Saudi economic reform to accelerate in 2008

The King has been a central figure in the country's modernisation process by encouraging the efforts of the Saudi Arabian General Investment Authority (SAGIA) to stimulate domestic and foreign investment, streamlining privatisation moves and acceding to the World Trade Organisation.

As well as maintaining its high level support for the efforts of SAGIA, the government has also embarked on far reaching reform of the country's judicial structure.

At the same time the Kingdom is gradually opening up sectors for investors including telecommunications, airlines and insurance and is continuing to support the main engines of economic growth by encouraging local and foreign private sectors to contribute to development of Saudi Arabia's new economic cities.

Last year, the World Bank in its annual global Doing Business report recognised the Kingdom as one of the world's top reformers, with Saudi Arabia being advanced fifteen places to rank 23rd out of 178 countries as one of the easiest countries to conduct business.

According to the World Bank, the Kingdom rates the best of any Middle East state even ahead of mature economies such as France and Austria. The Kingdom is now aiming to be among the top ten most competitive countries globally by 2010 increasingly focusing on building a knowledge-based economy.

There are challenges ahead. A recent report by the Swiss-based World Economic Forum (WEF) says that the Kingdom needs is to ensure that its education system is adequate to support the developing private sector as a means of assisting economic diversification and reducing reliance on state-run industries.

More skills are also needed to reduce unemployment and to lessen the current dependency on foreign labour which still comprises about a third of the population.

The pace of change has been stepped up following the Kingdom's accession to the World Trade Organisation at the end of 2005. This is resulting in a steady opening up of the Saudi economy to foreign investors and has helped Saudi Arabia become the main recipient of foreign direct investment in the region with inflows increasing from $2bn to $18bn a year since 2006.

However, reform also means difficult decisions to ensure that in the long term Saudi Arabia sheds uneconomic activities and develops in areas where it has global comparative advantage.

This is reflected in the recent announcement that wheat cultivation is to be steadily reduced to save precious water resources. At one stage in the 1980s the Kingdom was a net exporter of wheat. By 2016 it will import all its requirements.

Growth in other economic areas is expected to more than compensate. A record 1,438 joint ventures were authorised in 2007, a figure 32 per cent higher than in 2006.The foreign direct investment flow is expected to increase yet further as the Kingdom's new economic cities and special industrial zones are completed.

See also:
'Risk averse' Saudis look to manufacturing
Manufacturing booms in Saudi Arabia