishments. In 1981 it showed a share of approximately 30 percent of total manufacturing establishment.

Bricks, blocks, cement and glass
Establishments in this sub-sector are primarily medium and large in size. Cement and Gypsum are the two most important products of this sub-sector. Cement production went from 30,000 tons in 1958 to 66 5,000 in 1970, and then jumped to almost 5,674 million tons in l982. 23 The increase in production still did not come close to satisfying the demand for cement. In 1981, only 33 percent of total demand was produced in Saudi Arabia. 24

Objectives
The main objectives of the manufacturing sector have been outlined 25 by the Ministry of Industry and Electricity as: To increase the economy's capacity to produce at competitive costs a wide range of products for domestic as well as export markets 2.
To the substantial comparative advantages arising from low cost energy, as well as access to raw materials from hyrocarbon-related industry, and from mineral, agricultural and fishery resources

3.
To widen and deepen the kingdom's access to modern technology 4.
To encourage fuller utilization of capacity in the private manufacturing sector

5.
To secure regionally balanced dev~lopment of industry 6.
To increase productivity through the use of the economies of scale 7.
To promote interlinkages among iridustries To achieve these objectives, policies and incentives have to be established. In 1974, the first industrial development policies and incentives were announced, the primary principles of which are: 1.
Objectives of industrial development will be effectively attained in the long-run if the business community takes charge of it. Thus, those businessmen who are prepared to enter the field, taking the chances of success or failure, will enjoy the full support of the financial and legal power of the government in all stages of preparation, establishment, and operation.

2.
Free competition will be the major tool to enhance and shape the individual sectors to suit market requirements.

3.
Feasibility studies and other useful information will be available to those interested in participating in the industrial Licenses for industrial projects will be granted for those exceeding specified size and employment.

Oil Sector: Crude and Refined Oil
This sector is primarily export-oriented and its output is given limited domestic consumption, thus prices and production of oil are totally dependent on the international market for oil. Aramco is the largest oil company in Saudi Arabia, producing some 95 percent of all Saudi Arabian oil. The Arabian Oil Company and Getty produce the rest of the oil in the kingdom. Oil comes from more than 35 oil fields in the eastern part of Saudi Arabia. The Gawar oil field, the largest in the world, produces more than five million barrels per day.
Crude oil production is not the only activity in the oil sector, particularly since the crude oil market is not stable and does not always show positive growth. Oil byproducts are now being produced to exploit the economics of value-added, and to support the growing domestic demand for such byproducts resulting from greater economic activities.
Production of refined oil has been increasing at an annual average growth rate of 5.8 percent from 1963 to 1982. In 1982, the total production reached 310,858,000 barrels of seven different 26 byproducts.
By 1985, three new oil refineries will add 800,000 barrels per day capacity in gasoline and fuel oil. 27 Refined oil share of the value-added products was 86 percent in 1970, 78 percent in 1975, and 54 percent in 1979, indicating that other manufacturing industries are increasing their shares of value-added products.
Although the oil and refined oil sector account for the biggest share of GNP, its share of total employment is rather small. Aramco, the major employer in this sector, only employed some 55,000 workers in 1981 28 because this sector is very capital-intensive and advanced technology are fully applied.

Hydrocarbon-based Industries Sector
Saudi Arabia has adopted an ambitious plan for rapid industrial transformation centered on the construction of two large and completely new industrial cities, one at Jubail on the Arabian Gulf coast, and the other at Yanbu on the Red Sea coast and will receive feed stock and fuel for its plants from the eastern province through PETROMIN 1 s 1,200 kilometer crude oil pipeline and Aramco's parallel natural gas liquid pipelines. 29 Two basic types of industry will be housed there. The first type is the heavy petroleum-based and energy-intensive primary industry that will serve as the foundation of the two industrial complexes.
Both sites will reflect Saudi Arabia's strong commitment to the development of hydrocarbon and other industries that can utilize the country's low cost and abundant supply of crude oil and associated natural gas, which will provide both industrial fuel and raw materials. The plan is to construct major petrochemical fertilizer, iron and steel, aluminum, and other resource-based industries. 30 In addition, secondary industrial enterprises . will be established largely as a result of private sector initiative and will emerge as a natural outgrowth of primary industry development in Jubail and Yanbu. 31 These industries would range from heavy to light industries. They would form a ready market for the product mix of the primary industries. Basically, they would consist of manufacturing and fabricating facilities for byproducts of refineries such as rubber products, paints, nylon and detergents, products from the petrochemical plants such as plastic products, fertilizers and disinfectants; and from the iron and steel plant, reinforcing bars, wire and pipes are mainly produced. These secondary industry products 32 will be marketed at home and overseas.
The main responsibility for developing and supervising the primary industries will be in the hands of the Saudi Basic Industries corporation (SABIC). SABIC is forming joint venture agreements with foreign partners to install all hydrocarbon-based and energy-intensive industries (see Table II-7). The rationale behind foreign participation is to secure the necessary technology and skills for the planning, management, and operation of such large and complex projects, and to obtain assistance in marketing products overseas. 33 The Saudi government has used the device of oil entitlements to attract giant companies to participate in these ventures. According to the managing director of SABIC, entitlements depend chiefly on: 34 l. The equity contributed by the foreign partner 2.
The commitment of the partner to the project 3.
The contribution of the partner to marketing the product

