RIYADH, 25 November 2005 — Saudi Arabia is ready for competition when it joins the World Trade Organization but some local companies, particularly distributors, will need to adapt to survive, the architect of its WTO accession said.
Fawaz Al-Alamy, a senior Trade Ministry official who spent 10 years negotiating next month’s WTO entry, said the global oil giant has always been open to international trade.
“We are not worried very much about competition. Saudi companies are ready,” he told Reuters in an interview this week.
“I’m sure they will learn quickly how to develop strategies after accession. They know how to export. We export to more than 100 countries ... and trade is 70 percent of our GDP.”
Saudi Arabia is due to join the WTO in time for next month’s ministerial meeting in Hong Kong. Ahead of accession it has raised the limits on foreign stakes in banking and telecoms services, as well as wholesale, retail and franchising sectors.
But the heart of its economy, oil production and exploration, will remain under 100 percent Saudi ownership.
“It’s a national resource,” Al-Alamy said, adding no one had asked Saudi Arabia to remove oil from the “negative list” of industries which are off-limits to foreigners.
Distribution services, once exclusively Saudi, are now open to 51 percent foreign ownership, rising to 75 percent in three years. In addition to the new competition, operators will have to observe tighter intellectual property rights, Al-Alamy said.
Economists say some firms like petrochemical giant SABIC, whose low energy and feedstock costs contributed to $4 billion profit last year, will gain from open international trade. But they say smaller companies may struggle, including the agriculture sector which is heavily subsidized to cover the costs of farming in arid deserts.
“If a Saudi company or a foreign company in Saudi Arabia starts facing international competition and they don’t do anything about it, they will lose market share,” Al-Alamy said.
“It will be up to those companies to upgrade,” he said.
Sipping coffee in one of Riyadh’s 11 Starbucks cafes - proof, he says, that Saudi Arabia is already an open market - Al-Alamy said WTO accession should help the Kingdom maintain its steady reforms and meet a range of economic challenges. High oil prices have fuelled the strongest growth since the 1970s but Saudi Arabia faces a chronic problem with its mis-matched labor force. It struggles to find well-paid jobs for poorly qualified Saudis while depending on millions of foreign workers for cheap manual labor.
Around 95 percent of the kingdom’s imports are also finished or semi-finished goods. “We need to produce more in Saudi Arabia for consumption and for export,” Al-Alamy said.
The Kingdom’s three economic priorities - diversifying from dependence on oil revenues, finding jobs for young Saudis, and opening up foreign investment - will all be well served by WTO entry, Al-Alamy said.
The expected influx of foreign firms into Saudi Arabia’s service sectors will help meet the goal of employment creation, partly because Saudi Arabia has set a minimum 75 percent level for Saudi employees, he added.
Saudi Arabia has tried for years to impose such “Saudization” targets on international companies, but the edicts are more flouted than observed.