ALKHOBAR, 24 May 2005 — An economist gave business leaders an overview of the serious challenges that lay ahead for Saudi Arabia but expressed optimism that the Kingdom was making the right moves to improve its competitive edge in the global marketplace.
Dr. Mohamed Ramady, a visiting finance and economics professor at King Fahd University of Petroleum and Minerals (KFUPM) and author of the new book “The Saudi Arabian Economy: Policies, Achievements and Challenges,” made his remarks to about 180 businessmen and women during a program sponsored by the Arabian Society of Human Resource Management Sunday night at the Meridien Hotel in Alkhobar.
In a 90-minute presentation, Ramady examined the current state of the Kingdom’s economic sectors presenting the latest data and comparisons available for a rapidly changing environment. In what he called a bird’s-eye view of the Saudi economy, he rolled out the case for continued change to reverse a downward trend in per capita income.
“If you want a good gauge of the economy, look to the sky,” Ramady said. “How many cranes do you see on the skyline? Look around — then look at Dubai.”
He noted that Saudi Arabia was the biggest construction site in the world during the 1970s and said another boom was on the way through a number of mega projects planned for the coming years, but he cautioned that certain fundamentals need to be addressed for continued economic growth.
“The most important topic is education, education and education,” he emphasized, referring to a lack of internal research and development to develop a knowledge-based, sustainable economic infrastructure at the Kingdom’s institutions of higher education.
He also raised serious concerns over the continued mismatch between market needs and graduate output from secondary and post-secondary educational facilities. He called on the business and education sectors to collaborate to create sophisticated R&D institutes and said there should be an increase in government spending on research.
In the financial sector, he noted a variety of strengths and weaknesses.
“The Saudi stock market and banking system have excellent technology, liquidity and transparency,” he said, “but there are only 72 companies listed. There is no foreign investment in the market. It is opening slowly through mutual funds.”
He said the mega projects could be used to further develop the financial sector. “The projects should be packaged properly to take advantage of the financial liquidity through investment,” Ramady said.
When later asked to elaborate, he said Islamic bonds, like the Shariah-compliant financial instruments being developed in Bahrain, could create a new investment market in the Kingdom and allow individual Saudis to finance — and directly benefit from — the country’s development plans.
He praised the government’s efforts to create level-playing fields for domestic and foreign investors across many sectors and noted that there should be a consistent approach across the ministries to ensure that regulatory changes being enacted to encourage growth were not being inadvertently minimized by other unchanging bureaucracies and existing immigration and labor laws.
He expressed concern about the current legal system and said that to attract foreign investors a country should have an independent judiciary and that businessmen should have the ability to successfully litigate against the government.
In the private sector, Ramady pointed out that the majority of establishments in the Kingdom had fewer than 100 employees. He noted the world’s largest economies grew because of small- and middle-sized entrepreneurial businesses, and he encouraged further development of this important sector.
“Saudi family businesses are a powerful positive and potentially negative economic force,” Ramady said. “Twenty-five billion Saudi riyals in domestic investment is concentrated in 200 family businesses.”
He said most of those businesses had holdings distributed horizontally across a wide range of activities, which has an inherent inefficiency. If these family businesses focused on certain core activities while divesting or spinning off other activities, it would lead to more competition and higher productivity in a much healthier private sector, he said.
In the area of infrastructure requirements, he said the Kingdom could improve both the quality of its roads and the reliability of the power grid, but he said the greatest deficiency was in information systems.
“There is low use of computers per capita and few Internet hosts,” Ramady said.
“There needs to be development of laws in support of the new economy,” he said, referring to the growing sector of e-business. “The government needs to work in harmony with it.”
Ramady sees women and their changing roles as the brightest hope for the Kingdom’s economic future. He said educated Saudi women have a great potential to start new businesses and power growth as their roles expand across the government, business and financial sectors, and he encouraged society to take advantage of this valuable and underutilized human resource.
Most of Ramady’s comments were based on information contained in his new book, which is the most comprehensive and current non-governmental view of the Saudi economy available to the public. It is being used as a textbook in university economics courses and may prove to be a valuable resource for understanding the macroeconomic complexities of the Kingdom during a time of rapid change across the Arabian Peninsula.
