Economic reform, is Saudi Arabia waving or drowning?

Saudi Arabia has an inward-looking, old fashioned, state economy as inefficient and ill-equipped to face the modern world as anything that existed in the former communist world.

That's what its critics say, anyhow. Other economists are more charitable and note that the basic needs of all citizens are well provided for, and that education and health services meet modern standards.

However, as an article in MEED notes this week, a fast growing population is causing renewed pressure for increased investment in the water and power sectors. And it is here that economic reform has at last moved off the agenda and into action.

No less than four major projects are out to tender or soon to be awarded, and the first independent water and power projects will be announced shortly. Sovereign guarantees will probably underpin these projects, with 60 per cent of equity available to investors.

Similarly, telecommunications is about to move towards the private sector with the stock market debut of Saudi Telecom in an initial public offering before the end of the year. But foreign investment in telecoms is still on a list of officially banned sectors.

Yet all eyes are still on the $25 billion Saudi Gas Initiative, which is the economic reformers' biggest hope of success. If, and fingers have been crossed long enough for paralysis to set in, this project goes ahead, SGI will open up the gas sector to huge investments by eight major energy companies.

For the state-dominated oil industry this project may be one step too far, and insiders say there has been much opposition to the SGI from the highest levels of the local oil industry. Its success would therefore mark a major break with the past for Saudi Arabia, and a sign that the kingdom is embracing modern economic orthodoxy.

For the irony can not have escaped observers that the kingdom has taken so long to modernize its economy that the reforms it is now adopting are, shall we say, a little old fashioned. But perhaps people in the kingdom will be happier that way.

In the meantime, there has been quite a lot of progress in the past two years, and recently a new insurance law was approved. This week the Shura Council continues to debate the reform of the Saudi stock market, and coming up are outdated mining and taxation laws.

Prince Abdullah bin Faisal bin Turki Al Saud has also had some considerable effect in attracting foreign direct investment as the governor of the Saudi Arabian General Investment Authority. And that augurs well for the future, though the economic reformers face a long march ahead.