The technology transferred
This incentive strategy will continue to industrialize the Saudi economy. As the Minister of Petrolum stated, "In the future, Saudi Arabia will only grant oil contracts to customers willing to help build up industry in Saudi Arabia. 1135 As already mentioned, Saudi Arabia will be a very strong competitor in the international chemical market in the very near future. According to the Financial Times, Saudi-planned products of ethane and natural liquified gas will equal a third of the total free world production, almost half of the production in the United States, and one and one third ttmes the production of Europe and Japan 36 combined.
Toward the end of the decade, Saudi Arabia is expected to have five percent of the total world petrochemical capacity. 37

Marketing
Most industries in the kingdom are dependent on imported raw materials, which reduces the domestic value-added and increases the costs of domestic production. Furthermore, ·the availability of duty-free imports provided by the government for the industrial sector will discourage the country's production of its own raw materials.
Marketing problems include the lack of sales promotion, marketing research, and distribution channels. In addition, customer preference for foreign manufactured goods over locally produced commodities is the most important marketing obstacle. The shortage of manpower and the problems of vocational training will be discussed in more detail in the next two chapters.

Institutions for Industrial Promotion
There are a number of institutions which directly or indirectly promote industrialization in the kingdom. A brief description of extended cover up to 50 percent of total funds required for financing the project or its development (see Table II-8).
*In January 198~ 20% of the company's stock was sold to the public as the first step to transfer the company to the private ownership.
Other. Besides the above institutions there are several other ----------      There is a consensus among researchers that the population growth rate in Saudi Arabia is approximately 3.0 percent annually, the figure that will be used for this thesis. This rate is high compared to such developed countries as the United States, where the annual growth 7 rates between 1970 and 1980 was 1.08 percent.
It is also higher than some developing countries such as Egypt, with a 2.5 percent growth rate, and India, with a 2.7 percent growth rate, both in 1970. 8 Among the most important factors influencing the high rate are: 1.
The discovery of oil in 1938, which has greatly affected economic and social conditions 2.

Literacy and Education Level
According to the 1974 census, more than 75 percent of the population was illiterate, with an even higher rate among women.

Distribution of the Labor Force According -to Economic Sectors
A comparison of overall employment in the various sectors shows that traditional agriculture has the highest concentration of employees, followed by construction, with government in third place.
Manufacturing employs just 4.2 percent of the total labor force, while  1970 1975 1980 ' 1985 1970-75 1975-80 1980-85 1970-75 1975-80 1980- Because the labor force is the major factor influencing social and economic development, it is necessary to look at its distribution.
According to the Third Development Plan, the largest portion of the labor force is concentrated in the services sector which includes government as well as trade, transportation, and finance. This sector employed an estimated 55.2 percent of the total labor force in 1980 (see Table 111-6).
A breakdown of labor in each sector according to nationality or sex is unavailable. However, it is known that female participation in the production sectors has traditionally been extremely low in Saudi  However, it should also mean that these young people will in time be able to replace the expatriates, or at least reduce their number, although this outcome will require proper preparation for the types of employment needed by the economy.

3.
Education and Training: The low educational level of the Saudi employee is one of the major reasons for the country's dependence of expatriate labor, as has been shown before in the discussion of illiteracy. Furthermore, the Saudi Arabian is geared to academic rather than vocational education. The majority of Saudi students would rather attend universities than technical schools, as an academic education provides an opportunity for higher salaries, excellent benefits, and respectability in the community. Saudi labor force will be negatively affected.

Reasons for Their Presence
The income factor could be considered the main pull factor for the expatriate labor force in Saudi Arabia, as the wage rates there are definitely higher than in foreign countries providing most of the Not only are there people from LDCs holding jobs in Saudi Arabia, there are many expatriate workers from MDCs as well. The main factor here is that there are large salaries which are tax-free in both the countries of origin and employment. Also, most Saudi Arabian projects are built by foreign firms which bring their own countrymen to fill skilled labor needs, rather than try to employ skilled Saudi workers.
This practice would prevent the transfer of skills and knowledge from the foreign firms to the Saudi labor force.

