LONDON, 21 June 2004 — The impact of the recent terrorist outrages against foreign nationals in Saudi Arabia on the national and regional economy may be too soon to assess.
But, while governments in Washington, London, and in the European Union are repatriating all non-essential personnel and advising their citizens, especially businessmen, only to visit, say Saudi Arabia, if it is absolutely necessary, business associations in the West are putting on a much braver face.
According to Colin Clarke, chairman of the British Business Association in Alkhobar, which recently bore the brunt of a brutal terrorist attack, “in spite of the difficulties the Kingdom has faced over the last 2-3 years, business continues to flourish and the potential is enormous. Sectors for future growth are many, but power/water capacity building, along with telecoms deregulation and education, will provide particularly good opportunities for UK plc.”
This optimism, in the face of what some would say potentially serious adversity especially if the spate of bombings and drive-by shootings continue, has to be put in the context of the importance of Saudi Arabia as a market to the global economy.
Never mind the fact that it is currently the largest oil exporter in the world and has the largest proven reserves of oil (25 percent of the world’s), and plays the key role of swing producer in the event of oil price crises.
Four international consortia — Shell/Total; Sinopec; Lukoil; and AENI/Repsol — have been awarded licenses to explore for gas in one tiny part of the vast Rub Al-Khali (the Empty Quarter).
In another part near to the Iraqi border, Saudi Aramco, the world’s largest oil company, has already started surveying for new oil reserves with the aim of increasing the Kingdom’s reserves by some 140,000 million barrels.
Saudi Aramco is the key magnet for foreign direct investment (FDI) and business interest. According to Khalid Al-Falih, vice president, New Business Development, Saudi Aramco, the company is budgeting a capital expenditure program of a staggering $34 billion over the next ten years. This include five new crude increments; a new NGL recovery plant and the expansion of the Master Gas System (MGS); expansion and upgrade of refinery and distribution facilities; and the development of research and technology alliances.
Others stress that the Aramco is forecasting a $20 billion capital spend over the next five years; and a further $17 billion spend on services and equipment over the same period. Other Saudi utilities such as SABIC (Saudi Basic Industries Corporation), one of the world’s largest petrochemical companies, also plans several expansion and upgrades of its refineries and various plants, including the building of two new crackers in Jubail and Yanbu totaling $1.1 billion; and a new ethylene glycol plant totaling $1.5 billion.
One of the obvious impact of the travel advice given to Western businessmen is that instead of them going to the Kingdom, the Kingdom comes to them whether in the US, UK, Europe, Japan or elsewhere.
According to James Lawday, director general of the Middle East Association (MEA), politically the situation in the Middle East seems only to get worse. “Palestine and the Bush-Sharon accord, Iraq and the deteriorating situation in the country, Saudi Arabia with its occasional bombings — the list goes on. Economically, however, there is much to be positive about. To try to overcome the perceived difficulties of going to Saudi Arabia we are preparing to bring Saudi Arabia to London.”
In fact, the MEA is organizing a seminar titled “Opportunity Arabia” in London on July1, which will be addressed inter alia by Prince Turki Al-Faisal, the Saudi ambassador to Britain; Isam Al-Bayat, vice president for New Business development at Saudi Aramco; and a host of senior British and Saudi executives and consultants.
The Kingdom is the UK’s single largest market in the Middle East. UK visible exports to Saudi Arabia totaled £1.84 billion in 2003, and increase of 32 percent in 2002. Total Saudi imports in 2003 amounted to $29.6 billion, with the main suppliers being the US, Japan, Germany, and the UK.
In addition, UK businesses have invested £2 billion in the Kingdom, whether through the Saudi-British sponsored Al-Yamamah Economic Offset Program or through private initiatives. The British Offset Office, in fact, has recently concluded the 12th successful joint venture under the program, and has reached its target of providing 1 billion UK pounds of inward investment into the Kingdom under the program.
While the outlook for Middle East economic growth and economic diversification is positive for the short-to-medium-term, albeit within the caveats of relatively high oil prices and absence or relatively low levels of civil conflict and terrorism, the challenge for almost all the governments are how they can boost economic, political and social reforms aimed especially at boosting income growth and job creation; a better rounded education; and access to capital especially for the small-and-medium-sized enterprises.
At the MEA annual launch in March this year, the guest of honor speaker, Stephen Green, Group Chief Executive of HSBC Holdings Plc, stressed that in the next three decades, the world will most likely continue to be dependent on Middle East oil and gas to “an extent never seen before.”
Such a demand, he warned, “provides a fantastic opportunity, but also immense responsibility, for the governments, planners and corporations of the region. As always there are risks, but the potential is immense.”
One country that seems to have taken on a newfound responsibility is Libya, which has renounced terrorism and is dismantling its weapons of mass destruction program with the help of the West and the international agencies.
Already sanctions have been lifted, and even the US has partially gone down this route. But Libya’s re-engagement with the international community continues unabated. UK Prime Minister Tony Blair has already visited Libya. So has Mike O’Brien, the UK minister for trade & investment and foreign affairs in a follow-up visit.
Libyan President Muammar Qaddafi has visited Belgium and the European Commission. French President Jacques Chirac is due to visit Tripoli. Libya has vast potential in the oil and gas sector, in tourism, transport infrastructure, education and training, and agriculture.
Once again, it also needs to get its economic reforms on track; to modernize its business and banking regulations; to speed up its bureaucracy and to root out corruption. British business are pragmatic — reforms will take time, but the immediate opportunities will be largely confined to the oil and gas sector.