INTRODUCTION >>>

- Drive to attract investment -

A programme of wide-ranging reform aims to diversify the economy and encourage private sector involvement

The Saudi economy is showing a healthy rate of growth, thanks to increased oil revenues. Government policy is focusing on attracting foreign investment, which is already on the increase. New laws have made the kingdom a more attractive place to put money, and efforts are being made to speed up the process. A number of areas are being promoted, including oil, petrochemicals, natural gas, ports, railways, power and water utilities, and desalination plants. Foreign firms are also being invited to take part in the privatisation of government controlled corporations.

Oil is vital to the Saudi economy. The official figures for 1999, published by the Saudi Arabian Monetary Agency (SAMA), show a growth rate of 23.7 per cent in the sector and a substantial improvement in the balance of payments. The value of oil exports rose by 38 per cent over the year, leading to a surplus of 1.5 billion riyals ($400 million) in the current account, compared with a deficit of 49.2 billion riyals in 1998. The result was an 8.8 per cent growth in the kingdom's gross domestic product (GDP). At the same time there was an increase in government revenues, 80 per cent of which come from oil exports, together with a reduction in government expenditure. The deficit in the state bud-get dropped from 10 per cent of GDP to seven per cent.

Growth is continuing this year and is forecast to be three per cent for 2000 as a whole, and the same rate in 2001. A budget surplus is also expected this year, the first that Saudi Arabia has had for nearly two decades, and another in 2001. It has long been government policy, however, to reduce the kingdom's dependence on oil by developing other sectors. This policy has been strengthened by the experience of recent years and lower oil prices have hit Saudi finances hard. In the short term, the government will be cautious in spending the extra funds that are now available.

Prince Sultan bin Abdel-Aziz al-Saud, the second deputy premier and minister of defence and aviation, says the main priorities will be funding for vital projects, the payment of recently accumulated debts and the creation of more jobs. For the long term, a government programme of wide-ranging economic reform has been designed not just to liberalise the economy by means of privatisation and easing regulations but also to encourage investment from the private sector. In this way, the government believes it can develop Saudi Arabia's potential in a variety of areas.

Saudi Arabia is the only one of six Gulf Cooperation Council states that is not a member of the World Trade Organisation. Negotiations to join have been protracted, but at the eighth round of talks in Geneva in November, the minister of commerce, Osama bin Jaafar bin Ibrahim al-Faqih, predicted that the kingdom would join in 2001. "Saudi Arabia believes that it has fulfiled all the requirements for membership and had accelerated the accession process, which could have been concluded much earlier but was hampered by a clear lack of rules," he says. The government's economic reforms, introduced not only to encourage greater foreign investment but to meet the rising demands of the country's growing young population, are already showing results.

-Priorities are to fund vital projects and create jobs-

Joining the WTO will help clear barriers for Saudi exports, mainly to Europe and the US, and diversify the economy. The establishment last year of the Supreme Economic Council, a body of key ministers who oversee economic policy, has been instrumental in driving forward the reforms and accelerating the privatisation programme. Prince Abdallah bin-Faysal bin-Turki, the governor of the General Investment Commission, points out that foreign investment over the year had already reached 5.2 billion riyals by November, compared with 200 million riyals in 1999. He also points out that Saudi Arabia has many advantages for investors, such as its security, stability, strong economic structure, and its important political and geographical position.

The minister of industry and electricity, Hashim bin Abdullah bin Hashim Yamani, says the industrial sector in particular is being developed with the aid of foreign investment. Last year, it grew by 5.5 per cent. Capital investment in manufacturing industries amounted to 238.3 billion riyals, of which 57 per cent was in joint ventures between Saudi and foreign companies.

Industrial exports have doubled over the past 10 years, to reach more than 20 billion riyals in 1999. Within the oil and gas sector, there are six main areas in which Saudi Arabia is seeking foreign investment, according to Abdallah Jum'ah, president of the Saudi Arabian Oil Company. These are: gas and associated products, petrochemicals, refining, special utility products, and the engineering and construction of petroleum facilities and oil and gas services.

Abdullah Dabbagh, president of the Saudi Arabia Mining Company (Ma'aden), says the kingdom is now ready to form business partnerships with international mineral developers. Saudi Arabia's many resources include gold, silver, magnesite and phosphates. Nasser bin Mohammad al-Salloum, minister of communications, lists several routes in need of investment, including: the east-west expressway connecting Dammam and Jeddah, the north-west highway between the Jordan and Yemen borders, and the Riyadh-Qassim and Mecca-Medina expressways. The ports also need investment, says Abdulaziz Almana, minister of state and chairman of the Saudi Seaports Authority. Now that the ports are being privatised, foreign investors can make the most of opportunities in container, cargo and bulk cargo terminals, industrial ports, re-export zones and marine services.

Turning to tourism, Majed Abdullah al-Kassabi, secretary general of the Jeddah Chamber of Commerce and Industry, says Jeddah is not just the business and financial centre of Saudi Arabia but has great potential for tourism. "Jeddah has a gold-mine - the Red Sea. It also has American centres. It has a lot of beautiful restaurants and a wide variety of shop-ping centres. We received two cruise liners last year. "Jeddah is only 45 miles away from Mecca, so people can combine religious activities with relaxing. We have created a marketing board to look into this and to promote the city of Jeddah, not only as a tourist area but also as a major investment- friendly city," he says.