The concept of international trade is an old one. When Adam Smith published his book ‘Wealth of Nations’ in the 18th century, it was recognized that the exchange of goods could improve the standard of living. The idea was later expanded upon by saying that a country should concentrate on producing those goods which give it an advantage in obtaining the other goods it requires.
In the present day, the WTO director says that trade is an important element in the strategic development of nations. If the WTO members successfully negotiate to overcome trade barriers relating to textiles and agriculture, it is expected that underdeveloped countries could achieve more than 230 billion Euro in potential investments annually by the year 2015. However, it is important that a country ensure that the value of its exports exceeds the cost of its imports in order to maintain a positive balance of trade and to avoid borrowing from either internal or external sources.
The concept of comparative advantage in the past was based on available natural resources and skills and involved exchanging raw materials and basic finished goods whereas nowadays trade prospers in countless products and services. The Kingdom has a comparative advantage in concentrating on its specialization in oil, petrochemicals and some agricultural products.
Meanwhile, the Kingdom will have to seek and cover its other needs through trade with countries specializing in producing such goods.
The achievements of the Kingdom in the field of petrochemicals and oil by-products is remarkable by any standard. The way the Kingdom has managed to a certain extent to diversify its sources of income by setting up petrochemical and import substitute industries so as to not remain dependent on crude oil which is vulnerable to price fluctuations and competition.
Other countries may put barriers, including increases in custom tariffs, specification standards or limitations on imports; the Kingdom, however, will overcome such obstacles through joint-ventures, procurement of existing businesses or erecting independent industries in European countries.
The vice chairman of SABIC said, following the purchase of parts of the Dutch petrochemical firm DSM for $2 billion, that the move would enable SABIC to compete not only in Europe but globally.
At the same time, we must also understand our mistakes. For instance what we
achieved successfully in the eastern province — Al-Jubail - we failed to do
in the western province — Yanbu. It is obvious that the massive petrochemical schemes in Yanbu has produced no jobs or outstanding investments. This needs to be rectified or the billions of dollars invested will become piles of debris.
In addition, in spite of government assistance, support and custom exemptions for Saudi industrialists over the past 25 years, we have failed to create a real manufacturing industry. Instead, the majority of our "Saudi-made" products are merely products that are assembled or reassembled in the Kingdom for international companies.
Due to the unavailability of a real manufacturing base, local industry is not strong enough, nor is it prepared, to compete in globalization. Fifty percent of the Kingdom’s population is under 25 so the creation of jobs is the biggest challenge we face with the second largest being new graduates in both formal and vocational education.
They need the right skills and proper preparation to assume responsibility in the strong industrial economy that we need to build for them.
