JEDDAH, 6 October 2003 — Saudi Arabia’s massive infrastructure program has started taking shape. This is coupled with the recovery it did in the post-Sept. 11 events.
What has greatly contributed to the recovery is its determined efforts to open up the economy through a massive restructuring program to promote foreign direct investment, boost employment opportunities under the ongoing Saudization plan, promote exports — both oil and non-oil products, and further streamline government spending.
The Kingdom hopes to achieve an annual growth of 6.85 percent annually by the end of its seventh development plan in 2005. The target set in the plan for the infrastructure sector includes constructing several hundred kilometers of new water networks, replacing parts of the existing networks and implementing domestic connections. It also includes the construction of wastewater networks, domestic wastewater connections and treatment plants with a capacity of 450,000 cubic meters per day. Providing electricity to several thousand new subscribers, providing 57,000 state loans totally valued at SR15.7 billion for the construction of 70,000 housing units and providing 110 million square meter of residential land to meet growing demand, and expanding some of the existing industrial cities for maximum capacity utilization are all covered in the plan.
These apart, the plan covers asphalting 1,600 km of main roads and 11,000 secondary roads, increasing the service coverage rate to 25 lines per hundred people and reduce the disparities in the service coverage between rural and urban areas. The non-oil sector is expected to post a growth rate of up to four percent in the fiscal 2002, according to estimates. The industrial sector, particularly manufacturing and petrochemicals, is leading the growth spurt.
Other positive indications are that in spite of the global economic recession triggered by the events of Sept. 11, the Kingdom’s market remains highly liquid. The Saudi banks’ assets grew by 65 percent, deposits by 52 percent and capital and reserves by 142 percent, according to the Saudi Arabia Monetary Agency (SAMA). This trend continued in 2001 and also in the following year.
There was a mood of cautious spending both in the public and private sectors. However, there are indications that the downturn may have bottomed out, according to the Ministry of Finance and National Economy. This is borne out by the fact that the Saudi Arabian General Investment Authority (SAGIA) issued licenses for industrial and non-industrial projects worth over SR32 billion in 2001.
The Kingdom has been emphasizing on the involvement of foreign capital being vital for the national economy. As a result, investments from abroad have been coming in with many overseas companies taking full advantage of the new law, which allows projects with 100 percent foreign ownership. The surge in overseas investors’ confidence is helped by the fact that the Kingdom has come out with a package of incentives that should see the tax rate on foreign company profits falling below 30 percent, according to the Saudi British Bank’s assessment of economic prospects of the economy for 2002. An important aspect of the economic restructuring program is the gas initiative. Gas has been the fastest growing fuel with global consumption rising. Electricity, water and gas could eventually provide the Kingdom with additional foreign investment amounting to over SR85 billion, according to an official report. An inflow of these investments can have a multiplier effect by stimulating the growth of construction and other ancillary sectors.
There is a definite need for an ancillary body to cater to the needs of the petroleum industry, according to a report attributed to the Ministry of Petroleum and Mineral Resources. At present enormous funds re being spent on importing goods and services required for both power and petrochemical industries.
Exploitation of mineral resources is an area where the government is encouraging private investments. Tourism is another sector, which the Kingdom is promoting as part of its efforts to diversify the non-oil sources of revenue.
Another component of the Kingdom’s economic restructuring program is privatization. Under this program, the government is to carry out disinvestments by allowing the private sector to own stakes in public sector undertakings.
