Saudi economy becomes less dependent on oil

Non-oil private sector growth is expected to grow by around 6 per cent this year and be the Kingdom's main engine of economic expansion along with government spending.

Since joining the World Trade Organisation Saudi non-oil exports, mainly petrochemicals, have risen 13 per cent to a value of $20 billion. Significantly foreign direct investment in the Kingdom has more than doubled to $5.6 billion

There have been no sudden dramatic adverse effects on agency agreements and the trading sector as a result of membership of the World Trade Organisation. This is helping to underpin Saudi Arabia's economic reform programme.

Free trade

Fawaz al-Alamy, who led negotiations for Saudi Arabia's accession to the WTO treaty states: 'We have always believed in free trade but we need to open up further. We found out after the previous boom and last decline that oil is a volatile commodity and we cannot keep a country hostage to it.'

Saudi Commerce and Industry Minister Hashim Yamani says that the Kingdom is focusing on development of an attractive investment environment pointing out that corporate tax on foreign-owned firms has been reduced from 45 per cent to 20 per cent.

The Kingdom is also encouraging consolidation of smaller domestic establishments and creating economic alliances within these to enhance efficiency and foster new industries. At the recent Jeddah Economic Forum the minister stated that the objective is to place the Kingdom within the first and foremost 10 competitive nations worldwide by the end of 2010.

This ambition is based on the Kingdom's comparative advantage in energy and potential for new industries. The Saudi investment body SAGIA points out that the Kingdom possesses 25 per cent of the world's oil reserves but only has 2 per cent of its energy-intensive industries such as aluminium.

Saudi production of the metal could account for 15 per cent of global supplies by 2020 predicts Fahd al-Rashid SAGIA's deputy governor.

New cities

New cities built specifically to meet the needs of industry and the business community are also expected to attract investment, develop a much broader economy and not least provide the job opportunities the Kingdom's young population requires.

Initial works are already underway on King Abdullah Economic City on the Red Sea. The $26.7 billion development is one of six such city developments so far unveiled. When the new cities are up and running in the next 15 years they could have a total population of 4.5 million and generate income of $150 billion.

Brad Bourland chief economist of Saudi American Bank Financial Group believes that they will be quite viable commenting 'there will not be any white elephants built in the desert. Decisions will be driven by businessmen.'