Problems With the Expatriate Worker
Although the manpower shortage is considered the main constraint to the country's development, and an outside labor force must be utilized to reach economic goals, the use of the expatriate worker must be seen as a temporary solution to the problem. If this mechanism were seen to be "the" solution, the objective of the entire development process would be severely affected. The most dangerous outcome would be that the Saudis would become very dependent on non-Saudis to accomplish the developmental process objectives.
The present situation of yery large numbers of workers with different backgrounds may lead to a great deal of conflict with the host society. Such a conflict could take many shapes and patterns, which in turn could affect the productivity of the entire labor force. Putting together many people with different backgrounds, work habits, and values to accomplish one job may cause a great deal of social disharmony.
In addition, because expatriate workers know they are only in the country for a short period of time and have no long-term commitment to it, their loyalty for the project and their levels of productivity may be negatively affected. An expatriate worker's productivity may also be diminished because he is far from home, family and friends. An additional problem of expatriate workers is the burden that they may place on available service facilities such as housing, airports, water, electricity and police services, which in turn would have to be expanded, thereby creating even greater manpower needs.

Concluding Remarks
The point that has been stressed throughout this chapter is Saudi Arabia's dependence on an expatriate labor force. Expatriate labor constitutes a large proportion of the total labor force in almost all sectors of the economy, except in traditional agriculture. This heavy dependence on expatriate workers was caused primarily by the sudden wealth resulting from the discovery of oil i~ Saudi Arabia.
Consequently, the economy has · grown very rapidly in all sectors, creating job opportunities and thereby contributing substantially to a relative shortage in human resources.
In Saudi Arabia, there are two major reasons for the imbalance in the labor supply and demand. On the one hand, there is not enough of an availability of labor because of the high percentage of young people, extremely low percentage of working women, and low eduation and skills levels of the populace. On the other hand, the productivity range of the available labor force tends to be very low, e.g., traditional agriculture and government.
Because of its capital resources, Saudi Arabia was able to invest in capital-intensive and highly sophisticated technology, but it is the knowhow that cannot be easily created and maintained. As a result, an important question should be seriously addressed: Will the hoped-for benefits from this development process be unfulfilled as a result of depending on expatriates? And if the benefits are realized, will it be more costly to achieve these benefits? Finally, the help and assistance of the expatriate labor force should be appreciated~ The expatriate worker's high skill levels have helped and continue to help Saudi Arabia in its task of economic development.
Having discussed the present Saudi manpower situation, simple projections of the industrial sector's manpower needs and the future supply will be presented in the next chapter.

Saudi Industrial Sector and its Labor Needs
There is general agreement · that the shortage of 11 native 11 trained manpower is the greatest obstacle to industrial development in Saudi Arabia. In Chapter II the industrial sector was divided into three major subsectors: manufacturing, oils, and hydrocarbon-based industries. In this chapter, each subsector will be looked at individually in order to estimate its labor requirements. In doing this, I can rely on only limHed historical data. Thus, in light of the newness of the Saudi industrial sector, only generalized needs can be projected. Projections regarding the specific types of workers and levels of skills that will be required are not feasible at this time.
once the generalized labor demand is estimated I will proceed to estimate the total number of Saudi workers available to all sectors of the economy. Finally, I will estimate the number of Saudi workers that will be available to meet the industrial sector's needs and how many expatriate workers must be used to bridge the gap between the demand and supply of the industrial labor force.

Manufacturing Sector
The manufacturing sector is a very recent development in the Saudi economy. The huge amount of imports of almost every kind of product, the aggressive government policy, the incentives for industrialization, and the amount of assets available to many Saudi businessmen have given this sector the opportunity to grow over the years and its labor force requirements have grown commensurately. In this section, I will project the labor needs of this industrial subsector up to 1990. The year 1990 is seen as the maximum projection year because the same trends a~d behavior that existed in the 1970s are expected to continue up until that time. This belief is supported by the government's continuing determination to see manufacturing grow and take its appropriate place in the economy by the increasing awareness and appreciation in the Saudi marketplace, by the surrounding Gulf state markets for the products coming out of this sector, and by the decreasing private investment opportunities in construction and real estate.* Going beyond 1990 would affect the relative accuracy of the data because a new kind of environment would have been created by the changes that may not apply to present and near future conditions.
The latest (1981) census of the manufacturing sector is presented in Table IV-1. The total number of laborers observed in the 1981 census will be used as the base number when projecting total labor needs from 1981 up to 1990 with the assumption that the same trends and environment will prevail during this entire period of time.  The assumption that all trends and climates that prevailed during the eleven years from 1970 to 1981 will, for the overall sector, continue during the nine years up to 1990 should not apply to the distribution of workers among the various components of the manufacturing sector. Table IV-1 shows that 22.l percent of the total labor force employed in this sector are producing construction material, such as bricks and blocks, but due to a decrease in the country's construction activities and an almost completed . f 2 1n rastructure, this percentage will decrease. In addition, because of the rapid expansion of the modern ~gricultural sector, I expect that the manufacturing of food and beverages will expand, causing an increase in the share of total workers in this category.
Also, the manufacturing of chemicals and plastics will expand very rapidly because of the new petrochemical industries, resulting in an increase in the share of the labor force in this subsector as well.

crude and Refined Oil Industry
Even though the oil sector contributed slightly over 48 percent of the total GNP in 1980 (see Table II Year 1970 1976 1977 1978 1979 1980 1981 1982 Growth rate (g) = 15.28% annually.
However, a 15.28% annual growth rate is quite high to be carried through the next eight years to 1990 because: 1. Employment in the oil industry had rapidly expanded as a result of the increased demand for oil since the beginning of the 1970s. This in turn pushed the oil production to an all-time high.

