Saudi WTO success heralds economic expansion

Saudi Arabia will formally join other countries as a full member when the WTO holds its General Council ministerial summit in Hong Kong on December 13.

While there is an adjustment period to allow the economy and companies to be better prepared when the door opens to full global competition there are considerable challenges ahead for Saudi businesses with a need to raise standards of efficiency and productivity.

Observers believe that economic reform will now speed up with changes being implemented at a much faster rate by the Capital Markets Authority, Ministry of Commerce and Saudi Arabian Monetary Agency.

For Saudi Commerce and Industry Minister, Hashim Yamani:

'The accession will further integrate the Kingdom's economy into the world economy. It will also deepen the universality of the multilateral trading system. It will enhance the business environment in Saudi Arabia by adding more transparency and predictability. This we expect to lead to more investment and job creation.'

Investors have been expressing optimism about the Kingdom's economic future and the benefits expected to accrue from WTO membership. Saudi Arabia's stock market has been steadily on the rise as it became clear that the country's WTO negotiations were approaching a successful conclusion.

Higher FDI

Entry is expected to result in higher foreign investment to provide funds for the diversification of the Kingdom's mainly oil-based economy as well as boosting export opportunities for Saudi companies particularly in the petrochemical industry.

The Kingdom is fast becoming a global hub for petrochemicals production with the sector's industries continuing to grow at an exponential rate and already accounting for 7% of the world's supply of basic and intermediate petrochemicals products.

The Kingdom's competitive and fixed natural gas prices make the country attractive as a destination for investments in crackers of olefins and derivatives.

The impact of foreign competition is likely to be felt strongly elsewhere though especially in the services area.

Banking options

Foreign licensed banks can already set up branches while existing joint venture banks can increase the foreign equity element to a majority 60% from the hitherto 40% ceiling. France's BNP Paribas recently established a branch in Riyadh and has plans for an additional two branches.

In spite of opening doors to international competitors long-term greater liberalisation and competition is expected to witness a bigger and faster growing economy.

Saudi American Bank financial group economist John Sfakianakis says that:

'the economy will become more competitively structured and certain industries will be helped by the chance of competing abroad on a level playing field.'

'The most important thing about the WTO is that it gives comfort to foreign investors that Saudi Arabia's laws and regulations are in line with international standards,' says Amr Dabbagh, head of the Saudi Arabian General Investment Authority.

The WTO secretary-general Pascal Lamy is similarly enthused by the Kingdom's successful membership bid. 'One more heavyweight around the table is good news.'