RIYADH, 30 May — The Kingdom is looking to the private sector to boost its economy, Minister of Finance and National Economy Ibrahim Al-Assaf said here yesterday. He added that the government was considering the introduction of income tax.
“The modern economic infrastructure and the large stock of human capital now in place provide a strong foundation for sustained private sector growth,” Assaf told a conference on the future of the Saudi economy.
Riyadh Governor Prince Salman, who opened the two-day forum on “Saudi Arabia: Financing the Future”, said the economy must sustain healthy growth to create job opportunities for the rising number of youth entering the market annually.
“Concepts have changed. We need to achieve growth rates that are compatible with the population growth,” the governor said. “We must focus on the private sector by giving it a bigger role in the economy.”
Assaf said the government expected the economy to maintain a robust performance in 2001, matching the 4.5 percent growth achieved the year before. “We expect 2001 to be at least as good as 2000,” he told the forum, being attended by some 400 officials, economists and bankers from Saudi Arabia and abroad.
“These favorable trends should continue as we further diversify the economy and add to our competitive edge in the context of increased globalization. Private sector activity will be the main vehicle for achieving these objectives. The role of the government is to be increasingly focused on provision of public goods and a supportive regulatory framework,” the finance minister said.
He also raised the prospect of introducing income tax. “We remain determined to further strengthen the structure of the budget over the medium term. To this end, a draft income tax law is under consideration,” he said, without elaborating.
Assaf said the growth achieved in 2000 was not only due to higher oil prices but also helped by the “robust expansion of the industrial sector which increased 7.8 percent”. He referred to a series of steps the Kingdom has taken over the past few years to encourage the private sector and to cut government involvement in the economy. “These measures foster an even friendlier atmosphere for the private sector,” he said.
The Saudi economy has shown resilience despite shocks in world financial markets and the fluctuations in oil prices, Assaf said.
But several participants appeared more conservative on the short-term outlook due to expected lower oil revenues this year and in 2002 before the economy starts feeling the positive impact of recent measures, including opening the gas industry to foreign investment.
They said the government must adopt faster and bolder reforms to meet the challenges of financing several giant projects. “Saudi economic growth will depend on the speed and extent of the liberalization process,” said Said Al-Shaikh, chief economist at the National Commercial Bank.
“With a rapidly changing demographic structure and a tall order on many megaprojects in the areas of utilities, communications and power, Saudi Arabia cannot afford anymore to miss out on globalization... It has no choice but to open up and be more competitive,” he added.
Alan Thompson of Riyad Bank estimated that Saudi Arabia would need at least $250 billion in investments to finance projects in the power, water, energy and telecommunications sector in the next 10 to 20 years.
Al-Shaikh said there was a pressing need to regulate the Saudi stock market to broaden the participation of the private sector and help repatriate some of the investments held by Saudis abroad which were put at $500 billion to $650 billion.
Only 75 companies are listed on the Saudi stock market, some 20 percent of listings in other comparable markets, and economists see the flotation of more IPOs as a major tool to generate funds for finance.
Telecom privatization
Speaking to Reuters on the sidelines of the conference, Assaf said the Council of Ministers had approved laws needed for liberalizing the telecommunications sector. The Cabinet on Monday approved three laws intended to regulate the sale of stakes in the telecom sector to private investors.
Assaf said the first law was to approve a telecom regulatory system, the second was to set up a telecoms authority responsible for issuing licenses to private investors and the third was a set of regulations to settle the status of goverment employees who had been transferred to the Saudi Telecom Company.
Economists attending the conference welcomed the long-awaited step. JP Morgan Middle East Managing Director Gaby Abdelnour said the telecom sector was the fastest growing in the Kingdom. “It has expanded by 30 percent annually over the past four years and is expected to grow by 20 percent annually over the next five years,” he said.