2.
Because of a reduced demand for crude oil, Saudi oil production has declined from its high average figure of 9.5 million barrels of oil in 1981.

3.
One may argue that Saudi Arabia has greatly increased its refined oil production and that consequently employment should increase more rapidly. However, the refined oil production has only replaced crude oil production.
Therefore, it would seem that the trends that occurred between 1970 and 1980 are not necessarily going to repeat themselves. Thus, because the pattern from 1980 to 1982 may be more representative of the new trends in the oil industry during the next eight years, the annual growth rate of employment during those three years will be used to project the future employment in the oil sector through 1990.
The annual growth rate is determined to be 6.7 percent annually during the three years from 1980 to 1982. The number of people employed in 1982 will be used as the base year figure in Table IV-5, which shows the projected employment from 1982 to 1990. Year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

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According to Table IV The crucial question now is whether the Saudi indigenous labor force would be capable of providing the number of workers demanded by the industrial sector. If not, how many expatriate workers must be used to achieve the industrial development objectives? This question will be analyzed in the next section.

Indigenous Supply of Industrial Workers
The following factors will be utilized to estimate the labor supply available to the industrial sector: l.
The projection of population size in Table II-2 will be used.
Participation rates in Table IV-8 will be used to project the supply of total Saudi labor through 1990. The age interval provided in the Population Atlas of Saudi Arabia is presented in Table IV-9. But, as the percentage of males aged 10 I to 14 is provided rather than from 12 to 14, it is necessary to estimate this latter percentage. Thus:*
Two results have been achieved from the previous analysis: (a) The percentage of males between 12 and 64 years old is 29.9 percent of the total Saudi population (see Table IV-10). Thus, the percentage of males aged 12 to 64 years is 58.2 percent of the total number of males. This latter group will be cal led "active males". * According to Table IV-9, the younger the age group the higher the share of population. For this reason the two formulas will take this into consideration by giving the 10-12 year old a higher share than 12-14 years of age.  *Refer to text for discussion of interpolation method.
(b) The labor force participation rates of active males has been determined for the ten years from 1980 to 1990 (see Table IV -8).
The next step is to use the information gathered thus far to estimate the total Saudi manpower supply (see Table IV -11). Although the participation rate of active males in the labor force is going to decline during the period from 1980 to 1990, the actual number of male workers is projected to rise sue to the increase in the number of males, resulting from the expected increase in the total population.
Although the labor force has been estimated to increase in number as shown in Table IV Having projected the indigenous Saudi labor force, I will now estimate the industrial sector's share of this projected supply. Plan. Two percentages in Table IV-12 are of concern to us. One is the manufacturing sector's percentage share, which is listed as 4.2 percent in 1980, and 6.3 percent in 1985, with an expected annual growth rate during the five year period of 8.4 percent. Based on prior assumptions that the same trends and conditions which prevailed previously will continue to prevail up to 1990, the expected percentage share of the manufacturing subsector from the Saudi labor supply is presented in Table IV-13.
The second percentage of concern from Table IV-12 is the oil sector's share of the Saudi labor force, 1.4 percent in 1980 and 1.8 percent in 1985. Applying the same assumption as above, the oil industry's expected percentage share of the Saudi labor supply is presented in Table IV-14.  -85, Riyahd, Saudi Arabia, 1980 aAnnual percentage rate has been calculated by the researcher.
Using the information in Tables IV-11, IV-12, IV-13, and IV-14, the expected number of workers in the two industrial sectors to be supplied by the Saudi labor ~orce is presented in Table IV-15. Based on previously stated assumptions, a projection has been made of the number of industrial workers at all levels and skills to be supplied to the oil and manufacturing subsectors by the Saudi labor force. The percentage of the labor supply of the third industrial subsector, hydrocarbon and heavy industries, was not mentioned in Table IV-12, the data for which was drawn from the Third Development Plan. I believe that the reason for this omission was that the first labor demand estimate for the sector was not made until 1981, one year after the Third Development Plan was initiated.
The labor demand in the hydrocarbon-based subsector will be met in one of two ways, or both: by expatriate workers, and/or by shifting the necessary number of workers from other sectors of the economy to the hydrocarbon-based subsector and using more expatriate workers than planned in the other economic sectors. In this analysis I will assume that the first option will be chosen, not because I favor it, but because it is difficult to know from which other sector or sectors the needed Saudi laborers will come. Based on this choice, the total number of workers that would be supplied to the industrial sector from the Saudi labor market are represented in Table IV-15, with the exce ption of the necessary balance of expatriate workers. Using information in Tables IV-7 and IV-15, we calculate the industrial employees drawn from the indigenous Saudi labor force and from the expatriate labor supply.
