Saudi reaches out to diversify its economy

James Wolfensohn, the former World Bank president, centre, is intrigued by Saudi Arabia's attempts to diversify its economy. Charles Crowell / Bloomberg

For the fourth year in a row, Saudi Arabia succeeded in attracting some of the brightest stars in the galaxy of international business and finance to its Global Competitiveness Forum held here recently.

And most of them had nothing to do with oil.

As such, the forum underscored Saudi Arabia’s continuing determination to diversify its oil-dependent economy, not only by bringing in foreign expertise and capital, but also by creating Saudi companies that can be successful players in the competitive global market.

“Everyone knows that oil is not going to be here forever and now is the time to plan for the future,” says the forum participant William Barilka, the executive vice president for initiatives at DevCorp International’s Riyadh office.

Diversification of the world’s largest oil-producing economy has been a mantra of Saudi officials for years now. And strides towards this goal have been made, particularly in expanding the private sector.

Last year, for example, the non-oil private sector contributed about 47 per cent to the country’s economic output, almost twice what it was in 1974 (25.3 per cent), according to John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh.
The country “has diversified but more is required”, says Mr Sfakianakis. “The private sector’s participation has improved, but oil … still plays a very important role … as the principal revenue earner for the country.”

Since joining the World Trade Organisation (WTO) in 2005, the kingdom has improved its regulatory regime, opened up key sectors such as telecommunications and banking to foreign investors, begun developing new sectors – tourism stands out – and directed oil revenue into major infrastructure projects to attract foreign investment.

One reward for the kingdom’s efforts was its 13th place ranking in last year’s World Bank-International Finance Corporation Doing Business report, which measures the ease of opening new businesses. Its goal now is to become one of the top 10 by the end of this year.

“I think it’s doing well because it has opened up its banking sector, telecommunications … and besides, even in the oil sector there are various collaborations with foreign companies,” says Faisal Hasan, the head of research at Global Investment House in Kuwait.

Both Mr Sfakianakis and Mr Hasan, however, suggest there is still a long way to go on the diversification front.

One key strategy towards this goal is industrial expansion, with the aim of “raising the contribution of the industrial sector to the GDP to 20 per cent by 1441 (2020) compared to its current level of 11.1 per cent now,” said the Saudi Arabian Monetary Agency’s 2009 annual report.

The government’s industrial expansion strategy, the report says, “aims at achieving diversification, competitiveness, non-reliance on only one source, increasing sustainable growth rates, creating of job opportunities and achieving balanced development throughout the Kingdom’s regions”.

Power generation, natural gas exploration and petrochemicals are major areas getting government attention in efforts to grow its industrial sector. Other areas being pushed are financial services and mining.

A key component of the diversification master plan is construction of six planned economic cities around the kingdom. They are envisaged as hubs that will house 5 million people and create more than 1 million jobs. Originally due to be finished in 2020, the cities still are in various early stages, partly because they have not drawn the once-hoped-for level of foreign investment.

But as some observers note, initial progress was slow on the kingdom’s first two industrial cities of Jubail and Yanbu. But today they are key parts of the Saudi economy.

For the foreseeable future, oil revenue will continue to be the fuel for expanding Saudi Arabia’s industrial, technological and service sectors.

As Mr Hasan says, “they want to broaden the base of their economy, but the money for that still comes from oil”.

Those willing to play a role in Saudi’s diversification flocked to Riyadh. The former UK prime minister Tony Blair was among the prominent personalities addressing the three-day conference. Others included: Michael Dell, the founder of Dell; Jeffrey Immelt, the chief executive of General Electric; James Wolfensohn, the former World Bank president; James Turley, the chairman and chief executive of Ernst and Young; ; and Glenn Lowry, the director of New York’s Museum of Modern Art.

John Chambers, the chairman and chief executive of Cisco Systems, applauds Saudi Arabia “for setting a number of ambitious goals” to improve its global performance. “I’m very comfortable making investments in this country.”

Alex MacGillivray, a senior partner with AccountAbility, a non-profit research and consulting firm in London and Washington, said one reason for the increased interest is a more outward-looking business community.

