Performance in 2003

The Saudi economy continued to make significant progress during 2003. The GDP maintained its upward trend (preliminary projections put it in excess of 6%); price situation remained stable (0.5% as per preliminary Govt. figures); private sector growth was slightly more than 4%. Total oil revenues were the highest in the last two decades. Increased oil output, combined with a strong oil price, lead to an increase in the current-account surplus of SR 101.9 billion (US$ 27.2 billion) and a sharp reduction in the fiscal deficit to SR 30 billion (US$ 8 billion). Foreign assets stood in Oct.  2003 at US$ 56.7, an increase of US$ 14.9 billion from Dec 2002. Reliable estimates indicate that debt reduction during the year was to the tune of US$ 5 billion. The combination of large surplus, build-up of foreign assets and debt reduction, cumulatively, represented an outstanding year in terms of fiscal performance for the Saudi economy. The Saudi Arabian stock market index Tadawal All Share Index (TASI) recorded one of the best performances among all global indices. Market capitalization doubled during the year and TASI recorded a gain of over  75%.

A series of economic decisions during the course of the year aimed at spurring the Kingdom’s pursuit of accession to the WTO have fostered greater open market private enterprise policies.

 Ø       A major trade development was the implementation on 1st. January 2003 of the Gulf Cooperation Council customs union whereby the six GCC (Saudi Arabia, Oman, Kuwait, UAE, Bahrain, Qatar) countries have a common tariff of 5 per cent on most imported goods that move freely throughout the GCC after they enter at any one point of entry. However, while the Customs Union is technically in place, several provisions including the collection and distribution of tariffs between the six GCC member countries, have been deferred. Nevertheless, the Kingdom (which is the only non-WTO member of the GCC) already has lowered customs tariffs from 12 percent to a uniform 5 percent.

 Ø        With the objective of restructuring the domestic capital market to operate on more developed principles that would create effective instruments to invest savings and further increase the depth of the market and create new financing sources for investors, the Council of Ministers approved the draft Capital Market Law on 16.6.2003.  The Saudi Cabinet also approved a new law to regulate the insurance sector.

 Ø       Earlier, with a view to raising efficiency of government organs, some administrative restructuring of Ministries was also undertaken.  For giving the private sector a major role in the development, management and operation of industrial estates, a Resolution approving the statute of the Saudi Authority for Industrial Estates and Technology Zones was issued.

 Ø       In a further sign of opening up new sectors hitherto barred for foreign investors, Deutsche Bank announced on 9 October 2003 that it plans to start operations in Saudi Arabia after winning the first non-GCC banking license in the kingdom for 23 years.  Other foreign banks who have already won licenses to open branches in the Kingdom are: Abu Dhabi Bank, Kuwait Bank, and the Gulf International Bank.  Other international banks are likely to follow suit.

 Ø       The Supreme Tourism Authority unveiled a number of new procedures aimed at developing tourism in the Kingdom. It has prepared a five-year work plan covering the period 2003-2007 with the aim of implementing national tourist projects and to attract capital to develop tourism. Efforts are underway to develop 38 new tourist sites in addition to the existing 175 sites in various parts of the Kingdom.  There are plans to establish a new regional airport in Al-Ola near Madinah to promote business and tourism in the region. The historical sites of Madain Saleh are located in Al-Ola.

 Ø       The Saudi Telecommunications Company completed successful partial privatization in January 2003. The phased opening of the telecom sector is aimed at encouraging private investment in networks and telecom services immediately, mobile telephone services in 2004 and fixed lines in 2008.

 Ø       The Kingdom continued to encourage foreign investment in a manner, which will allow it to absorb the benefits of modern technology and know how, while preserving its proud religious and social traditions. Since its establishment in 2000, the Saudi Arabian General Investment Authority (SAGIA) has approved licenses for some 2000 projects worth over $12 billion, although only a fraction of that figure has so far been translated into actual investment.  The major investing countries in Saudi Arabia include the United States of America, Japan, Britain, France, Germany, India, Sweden and Syria. There is a very high level of liquidity in the Kingdom’s economy at present to encourage new investment. SAGIA identified electricity, water, communications, petrochemicals, gas, agriculture, railways, information technology, tourism, education, minerals and infrastructure projects as potential areas for new investments in the Kingdom.

Trends, Prospects & Opportunities

 Saudi Arabia is an annual import market of around US$ 31.0 billion, which represents a great challenge and promising opportunity. Consumers with high disposable income characterize Saudi market.  In addition to its indigenous wealth and central location in the Middle East, the Kingdom is also strategically placed to take advantage of worldwide trading opportunities, particularly in Asia, Africa and Europe.  Given that almost three-quarters of Saudi Arabia’s population is less than 30 years old, the Kingdom has become a prime market in the Middle East for a variety of consumer products and imported goods, media and educational materials, and services in the financial, health, IT, retail, leisure and property sectors.

Saudis are seeking now standalone investments in utilities, water and railway sectors, which could run to hundreds of billions of dollars over many years and are trying to convince foreign investors that it is safe economically and politically to invest in the Kingdom. 

The establishment in 1998 of the Saudi Electricity Company paved the way for the deregulation and privatization of power and water desalination plants.  A variety of privatization programmes are planned: Independent Power Production (IPP), Independent Water and Power Production (IWPP), Build-Operate-Transfer (BOT), Build-Own-Operate (BOO), Build-Own, Operate and Transfer (BOOT), Build-Lease, and Transfer (BLT) and Build-Lease (BL). Power generation, transfer and distribution is open for foreign investment and in the power sector alone it is estimated that in the next 15-20 yeas the investment needed would be $100 billion.  Saudi Arabia is already the world’s largest producer of desalinated water, with 30 combined water and power generation plants existing at present.  Investment potential in water could be in the region of $1-$2 billion a year.