Tab 1 e IV-13 Expected Share of Labor Supply to the Non-Oil Sector 1980-90 Year 1980198519861987198819891990 Share  1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Share of Employment at 5.1% Annual Increase L40  The results summarized in Tables IV-15 and IV-16 suggest important labor issues in the Saudi industrial sector. Its share of the Saudi labor market remains very low in relation to its importance and strategic objectives, such as economic diversification. However, this could be due to huge investment in capital intensive rather than labor intensive technology. The labor productivity of the industrial sector tends to be higher than in other sectors. Thus, the low labor share will not necessarily affect industrial development. The low share of the Saudi labor force implies that the large expatriate worker pool which will be utilized. In Table IV (Table IV- 16); in 1985 it is expected to increase very slightly to 40.6 percent, and should reach 42.0 percent in 1990. This low share makes the use of expatriate workers an absolute necessity for bridging the gap between the supply of and demand for industrial labor, in order to achieve industrial development. But the very slow increase in the Saudi share (see Table IV-16) is problematic because expatriate workers should be used only as a short-term policy until new Saudi skills are developed and increased.
It has been pointed out that "technology can be imported and industries can be created, but skills to maintain and use such facilities cannot be imported, at least in the required number necessary to sustain industry. 115 It may be possible for Saudi Arabia, with its financial capabilities, to follow that dictum, but the social and economic implications should be taken into consideration. For example, the social cost of dependence on expatriate workers is high, causing a compensatory price rise in Saudi industrial products and an unfavorable competitive condition.
Overcoming this complicated problem is extremely difficult.
Finding a total or partial solution requires a serious look at many policies in the educational and civil servic~ system. The acceleration of development i~ the various sectors of the economy should be balanced and set according to priorities. Some of these problems and proposed solutions will be discussed in Chapter VI.
In Saudi Arabia the educational system has been given a major role in providing the necessary manpower for the country's various development programs. A look at the educational system and its policies to achieve its objectives will be discussed in the next chapter. 3. on-the-job training; 4. foreign countries.
In Saudi Arabia, all these sources have been utilized to various degrees. However, general education has taken the biggest share of investment and the largest number of students. The latter were a mixture of Saudi and other Arab citizens, mainly Egyptians. By 1945 there were 46 public schools, and by 1950 the number had climbed to 218, educating some 27,000 students and employing approximately 1,000 -teachers. 5 Public education was not available to girls at that time, however, because of social and cultural restrictions. The curriculum was comprised mainly of religion, Arabic literature, and history. Schools for vocational training did not yet exist. The student seeking higher education had to leave the country, generally traveling to Egypt or Lebanon. 6 The educational system gained a new push in terms of increased enrollment, and number of teachers and schools when the Ministry of Education was established in 1953. In 1961, education was opened to female as well as male students, and changes were made in administration, curriculum and teacher education. In addition, vocational, occupational, and technical institutions were created. 7 Quantitatively, the educational system has made substantial advances. In the past 30 years, enrollment in public schools has risen from 44,000 8 to more than 1.5 million students.   1981, 1980, and 1979.

High Level Manpower
Highly qualified manpower, e.g., engineers and administrators, is considered one of the most important groups of the total industrial labor force because of their ability to plan, innovate, and administer vital activities for a successful and competitive industrial sector.
Because institutions of higher education are usually the primary suppliers of these groups, I will estimate the number of graduating Saudi Arabian university students through the year 1990. However, this does not mean that those who graduate will then be employed in the industrial sector because of the government policy requiring all graduates to work in the government for the first four years as a means to repay their educational expenses. However, as the oil industry is owned by the gove~nment, and the hydrocarbon industry is owned in part by the government through the Investment Fund in the Ministry of Finance and National Economy, -some of these university graduates will be working in those two sectors. An estimate of how many is not possible at this time. The non-oil (manufacturing) sector, however, cannot employ any of these graduates until four years after graduation, if they choose to enter it at all.

