Saudi Arabia puts reform into top gear (page 1 of 2)

Q. What is the current state of the Saudi economy?

A. Over the last few years, the economic situation has been improving. In many ways, three years of very good oil prices have helped. A program of economic reform has been put into place and we have started implementing it.

The economy is always affected by the changes in the oil market, but there is something very important for the Saudi economy and that is the real growth rate of the non-oil economy, which is mostly private. Our non-oil private economy has grown at an average of four percent over the last three years. This is a very good indicator of the sustainability of the Saudi economy.

We've started implementing the structural reform program, which comprises several new laws. We have a new foreign investment law that allows non-Saudis to own real estate. We cut the tax rates and custom duties. We are hoping to see a new capital market law soon.

There will also be an insurance law for the first time in Saudi Arabia - the Majlis al-Shura has just finished discussing it. We hope to have a new tax law. We started an ambitious privatization program.

We started first to put things in perspective. We put up the regulatory framework for that program and we have an agency to take care of it. We now have regulatory agencies for electricity, telecommunications and industrial cities. All will be creating private participation in those sectors.

As you probably now, we had one of the most successful IPO experiments with STC [Saudi Telecommunications Company]. The first day of dealing was yesterday. The prices closed at 279 riyals and 5 million shares were traded on the first day. The whole amount was $4.5 billion.

So we are doing it. We're doing it the right way. We are trying to be consistent. We are not looking for quick fixes; we're looking for an organized, sustained effort for economic reform within Saudi Arabia.

Q. But why did STC's privatization take so long?

A. First, it was a huge operation. Second, it was the first real experiment of our privatization program. It went through stages. It used to be just a government department, then we had to change it to a company. When you take an operation as huge as this one - 30 percent of it is worth $4.5 billion - it takes time. It's the most successful recent flotation in the world.

Q. What's next?

A. The easiest thing in privatization is just to sell government shares to the public - this is not the way we are looking at privatization in Saudi Arabia. Our main objective is to open sectors that were closed to the private sector before, like water, electricity, industrial parks.

These used to be only provided by the government. Now we want to open those sectors. That's the main objective of privatization. Selling stocks is easy. The privatization of Saudi airlines will take some time.

Q. Do you have a target date?

A. No, because the privatization program for Saudi Arabian Airlines is not complete. They hired companies to evaluate it - a French bank - but they're still in the process of studying the program itself. It's difficult for me to set a deadline.

Q. Which company is most likely to be privatized next?

A. There's no company 100-percent owned by the government. The only companies owned 100 percent by the government are STC and Saudi Airlines.

The National Commercial Bank [NCB] is not 100 percent owned by the government, but the government acquired a large portion of it.