Saudi Arabia puts reform into top gear (page 2 of 2)

Some funds and some private citizens own NCB, but the government recently increased its share. That's why people are thinking about the next company to be privatized.

Q. So you have to turn government departments into companies and then sell them.

A. Exactly. We are now converting most services into companies or into institutions that could later become companies. Don't think that privatization is only about selling assets.

Selling assets is handing over ownership from one person to the other. It doesn't make a big difference. Privatization is letting the private sector provide the services that in the past had only been provided by the government.

Q. Will STC have competitors?

A. Our privatization strategy emphasizes something that is very important: competitiveness. You cannot really privatize without opening the market. Changing from a government-sector monopoly to a private-sector monopoly is not what we're going to do. Next year, STC will be open to competition.

To encourage competition, you need strong anti-trust laws. This is now being studied by the Majlis al-Shura. The law will hopefully be coming in the course of this year.

Q. Why does the $25 billion oil and gas field initiative seem to be stuck?

A. They are currently in the final stage of negotiations. Hopefully, they will come to a successful conclusion in a few weeks. But this is a huge operation: the first stage is a $25 billion investment.

Of course, when you negotiate such an investment between parties, you need time. It's not easy. Everybody is trying to benefit as much as they can from this deal. Companies need to ensure their profits.

The Saudi government is also trying to ensure that its national interests are served. So the negotiations took longer than expected. The problem is that there were high expectations that it would go very quickly and easily. That didn't happen.

Q. Doesn't Saudi Arabia need a vibrant stock market in order to absorb all the stocks which will be offered as part of the privatization program?

A. You will probably hear about a new capital market law in Saudi Arabia in two months. It will change the whole structure of the stock market in Saudi Arabia.

It will create two things: an independent agency that will be supervising and regulating the market and a private-sector company to run the market. The Majlis al-Shura has approved it and it has come to the Supreme Economic Council. Hopefully, it will come into effect shortly.

Q. What about allowing foreign investors?

A. Foreign investors are allowed in Saudi Arabia - from the GCC. Indirectly, all foreigners are allowed to invest. There is a mutual fund for Saudi stock.

Q. Don't you need to diversify government revenue resources?

A. It is extremely important for Saudi Arabia to diversify the source of revenue for the government because you cannot continue to depend on oil forever. If you depend on oil, you will be dependent on the vagaries of the oil market. It goes up and down, and creates problems for us. You're talking about an attempt to tax individuals.

We had an income tax law before, about 50 years ago. But applying it was suspended in the early 1970s. We will include elements of the old law in the new law. We thought this would help create a structure for taxation. We don't know what the outcome will be, but there are many ways to raise revenues. We will probably also discuss a value-added tax.

Q. Will you allow foreign companies to run their businesses independently?

A. We had a new foreign investment law two years ago, which allowed companies to own 100 percent of their operations in Saudi Arabia. They don't need a local partner. The law equates Saudis and non-Saudis. It is in effect now and is working.

Q. Has that attracted investors?

A. The Saudi Investment Authority was created to give licenses to foreign investors and to facilitate their investment in Saudi Arabia. In a year and a half, it gave out licenses worth 40 billion riyals, or more than $10 billion. So, yes, foreign investors are coming.

Q. What is holding up WTO membership?

A. The WTO is becoming more difficult with time because of new laws and new regulations. Each time there is a new law, they want to apply it to new members, while old members are probably not applying it. The only two countries that are left out of the WTO that are important to the world are Saudi Arabia and Russia. The problem is that within each country, you are not negotiating with one institution.