Higher Education Enrollment
Before estimating the number of graduates, it is appropriate to first estimate the number of students enrolling at institutions of higner education. To that purpose: 84 l. The total numbers of males and females enrolled at institutions of higher education are presented in Table V-3. The annual growth rate in the number enrolled during the seven years is 12.8 percent.
Assuming that this growth will at least continue at the same rate from 1983 to 1990, I have projected a total number of students enrolled at institutions of higher education, presented in Table V  are consistent with the increase in the number of students enrolled in secondary schools.
2. In 1975 the percentage share of male students at the higher 12 education level was 93.7 percent.
In 1980 it declined to 84.7 percent, 13 an annual decline rate of -1.99 percent. The main reason behind this decline is the increasing share of women participating in higher education. However, the total numbers of both males and females have increased (see Table V-3). Assu~ing that the decline in the male share will continue through the year 1990, I have projected the percentage share of men enrolled at insitutions of higher education as presented in Table V-5. Table V-6 compares the data from   Tables V-3 and V-4, i.e., the projected total number of enrollments to the projected percentage shares of men and women.

Numbers of Students Enrolled in Saudi Higher Education 1977-83
Year 1977 1978 1979 1980 1981 1982 1983 -1990Year 1980198519861987198819891990 * Actual from  Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 (Table V-7), will be used to project the number of university graduates. Table V-8   represents a comparison of Tables V-3 and V-7, i.e., the percentage of enrolled students who actually graduated. An 11.48 percent annual growth rate of graduates from institutions of higher education can be extrapolated from Table V-8. This growth rate is then used to project the number of graduates from 1980 to 1990 (see Table V -8). However, because of the complexity of higher education programs, this growth rate may not hold steady. Some programs are longer than others and some are more difficult, which may affect the graduate-to-enrollment ratio. Furthermore, new programs may be introduced and old ones eliminated, practices that could similarly affect enrollees, which in turn would be reflected in the number of graduates.
Higher education should be looked at as having an input stage represented by enrollment, a process stage show~ng the time and effort put in by students and staff, and an output stage measured by university graduates. Because both time requirements and difficulty vary in the process stage, it is very difficult to project a unified growth rate. If this indicates anything it is that establishing and building an institution is much easier and faster than producing graduates.
An assumption was made that the male/female ratio of enrollments would hold true for graduates. Therefore, the percentages of men and women enrolled in institutions of higher education as indicated in I I  The large number of Saudis enrolled in institutions of higher education abroad must be added to the data to complete the picture.
In 1975 there were more than 5,000 Saudi students studying outside the country, and by 1979 the number more than doubled. All of these students were under government support. In addition, in 1979 there were 2,500 Saudi citizens studying abroad at their own expense. 16 The students studying abroad are enrolled in many different undergraduate and graduate programs, majoring in various subjects.

92
However, their future participation in the Saudi labor force is for the most part predetermined as they are acquiring skills needed by the agencies which sponsor them. In fact, the major difference between such students studying abroad and their domestic counterparts is that the former know early in their education (before they leave the country) what jobs they will be doing after graduation, and by whom they will be employed. It is the number of students enrolled in these vocational schools that did not expand as rapidly as in other types of education. As mentioned before, this dearth of students was due to various social and cultural factors, many people believing that manual workers have less prestige than white collar workers. In addition, most students prefer to continue their general education because they will obtain better-paying jobs and higher status if they are university graduates. Another important factor is that job opportunities in the government sector do not require such hard work as in the private sector, which is a major pull factor for young Saudis with low levels of education.

Enrollment in Vocational Education
There has been a notable increase in the numbers of students enrolled in vocational education between 1970 and 1980 (see Table   V-11). Eleven thousand seventy-nine students were enrolled in 1980, more than 13 times the figure in 1971, when just 784 students were enrolled. The average annual growth rate during this period was 30.3 percent, indicating, perhaps, that Saudi youths' perception of technical work is changing and that they are finding new opportunities in this field.
The average annual growth rate just mentioned will be used to project the future number of students enrolled in vocational and technical institutions from 1980 to 1990 (see Table V In 1980, the General Organization for Technical Education and Vocational Training was established, the head of which was given a minister position, and was given its own budget.

3.
All public vocational training institutions were placed under the jurisdiction of the new agency in order that they be run more efficiently under one responsible agency, rather than under several government agencies, as they were in the past.

4.
New incentives to increase enrollment have been provided, such as monthly allowances, free loans for opening workshops, and opportunities for continued education.

5.
The labor laws have been streamlined to ensure a fair deal to workers and to promote good relations between workers and employers. 17

Vocational Education Graduates
The breakdown of students graduating from vocational training institutions in Saudi Arabia is presented in Table V Therefore, the projected number of vocational training would satisfy this need, but it is unrealistic to assume that all graduates will be channeled to work in the industrial sector. One must consider individual preferences. Furthermore, the locations of industrial parks and wage differentials between different sectors will greatly i nfluence the choices graduates make. However, it is the responsibility of both the industrial sector and the vocational education authorities to direct those graduates to the industrial sector. The task of the industrial sector will be to provide the right incentives and working climate to attract the new graduates.
Such incentives must provide wage differentials, housing, better industrial relations, continuous training, and advancement of workers, to name a few.
The vocational education authorities will have to provide the training to create those skills needed by the industrial sector.
Furthermore, training should be geared toward the newly-acquired equipment and technology. Because the length of programs influences the number of graduates, it will be necessary to plan programming of minimum duration. However, quality must always be the determining factor. Locations of vocational institutions are also important; such facilities will have to draw the largest number of students possible.
Consequently, small towns and villages are good locations because their lack of universities and colleges will attract youth, especially those who do not prefer to move into urban areas in order to enroll in higher education.

