Formal relations between Saudi Arabia and France date back to the mid-1920s. Indeed, France had maintained a consulate in Jeddah since 1841, prior to becoming one of the first countries to recognize King Abdul Aziz’s government in 1926. Ties between the two nations strengthened during the early thirties when France sent an economic delegation to the Kingdom, followed by a diplomatic delegation in 1936.
Custodian of the Two Holy Mosques King Abdullah paid an official visit to Paris in July 2007 and met with the newly elected French President M. Nicolas Sarkozy.
In 2007, Saudi Arabia ranked as France’s third-largest export market in the Middle East, after Turkey and the UAE. French exports to Turkey in 2006 exceeded SR26.2 billion ($7 billion). In 2006, France was the seventh largest exporter to the Kingdom overall, marginally behind the UK with SR10.3 billion ($2.7 billion) and Italy with SR10.5 billion ($2.8 billion).
Since 2000, the Kingdom’s imports from France have grown by 116 percent, though it was only after 2002 that volumes increased significantly.
Imports from France stood at SR4.3 billion ($1.1 billion) in 2002 and, by 2006, had reached SR10.08 billion ($2.88 billion).
However, French exports have not kept pace with the rapid increase in total Saudi imports over the past four years and, as a result, there has been a small decline in France’s total share of Saudi markets.
In 2000, French exports comprised 4.1 percent of all imports to Saudi Arabia, whereas by 2006 it had declined to 3.86 percent.
In terms of product categories, France’s main exports to Saudi Arabia comprise consumer and food products (26 percent), including clothes, leather goods and perfumes; followed by intermediary goods (25 percent), such as minerals, paper and metal goods; and lastly, professional equipment (21 percent), including electrical, electronic and various mechanical items.
In 2006, according to the latest data from the Central Department of Statistics, SR361 million ($96 million) worth of French perfumes was exported to the Kingdom. In the same year, various pipes used in the oil and gas sector reached an export value of SR483 million ($129 million).
Looking forward, we expect agricultural and foodstuff products from France to increase, as well the sale of electronic and electrical equipment. The current increase in French food products is due not so much to the arrival of French hypermarkets such as Carrefour and Géant, but mainly to an increase in frozen poultry meat sales. With the increased global and local incidence of avian influenza (including at some of the Kingdom’s 500 poultry farms), imports of French frozen poultry have grown over the past 18 months, despite the appreciation of the euro against the US dollar. France’s market share in the frozen poultry business (18 percent) continues to be second to Brazil (78 percent market share in 2007). The imported poultry market is expected to reach SR1.9 billion ($507 million) in 2008.
The sale of passenger aircraft is another area in which France is well placed to benefit. One such example is the December 2007 deal between Saudi Arabian Airlines and Airbus to modernize its fleet with 22 new A320 aircraft. This contract is SAA’s first order with Airbus in more than two decades, having previously been the launch customer for the A300-600 range, first delivered in 1984. In addition, at the Paris Air Show in June 2007, National Air Services (NAS) signed a firm agreement for some 20 A320s, with purchase rights for 18 more.
Despite the rise in its exports to Saudi Arabia, France’s foreign direct investment (FDI) in the Kingdom has historically remained low. As of 2005, the stock of French FDI had not exceeded SR4.7 billion ($1.2 billion), which according to data from the Central Bank of France, gave Saudi Arabia a ranking of 43rd, after Finland.
By 2006, 60 French firms were present in Saudi Arabia, employing over 20,000 people. Calyon’s investment in Banque Saudi Fransi (BSF), established in 1977, represents 29 percent of the total French FDI stock in Saudi Arabia.2 Indeed, companies in the financial services sector now make up 80 percent of France’s interests in the Kingdom.
There have been several notable French investments since 2000, including the 50 percent shareholding valued at SR178 million ($47.6 million) of Group Danone in the world’s largest-capacity integrated dairy farm, Al Safi-Danone. Recently, Saint-Gobain invested SR90 million ($24 million) in the local textile-sector business, Al- Obeikan. And since 2003, Total has been participating (30 percent) in a consortium with Shell (40 percent) and Saudi Aramco (30 percent) to explore for and produce natural gas in the Empty Quarter.
Other French companies with a significant presence in the Kingdom include Thales (telecommunications), Schneider (advanced materials), BNP Paribas (banking), AXA and AGF (insurance), Argas (seismic projects) and Lactalis (food). As well as expanding in Riyadh, Accor will be the first French hotel group to open outlets in the holy cities of Makkah and Madinah. And Alstom, the world leader in highspeed trains with over 500 TGV trains in service, has made a bid for the 450 km Makkah-Madinah rail-link project.
The largest of all investments, however, would be the proposed joint venture between Saudi Aramco and Total in Jubail, to process 400,000 b/d of heavy/sour crude into premium fuels.
Despite the rising engineering, procurement and construction (EPC) costs, it appears that both parties intend to go ahead with this SR48.7 billion ($13 billion) plus project. The importance of refining heavy crude oil will grow in coming years, with the increasing availability of heavier crude over lighter grades. The worldwide shortage of refining capacity for heavy crude oil further underlines the importance of building Saudi Arabia’s domestic capacity.
Since 1984, the balance of trade with France has favored Saudi Arabia, and only twice (in 1987 and 1998) have the French enjoyed a trade surplus with the Kingdom. But the delivery of military equipment, at various times, has historically helped keep France’s trade deficit under control.
In terms of the Kingdom’s exports, Saudi Arabia was the third largest supplier of crude oil to France in 2006. According to Eurostat, French oil imports totaled 1.57 million bbl/d – the largest source of this being Norway (256,000 bbl/d), followed by Russia (186,000 bbl/d) and Saudi Arabia (166,000 bbl/d). As a result of this trade, 96 percent of Saudi Arabia’s total exports to France in 2006 was crude oil, with the remainder mainly comprising various chemical products.
Saudi investment interests in France are focused primarily on entertainment and real estate. As of 2005, Saudi Arabia ranked as the 30th largest investor in France, with total stock of investments amounting to SR2.6 billion ($701 million). Kingdom Holdings has a 17 percent stake in EuroDisney, the company that runs Disneyland Paris and owns one of Paris’s most luxurious hotels, the George V. In Paris, property is another popular investment for Saudis, who are well represented in the 7th, 8th and 16th residential districts, as well as the famous Latin Quarter. In 2007, Saudi FDI amounted to just SR165 million ($ 44 million).
Language barrier France itself is a popular destination for Saudis, who represent a major source of foreign currency for French businesses. As the Euro has risen against the US dollar, France has seen an increasing number of Saudis visiting their country every year. However, currency fluctuation is of little consequence to most of those visiting France, as they generally have a high-income profile.
In part, France and other European locations have increasingly replaced the US as travel destinations for the high-income Saudis since 2001. During 2007, 30,911 Saudis visited France, mostly for leisure purposes (92 percent), which represented a 22 percent increase over 2006.
Educational exchanges are slowly picking up, but have a long way to go in comparison to other Anglo-Saxon destinations. This is mainly due to the fact that French is not widely learned or spoken in Saudi Arabia.
(The writer is the chief economist, SABB)
