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Skip Navigation LinksHome :: Back Issues :: Financing the future

July 2001

Financing the future





       
Ibrahim Al-Assaf
Reform, liberalization, infrastructure investment and international borrowing were among the leading topics of discussion at Euromoney's recent conference. Entitled Saudi Arabia: Financing the Future, this, the largest international conference of its scale in the Kingdom to date, took place on May 29-30 at the Al-Faisaliyah Center in the Olaya district of Riyadh. Euromoney organized and hosted the event along with co-organizer Council Saudi Chambers of Commerce and Industry and co-host Saudi Arabian General Investment Authority.
The conference, which was opened by Prince Salman Bin Abdul Aziz Al-Saud, the governor of Riyadh, is evidence of a newfound desire to attract foreign investment and know-how. Through the oil boom of the 1970s and 1980s there was no need to encourage outside investment. However, today nearly 60% of the Saudi Arabian population are young adults about to enter the work force so the government must create jobs. Opening the market both to foreign direct and portfolio investors is one way to stimulate economic growth and career prospects for the country.
Participants at the conference heard presentations by many top government and corporate figures. Saudi Arabia's minister of finance and national economy, Ibrahim Al-Assaf, pointed out that the country has achieved surpluses for both the budget and current account in 2000 and expects to repeat these strong performances in 2001.
JPMorgan attributes these surpluses to the increasing growth of world oil consumption, which it expects to keep growing by 1.6 million barrels a day (b/d) every year. The growing demand in Asia and the Pacific, where recent oil consumption is increasing more quickly than total energy consumption, largely fuels this prediction.
While the company expects a worldwide slowdown in economic activity in 2001, it says it is looking for recovery in 2002 despite high oil prices. The increase, as well as the high price of crude oil, should result in larger revenue for the producing countries.
But entry into the World Trade Organization will lead to increased competitive pressures on Saudi companies and the country must prepare.
Saudi Arabia is ready to embrace privatization, according to Edgar Saravia, the resident representative in Riyadh for The World Bank. "The process of consensus-building in the Kingdom rivals one you would normally see in other parts of the world," he told the conference. "With strong public support and clear objectives for the programme, the country is ready to move forward." He does, however, believe someone should step forward to act as leader of the movement.
Following the amended investment law announced in 2000, foreign investment has become more attainable, though many delegates still see work ahead before privatization can be achieved. John Xefos, a partner with Baker&Mackenzie in Riyadh, outlined the steps that need to be taken to reach the privatization goal. "First, the government must really want to do it. Second, there is a need for a very strong, streamlined process in the legislative system. The system of legislation has to be clear and transparent," he said. "It is essential that there is a transfer of power to the regulatory authority. I would argue that once you decide to privatize, the previous ministry needs to go out of business," he added.
Gaby Abdelnour, managing director of JPMorgan, credited the Saudi Arabian economy with heading toward liberalization and transformation. However, he said funding for increased activity in natural gas, electricity and telecommunications will pose challenges along the way. According to Abdelnour, over SR700 billion ($187 billion) will be needed to provide funding to all of the planned projects over the next 20 years.
With the announcement that Exxon Mobil, British Petroleum and Shell have been selected to execute three natural gas development programmes costing at least $30 billion, it is clear that international involvement has begun.






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