On-The-Job Training
On-the-job training, an important tool for creating and enhancing skills, has been adopted recently by the Saudi industrial sector. The heavy dependence on foreign labor and the government's incentives for establishing and sponsoring . vocational education centers, however, to some extent limit such training. The financial capabilities of new industries further restrict this practice. Nevertheless, more on-thejob training must be made available because it is the industrial sector which best knows current and future manpower needs, thus making it the best place to conduct training programs. The oil sector used on-the-job training since its beginning, but no data is available with which to judge their performance.

2.
The low participation rate of Saudi women is an important contributing factor to the manpower shortage.

3.
The high percentage of the Saudi population under age 15, combined with the low educational level of its labor force, greatly influence the low Saudi participation rate in the labor force.

4.
The majority of trained Saudi manpower are concentrated in the service sector, particularly in government.

5.
Saudi workers are reluctant to take jobs that require any type of technical or manual labor.
Because of these factors, the Saudi industrial sector is faced with two equally unpleasant options. To allow heavy dependence on expatriate workers, resulting in several social, economic and political problems, that will be described in brief here, or to slow down the industrialization process until" adequate domestic manpower can be created, thus making the country's objective of diversifying its economic base a more distant goal.
However, one can propose ways to more efficiently utilize the available Saudi manpower that could be achieved primarily through the restructuring of the existing employment system. As has already been l.
Graduates would be given the opportunity to choose the kinds of jobs they are interested in and in which they can be more productive and innovative 2.
Other sectors could compete for graduates 3. The labor market would shape the way students choose their majors. If, for example, demand is high for such skills as engineer-ing and administration, enrollment would correspondingly increase at colleges providing such training, thereby eliminating the current problem of overenrollment in the Arts colleges (and underenrollment in the science and engineering colleges).

4.
The government would employ only those graduates fitting its skills and productivity needs, thus reducing the excess of unneeded skills.
Moreover, the retirement age should be raised from 60 to 65 years, permitting the government to retain experienced workers for a longer period of time, thereby reducing the demand for more labor. In addition, the government should take advantage of the many advancements in office equipment. Although this may require special training, it would help a great deal in the long-run by reducing the number of workers now needed for tasks that could be performed by such machinery. The government is financially able to invest in modernizing its offices. One example of the benefits gaip-ed by this modernization is the reduction of the number of employees working in the record-keeping department of the Civil Service Bureau from 200 to only 40, although the number of records increased by approximately 95%, after introducing advanced office machines. 1

Benefits and Subsidies
The private sector has come to depend more on expatriate than Saudi workers chiefly because foreign labor is less expensive. Most expatriate workers, particularly those employed in low-and middle-level positions, come from countries with lower standards of IU4 living and per capita incomes than that of Saudi Arabia. In addition, the majority of foreign workers arrive without their families, thereby reducing their living expenses still more. Consequently, they will require and expect lower wage rates than will domestic labor.
There are also indirect or social contributors to the continued practice of hiring expatriate labor. In Saudi Arabia, all services such as education and health care are free to all residents. In addition, the government subsidizes most foodstuffs up to 50% of the total cost. However, employers of expatriate workers do not contribute anything to these benefits. If this practice continues, there will be little chance of developing experienced Saudi workers, and the dependence on foreigners will continue to increase.
Dependence on foreign labor could be lowered, however, by imposing taxes on employers of expatriate workers corresponding to the government's cost for these services. Such a tax would have a balancing effect on the wage costs of both Saudi and expatriate workers. Another way to help eliminate preference toward foreign labor would be to eliminate the free services extended to them and place the financial burden instead on their employers, which would help reduce the wage cost gap between Saudi and non-Saudi workers by increasing employers' expenses when hiring expatriates.

