Saudi Arabia presses ahead with economic reform

The $3 billion privatization of Saudi Telecom this month marks the start of a new era of economic reform in the kingdom which will encompass large foreign inward investments and a far more dynamic local stock market.

For while war worries have dominated the regional headlines in the past year, beneath the surface Saudi Arabian bureaucrats have been toiling away on new legislation that will pave the way to reforms in many sectors. Without a strong legal framework industries such as insurance can not operate in the private sector, and it will be impossible to privatize the water and electricity sectors.

However, much progress has been made, and the building blocks of economic reform have been quietly put in place. From the STC privatization onwards it should be quite a roll for economic reform and a reformed stock market will be the place where the action happens.

Parallel developments in foreign inward investment promise a greater openness to new technology, fresh ideas and big projects. The long-awaited $25 billion Saudi Gas Initiative is the project that holds the key to foreign direct investment in the Kingdom.

Over the past two years progress on the SGI, which is actually three huge gas projects under the leadership of ExxonMobil and Shell, has been frustrating for those involved. But the hope still remains that SGI will emerge in the New Year as the flagship for foreign direct investment in the Kingdom.

This is such a big project, and actually involves many subsidiary projects, that it will transform the Saudi economy. The massive development of gas in the kingdom will have a multiplier effect and lift many other areas of the local economy.

In addition, the $11 billion in foreign direct investment secured by Prince Abdullah bin Faisal bin Turki Al Saud's Saudi Arabian General Investment Authority should not be forgotten. In a little over two years SAGIA has pioneered FDI in the kingdom, winning widespread international recognition for its work as a one-stop shop, and even being copied by the newly created Dubai inward investment department.

SAGIA has opened the kingdom to FDI, and a renewed burst of investment can be anticipated once the present uncertainty surrounding the future of Iraq is resolved. For Saudi Arabia has a large population and a high demand for many products and services, and that will be of increasing interest to foreign companies in search of new markets in a difficult global economy.

There can be no doubt that Saudi Arabia has caught the economic reform bug, and will now proceed with many of the reforms that have delivered such leaps in productivity elsewhere in the world.