The recent World Bank ranking of the Kingdom to 23rd position in terms of best business reformer, ahead of other favorites in the Middle East, was welcome news and signaled a new sense of urgency and purpose. Saudi Arabia’s efforts for reforms in key areas such as elimination of minimum capital requirements of 1,075 percent of income per capita — previously the highest capital requirement in the world, the reducing of days needed for company start-ups from 39 to 15, as well as the launching of a commercial credit bureau and accelerating trade by reducing the number of documents required for importing were positively noted by the World Bank.
For most developed economies, wealth creation takes place primarily at the individual enterprise level — whether private or government — and fosters unwritten, but assumed “competitiveness” spirit. However, even the most enterprising and competitive companies in the developed world have to operate in an environment which enhances or hinders the ability of the corporation or government entities in carrying out its business, either domestically or internationally. In a nutshell, “competitiveness” cannot be purchased, but comes in a total package that involves the national economy and its component parts.
The accession of Saudi Arabia to the World Trade Organization (WTO) in December 2005 seemed to set the stage for a gradual shift towards a private sector led economic growth that would be more stable, and not held hostage to the vagaries of the international oil markets. Saudi Arabia’s WTO accession, unfortunately, came about during the middle of one of the most amazing stock market bull runs Saudi Arabia had ever witnessed. By February 2006, the stock market index had reached a peak of 20,900 compared with 8,000 levels only a year earlier, and languishing in the lower ranges since then. Some agree that the great stock market crash was a blessing in disguise, and that both companies and individuals could now turn their attention to more mundane matters on how to make “real” wealth from enterprise and production. Saudi Arabia had to learn to earn its way in the world the hard way, and only a healthy, dynamic private sector that can effectively compete with others internationally on a level playing field, can promise a better future for its citizens.
The mood in 2007 and 2008 as highlighted in the new Saudi budget, has turned toward “fixing” the economy to meet such challenges. The government, spurned on by its WTO obligations, and also by a genuine desire to effect meaningful structural economic and administrative changes, started to implement some new business friendly regulations. One of the most ambitious privatization programs was unveiled, taking in almost all sectors of the economy, with the government indicating that the era of subsidized industries would be scaled back to be replaced by private sector driven services. In the meantime, the government, through SAGIA, moved aggressively to pursue foreign direct investment, eliminate bureaucratic hurdles for foreign company establishment. The Kingdom also announced a major overhaul of its judicial system, creating an independent supreme court, an appeals court and new general courts to replace the Supreme Judicial Council as well as setting aside nearly $2 billion for training judges and building new courts.
From the capital market regulatory authorities to other government departments, there was now more focus on quality, speed of service and transparency in government administrative procedures. Investment in quality education, especially at the vocational, technical and university scholarship levels, became priority spending, and life-long training programs and skills were introduced to ensure a more competitive Saudi labor force.
A new spirit of entrepreneurship had to be fostered as this is one of the key drivers for global competitiveness sector. With a tightening job market and fewer new government positions opening up, Saudi labor market entrants had to acquire new transferable skills, and companies became more selective in their recruitment.
The desire for a competitive economic environment did not neglect the potential negative environmental impact of doing business, and Saudi environmental standards were tightened. This is especially important for the fast emerging Saudi petrochemical industry, as it could face potential trade barriers by its competitors, on the grounds of competing in a non-environmentally friendly manner. Saudi industry has to learn to live by these new benchmarks, in order to achieve global “competitiveness” standards. The Saudi “10x10” competitiveness initiative is laudable in its aims, but a lot of hard work is needed to achieve the stated goals of placing the Kingdom amongst the Top 10 most competitive countries in the world by 2010. Moving from a base of inherited wealth, to creating wealth in a knowledge-based economy, is no easy challenge for any nation and requires a powerful push to willingly change the mindset of doing things more efficiently.
Analyzing the score sheet, a lot more needs to be done on fostering an invigorated entrepreneurship spirit, which will induce a higher level of technological readiness to compete internationally. Market efficiency is being encouraged through the introduction of a more transparent and business friendly regulatory framework, and quality education spending is aiming to infuse the Saudi business world with a higher degree of business sophistication to deal with post WTO accession and challenges.
Staying still and hoping for the best, or waiting for higher oil prices to bail out economic inefficiency, is not an option any more. The alternative of not doing anything is to see other enterprising countries in the region bypass the Kingdom, and ending up servicing its business, financial, and consumption needs through offshore centers.
(Dr. Mohamed A. Ramady is visiting associate professor, King Fahd University of Petroleum and Minerals, Dhahran.)