JEDDAH, 11 December 2006 — A year after Saudi Arabia joined the World Trade Organization (WTO) and the general impression is still one of skepticism but now mixed with optimism. The views of a few experts and officials interviewed reflect a doubt about any real impact or change, whether positive or negative, on the economy and business environment during the past year. However, they consider the accession itself a positive move which should eventually have an impact.
“We should have joined a long time ago. This delay cost us a lot and will take us a long time to catch up with countries who have been benefiting from joining the WTO for many years,” said Salman Al-Jashi, chairman of the industry committee at the Eastern Province Chamber of Commerce and Industry. A year since Saudi Arabia joined and he has not yet seen any change, whether positive or negative, but he expects changes to happen once investments and competition get rolling.
Dr. Mohamed A. Ramady of King Fahd University of Petroleum and Minerals, agrees that there is really very little WTO public discussion going on. “This is worrying for the long term,” said Ramady. For businesswomen, the impact is even less obvious. “I think whatever improvements there are for women in terms of opening more sectors for them and new job opportunities perhaps have more to do with Custodian of the Two Holy Mosques King Abdullah than with the WTO,” said Dr. Basmah Al-Omair, director of Khadija Bint Khowailid Center for Businesswomen at the Jeddah Chamber of Commerce and Industry.
“The Ministry of Commerce and Industry and the chambers have a big role to play in raising businessmen’s awareness about the WTO, the benefits of joining it and how it will affect them, especially in the industrial sector. So far that has not happened,” said Al-Jashi. He does not foresee any changes or impact in the near future. “We need to put policies and procedures in order to see the benefits. So far we are not an investment attraction point,” he asserts despite that recent reports indicate that Saudi Arabia has risen in the rank of countries attracting foreign investment. He points out that there are no full industrial zones; there are problems with electricity and labor supply as well as problems with issuing visas. “We Saudis suffer so how do you think foreigners will do? Even a qualified labor force does not prefer coming here when they can go to another country that offers better salaries, work opportunities and social life and accommodation,” said Al-Jashi.
According to Ramady, the full impact of WTO accession will take time, but there are already some indications concerning likely gains and losses. “The WTO accession has certainly been a plus for the Saudi petrochemical industry as a whole, with international joint ventures mushrooming in the Kingdom, even from oil companies reducing their exposure to downstream industries elsewhere, but attracted by Saudi Arabia’s comparative feedstock advantage,” he said. Other sectors are also beginning to feel the impact, according to Ramady, such as insurance, financial services and banking. “Saudi banks are coming under increasing pressure to rationalize, and be more competitive in core segments where they face foreign banking competition, especially in investment banking, advisory services and remittance services,” he said. Furthermore, the sharp market correction has come just in time to allow the Saudi private sector to go back to business basics — assess where they have comparative cost advantages, and enter new export markets which WTO accession now gives them, while, at the same time, carrying out impact studies on potential import competition, as foreign companies will start to carry out market surveys and analysis on where they can more effectively compete in the Kingdom. “This takes time for everyone, both foreigners and Saudis, but with the clock ticking, and further Saudi tariff reductions and subsidy cuts in the pipeline in line with the WTO agreements, Saudi industries are the ones that should be carrying out impact assessments as a matter of urgency. To date, little has been done in this field,” said Ramady.
Since Saudi Arabia began negotiating its accession to the WTO twelve years ago, there were fears and worries from the private sector as well as ordinary citizens about the impact it might have on the business environment and social fabric of the country. These fears and trepidations increased with the near joining of the organization and then with it actually happening.
Khan Zahid, chief economist and vice president of Riyad Bank, said that few of the fears and problems that held up the accord for over 12 years has come to pass. “There are no hard numbers yet to show its impact, but the economy talks and looks and feels the same. If anything, it has become more vigorous and energized,” said Zahid. According to him, there were no reports of any layoffs or local companies going out of business due to foreign competition; foreign investment has increased many times yet there seems to be more business for all. Even agriculture, which was one of the sectors that many felt would be threatened by the removal of subsidies under WTO, has not been affected and Saudi Arabia was recently even able to raise farmer subsidies. Furthermore, there was no WTO challenge when the government lowered petrol prices at the pump earlier this year. Latest data from the US show that Saudi imports from the US, instead of picking up, have actually slowed down this year. As of May 2006, data show an increase of only 29 percent vs. 46.3 percent a year ago in May 2005.
Although not sure what impact the accession will have, women are optimistic about more changes and reform especially in education, training and business opportunities, according to Al-Omair. “I expect a reform in the education system to enable us to be more competitive, to improve training programs in accordance with international standards and provide better business opportunities for women by teaching them how to start new businesses, conduct feasibility studies and plan ahead,” said Al-Omair. These improvements will push people to raise their standards for sustainable development.