The Educational System
The high percentage of young people in the Saudi population mentioned earlier represents a great prospect for the availability of manpower in the future, in which the educational system will have a great deal to do with their development and preparation. It was stated earlier that education in Saudi Arabia has achieved great progress in terms of the numbers of enrollments and graduates at all levels of academic education. It is the quality, however, that has not met the needs created by the country's development explosion.
The Saudi educational curriculum tends to be highly theoretical and a majority of it is devoted to the humanities, casting doubt as to its ability to confront a severe manpower shortage. The Saudi society and economy are rapidly changing over time and so are its needs; the educational system should adapt to these changing needs. It must be flexible enough to provide the kind of curriculum that would incorporate recent technological advances and Saudi needs for scientificlly-oriented manpower.
Increasing the number of schools to accommodate the growing number of students, thereby producing more graduates, will only help the quantitative side of the issue, not the qualitative one. Therefore, it may be worthwhile to start mixing the theoretical and academic education with some technical teaching. Pre-university education should be tailored to prepare students not only for university studies, but for vocational and technical institutions as well. Thus, students completing their pre-university education could choose to enroll in either higher technical schools or universities.
Stiff measures must be taken to correct the disproportionate distribution of university enrollments discussed in the previous chapter. The capacity of the different colleges is not the cause of this problem because higher education has been widely expanded; thus, in addition to governmental policy the imbalance must be caused by either the admission procedures or the level of difficulty in terms of length of time and types of programs. For example, it may be easier to graduate with an art or administration degree than with one in science or engineering. If this is the case, corrective measures must be taken, such as raising the standards of admission to the "easier" colleges, or increasing graduation requirements.
Part-time studies are not available at most Saudi universities.
Many government and private sector employees would like to raise their educational levels, but they cannot without leaving their jobs, and even if they had the chance to enroll part-time, such instruction would necessitate very limited program choices. It may be a good idea to establish policies to help advance the skills of existing workers in all sectors without requiring them to resign, thus causing more manpower shortages.
The recent decision allowing graduates from vocational education institutions to continue their higher educa~ion indicates the government's acknowlegement that without such an option, students would continue to avoid enrolling for vocational training. However, citizens are still unwilling to enroll in vocation training institutions and this problem should be addressed as a priority. In order to overcome this lack of interest, people's attitudes and habits must be changed, no small or easy task. Nevertheless, it is essential to educate the populace, particularly younger people, about the importance of such skills.
The media could be a good tool for correcting the negative beliefs and attitudes about technical education, and the industrial sector must take responsibility in this matter by opening its own schools and training centers. These could be beneficial in two ways: first, because the industrial sector knows exactly what its present and future needs are, it could therefore adjust such programs accordingly; and second, because this sector would be investing money in these programs, it would be certain that the training is adequate, thus ensuring the quality of the graduates.
Also, Saudi Arabia has a lot of multinational corporations. Their experience should also be utilized. Graduates of foreign training programs would learn new and useful working habits.

Women's Participation in the Labor Force
Female participation in the labor force must be increased without endangering religious and traditional beliefs and attitudes. As has been discussed earlier, women make up approximately 50% of the total population, but their share in the labor force is extremely low.
However, it should be noted that women have made a great deal of progress during the last two decades in terms of their share in school enrollment and employment. Nevertheless, their employment share is still far below what it should be. I have previously discussed the major problems, i.e., cultural and traditional attitudes that have contributed to women's low participation rate. These restrictions put a cap on the kinds of jobs that are open to women. One major field of employment available to them is teaching, and many institutions of Restricting women primarily to teaching also has direct negative effects. If a female teacher has no interest in teaching, her employment would result in a very low productivity level, and/or a poor and ineffective education for her students. Teaching requires a personal commitment in order for one to reach out and produce good quality students. In fact, low interest in teaching is becoming a very noticeable practice. According to Alymamah weekly magazine, 30% of total Saudi female teachers resigned in 1983. 3 In a recent study cited in the same magazine article, a projected 63.8% of total Saudi female teachers will leave the teaching profession in the next few years, either resigning and becoming school administrators. The study does not give reasons for this development, but one can imagine that teaching may not fulfill the aspirations and ambitions of all young, newly-educated women. However, it would be difficult in the future to employ the approximately 700,000 girls 4 enrolled in all levels of education levels.
New job opportunities must be made available to women so that their role is fully realized. The country cannot afford to waste approximately half of its most valuable resource. However, this must not be taken to suggest that Saudi Arabia should move away from its conservative Islamic way of life in order to achieve the full participation of its female labor force. New ways and innovations to help achieve this objective without changing the social structure will be the best way to achieve higher female participation. The success of the women's branch of the civil service bureau should indicate that women can perform many jobs without necessitating integration with men.

Concluding Remarks
I have outlined only a few of the disturbing factors affecting the availability and quality of the Saudi labor force, however they are the most important areas. The Saudi labor market is in very great need of further detailed research and study. Nobody denies that the economy is a booming one, thus creating tremendous changes every day, which makes such a task extremely difficult. However, the very limited data available about such changes is, in my opinion, the most important factor affecting the availability of detailed studies. We have seen the affect on the accuracy of this research. If enough data were available, one could have been more accurate, and more analysis would have been possible. However, I believe that the best utilization has been made of the available data. Although the procedure used is simple, the results are significant, and they are only a start.