When the Saudi Arabian General Investment Authority (SAGIA) issued the latest round of licenses to foreign companies in 2005 wishing to invest in the Kingdom, it was perhaps not surprising that one of the companies was the Saudi-Indian Insurance Company, capitalized at SR100 million. Indian trade and economic relations with the Arabian Peninsula goes back several centuries. In the last few decades, Saudi-Indian relations have taken off in a big way, with the result that today India is the fourth largest trading partner of the Kingdom, accounting for six percent of its global exports. Saudi Arabia in turn is the 15th largest market for Indian exports, accounting for almost two percent of the South Asian country’s global exports. At the same time, Saudi Arabia supplies 5.5 percent of India’s global imports while India accounts for about three percent of total Saudi imports.
Currently, there are more than 80 Indian joint ventures in Saudi Arabia and over 50 Saudi joint ventures in India. Indian companies having a presence in the Kingdom include Zamil Birla Technical Services Company, the Tata Group, HDFC Bank and Larsen & Toubro. At the same time, petrochemicals giant Saudi Basic Industries Corporation (SABIC) has a marketing company, SABIC India, and a research and development company, SABIC Research, based in New Delhi.
Not surprisingly, bilateral economic relations is high on the agenda of Custodian of the Two Holy Mosques King Abdullah’s visit to India. The king, who is accompanied by a high-level business delegation, will sign a number of bilateral cooperation agreements; open a Saudi products expo; and address a business summit hosted by the Federation of Indian Chambers of Commerce & Industry.
The bedrock of Saudi-Indian economic relations are: Joint ventures; research and development cooperation; Saudi tourism in India; Indian Haj tourism in Saudi Arabia; Indian labor in Saudi Arabia; remittances of Indian workers in Saudi Arabia; technology sharing; joint ventures in third countries; and cooperation in IT and in the oil and gas sectors.
India-Saudi trade exceeded $8.7 billion in 2004, up from the $6.63 billion in 2003, according to Indian government figures. This trade is projected to top the $10 billion mark this year. With the direction of Saudi oil exports veering toward southern and eastern Asia, India and China are emerging as some of the largest and most important markets for Saudi oil and petrochemical exports. In 2004, Saudi oil exports to India totaled about 25 million tons worth around $6 billion.
With the Indian economy growing at record rates of between four and six percent in the last few years, demand for Saudi oil and oil products is expected to increase dramatically to drive the industrial engine of the Indian economy. India’s own oil supplies are way short to satisfy local demand, and, not surprisingly, the Indian Oil Corporation is one of the most proactive exploration and green site investors in the sector, ranging from Sakhalin in Russia’s Pacific Coast to the Central Asian republics.
The principal Indian exports to the Kingdom include basmati/non-basmati rice, tea, man-made yarn, fabrics, cotton yarn, primary and semi-finished iron and steel, chemicals, plastic and linoleum products, machinery and precision instruments.
Saudi Arabia, on the other hand, mainly supplies India with petroleum and petrochemical products. In fact, Saudi Arabia is the largest supplier of crude oil to India, accounting for about 26 percent of India’s annual oil imports.
Indian manpower has contributed significantly to Saudi economic development. Some 1.6 million Indians are at present working in Saudi Arabia; over 90 percent are blue-collar workers. This has also given rise to a thriving remittance business between the two countries. Some 140,000 Indians also perform the Haj annually.
One key sign of the increased bilateral relations between the two countries is the growing number of Indian companies entering the Saudi market. Since 2000, a number of Indian firms have taken advantage of the new Saudi laws and established joint venture projects or wholly owned subsidiaries in the Kingdom.
According to SAGIA, during the last two years 82 new licenses to Indian companies for joint ventures or wholly-owned entities have been issued, which are expected to bring total investment of $467.18 million in Saudi Arabia. These licenses are for projects in diverse sectors, such as management and consultancy services, construction projects, telecommunications, information technology, and pharmaceuticals. Moreover, several have established collaborations with Saudi companies and are working in the Kingdom in the areas of designing, consultancy, financial services and software development. Saudi Arabia, at the same time, is the 22nd biggest investor in India with investments during 1991-2004 amounting to $228.8 million. There are 49 Indian-Saudi joint ventures or Saudi-owned companies in India, in diverse fields such as paper manufacture, chemicals, computer software, granite processing, industrial products and machinery, cement, metallurgical industries, etc.
With an increased number of business and trade delegations in both directions planned for the next two years, the future of Saudi-Indian economic and trade relations look positively rosy. The joint commission for economic, trade, scientific, technical and cultural cooperation between India and Saudi Arabia is confident that the two countries can further leverage their traditional historical trade ties to take this economic relationship between the two countries to new levels.
(Mushtak Parker is a financial analyst based in London.)