“A lot of family-held [Saudi] companies are beginning to look to scale up and get more ambitious,” he says. “To do that, they have to have a stronger brand and part of that is to be a responsible player.”

Several businessmen say the kingdom’s business environment has improved.

“I find that Saudi Arabia is far more competitive and conducive for businesses than it was three years ago,” says Thomas Searle, the group chief executive of CH2M Hill, an engineering company in Denver that announced a joint venture with a Saudi company during the forum. “I think this forum has been a significant contributor to having that happen.”

Mr Barilka says see has seen “tremendous change” in the 20 years that he has lived in the kingdom, including a greater willingness among Saudis to openly address economic problems.

But one difficulty that remains “horrific”, Mr Barilka says, is getting visas, with long delays and differing rules in various embassies complicating the task.

Mr Hasan agrees. “Definitely it is an issue, yes, if you compare to other Gulf countries like [the UAE], where you can get a visa on arrival.”

Saudi religious police see red on Valentine’s Day

THE RELIGIOUS police in Saudi Arabia are seeing red in the run-up to Valentine’s Day and overseas Filipino workers (OFWs) have been warned not to celebrate the day of lovers openly.
John Leonard Monterona, Migrante-Middle East regional coordinator, warned the more than 2.2 million OFWs in Saudi Arabia that the Feb. 14 celebration is banned in most, if not all, Arab Muslim countries.
OFWs, especially those in relationships, should celebrate Valentine’s Day “with utmost care,” said Monterona.
“In Saudi Arabia alone, the Commission for the Promotion of Virtues and Prevention of Vices, also known as the religious police, strictly enforces the ban on the practice which they regard as an alien and unIslamic activity,” Monterona said.
The Saudi religious police launched Thursday a nationwide crackdown on stores selling items that are red or in any way allude to the banned celebration of Valentine’s Day.

Red roses, red gifts, etc.
Members of the feared religious police were inspecting shops for red roses, heart-shaped objects and gifts wrapped in red, and ordering storeowners to get rid of them, a Saudi official told The Associated Press.
The Valentine’s Day prohibition is in line with Saudi Arabia’s strict Wahhabi school of Islam that the kingdom has followed for more than a century. Even birthdays and Mother’s Day are frowned on by the religious establishment in the birthplace of Islam, although people almost never get punished for celebrating them.
Not so Valentine’s Day, named after a Christian saint said to have been martyred by the Romans in the third century.
Red-colored or heart-shaped items are legal at other times of the year, but as Feb. 14 nears they become contraband.

No flying kisses
Most shops in Riyadh’s upscale neighborhoods have removed all red items from their shelves. A statement by the religious police was published in Saudi newspapers warning shopowners against any violations.
Monterona advised OFWs not to wear anything red or be seen carrying anything red-colored outside their homes, like flowers or heart-shaped gift items.
“Be careful not to be seen by the police or other locals blowing kisses to your friends or workmates. Also, don’t greet other nationalities ‘Happy Valentine’s Day’ in public or you’ll be in big trouble,” he said.
A better idea would be to call family members or friends in the Philippines or send Valentine’s Day greetings by e-mail or text messages, he said.
There are more than 2.2 million OFWs in the Middle East. Another 400,000 OFWs are based in the United Arab Emirates, while 200,000 and 150,000 are in Qatar and Kuwait.

Valentine's Day history is confusing, brief

Boxes of chocolates are always a favorite gift on Valentine's Day.

According to the History Channel web site, the world owes the season of love to St. Valentine. The legend of St. Valentine has been changed throughout the years and according to the Catholic Church there are three different saints sharing the name. One legend claims that after the Roman Emperor Claudius II banned young men from marrying, the priest Valentine performed marriages in secret, was caught and put to death. Another legend on the History Channel web site said while Valentine was in prison he fell in love with the jailor’s daughter. Before he was put to death he wrote her a letter signed ‘from your Valentine.’
The idea of Valentine’s Day caught on after the Saint's death. It became publicly celebrated in Great Britain around the seventeenth century and the tradition spread throughout the world.
Whoever he is and whatever he did, Valentine is responsible for the emotionally controversial holiday. So congrats to the loved ones and cheers to the singles.