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Faith in the private sector.

WHEN SAUDI ARABIA celebrated its 60th anniversary last September it could look back on six decades of economic expansion, brought about initially by small oil finds which have increased over the years to now when reserves stand at an estimated 25% of the world's total. These resources have been the base on which the kingdom's wider ranging economic development has been built.

There have been hiccups. The Kuwait war at first stalled development but then showed the resilience of the economy, and afforded new opportunities, not least in the private sector, in supporting and providing for the increasing numbers of coalition forces that were arriving in the Kingdom.

Whereas previously the Saudi economy was substantially public-sector driven, dependence on the government is now considerably less, and this trend is likely to continue. Abdullah Dabbagh, the secretary-general of the Saudi Council of Chambers of Commerce and Industry, confirms this. "The boom that began last year is set to continue, and it is largely private sector oriented." Saudi Arabia has benefitted from the tremendous inflow of funds from Saudi investors, and this has afforded the means and outlets to move more strongly to diversify away from oil.

Dabbagh points out that of the total gross domestic product of $104 billion in 1991, the oil sector accounted for not much more than one third ($39.6 billion), and of the remainder $38.5 billion came from the private sector.

The current Five Year Development Plan which runs until 1995 also stresses the importance of cooperation between the public and private sectors. There are already many incentives to doing business, and as one entrepreneur has said, "if you can't make money in this environment, you can't make money anywhere."

The government has always stressed the importance of industry in its development strategy. Businesses in the sector cover four main areas of activity - engineering, building materials, petrochemicals and consumer goods. After allowing imports to grow without constraint, the government has seen that considerable potential exists for import substitution.

The creation of the Saudi Industrial Development Fund was an important step in this direction, offering interest free loans and certain tax incentives. Though the domestic market is still relatively small, it is growing and the kingdom is centrally situated for exporting.

There are now over 2,000 private companies and more than 50 new ones are being established each year. The Olayan Group founded as long ago as 1947 is a prime example of what can be achieved. During that time it has developed from a small family concern to a modern, multinational conglomerate. Internationally respected, it has grown to become one of the largest privately owned companies in the world.

Sheikh Suleiman Olayan, its president, attributes its success to three main elements - "the establishment of joint ventures with leading multi-national companies, an extremely strong and professional management team, and the increasing acceptance of the Olayan name as a symbol of quality and trust." Sheikh Suleiman has a very positive message for companies who seek to follow in his footsteps. "Prospects are excellent," he says. "I hear only positive forecasts for the future."

Several organisations have also been established to promote joint public-private participation in certain key ares of the economy. The National Industrialisation Company (NIC), which was established in 1984, is a telling example. It has made investments in more than 40 diverse companies and in 1991 made profits of $8 million.

Khalid al Thukair, its general manager, points out that in recent years NIC has played a much more active role than in the early days, with a general tendency to take only minority interests in most companies, with a seat on the board and the offer to provide, in the short term at least, appropriate managerial and technical expertise.

He too is optimistic about the future. "Conditions for private investment are enviable in this country," he says. "Over half of the investments may be obtained interest free, labour costs are kept low by hiring immigrants from North Africa, while the available infrastructure is among the most modern and advanced in the world."

The boom in the private sector covers a wide spectrum. The growing consumer market often offers opportunities for many successful lines.

Engineering and technology are also industries that should see active development opportunities. The construction materials industry is experiencing a boom, evidenced by the huge number of buildings that are rising in the kingdom's main cities. They are also able to benefit from the requirements of the national defence and security sectors.

The Gulf Organisation for Industrial Consulting (GOIC) has conducted several recent studies which highlight some of the opportunities available in the private sector. Saudi Arabia is able to benefit from relatively inexpensive Third World labour. In this context import substitution, consumer durables and the assembly and synthetic industries are likely to figure strongly in the future. For example, the market in the GCC for automobiles is expected to increase from an estimated 257,000 a year in 1995 to more than 285,000 by the turn of the century.

Against this background, it is not surprising that the number of trade missions visiting the kingdom is increasing. A particularly successful example was the American delegation comprising some 25 companies linked mainly to the oil industry, that arrived in mid-November. Glasgow and Birmingham Chambers of Commerce have recently sent successful missions from Britain, with a further delegation arriving from London early this year. A mission comprising some 15 companies from Singapore in December pronounced themselves well pleased with their visit.
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Title Annotation:Saudi Arabia Special Report; private sector boom in Saudi Arabia
Author:Arnold, Stuart
Publication:The Middle East
Date:Mar 1, 1993
Previous Article:Dominating the oil market.
Next Article:Banks seek to soak up liquidity.

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