My call for reviewing protectionism whereby a 20 percent tariff is slapped on foreign imports to protect national industries has been met with skepticism. The skeptics fear that lifting custom duties will ruin local investments and deprive people of their incomes. This may be true but is only half true. The objective should be to serve the citizens and the economy by providing affordable low-cost goods and high quality services and creating jobs. A high-cost industry is a burden on both state and consumer. It may never develop and expand. We must seek less procrastination and more efficiency.
The government has been encouraging locally established industrial investments for more than 25 years. Initially, the economic policy called for measures to protect infant industries from outside competition. Later a more realistic approach was adopted. The investment environment was improved and a separate ministry for industry was created. Industrial cities were built across the Kingdom and two financial institutions for providing credit to investors were set up — the Saudi Industrial Development Fund and the Industrial Investment Bank. Machinery and raw material were exempted from customs while a 20 percent duty was levied on foreign imports which competed with ours. It was clear that this protection could not last forever and that weaning was crucial to self-defense and survival. Industries built at that time must today stand alone. Saudi products found their way into international markets and more investments have been put into these industries, enabling them to develop and expand without necessarily having to depend on state protection. Yet, licensing is still granted for new industries, which benefit from the dual customs policy, but with no competitors in the local market to influence prices. These industries may not care much for quality and efficiency or work to reduce the cost or increase productivity. Protecting and encouraging the local economy is essential for any effort aiming to ensure that the entire population benefits and not just a few who become rich at majority expense.
If more than 25 years of protectionism could not achieve the miracle, then we should search for it elsewhere. We must rethink the way we handle the industrial sector by reforming our application of laws and free the industry from the shackles that prevent it from moving forward. We keep talking about Saudi money abroad and forget the lack of promising investment opportunities for that money here at home. What we need most is foreign technical know-how which will only come from partners who must be lured into investing here. The collapse of the Berlin Wall was followed by the collapse of many economic walls. Countries started breathing life into local economies, using whatever advantages were available to them to expand into larger markets. Europe created a union of 15 states in a single market, on the march to reach half a billion consumers.
The Gulf market is going the same way but it remains small with little technological know-how. Its only advantage is oil-based industries and services. Thus, it this market must be enlarged and expanded, quickly and away from political obstacles. It is a vital step toward the long-cherished dream of having a single Arab market of all the 22 Arab League members. Up to now, the 22 countries have failed to fight poverty or to address unemployment. If their economies do not change soon for the better, they will not survive the strong winds of globalization. This calls for blocking walls to come down just as the Berlin Wall did.
