Away from oil: The diversification dream |
Saudi Gazette - 05 August, 2012
Author: Feroz Khan
Saudi Arabia is virtually floating on oil. With 265 billion barrels of proven oil reserves, it will last 80 years at current production levels. This, among other things, makes the Kingdom a regional economic powerhouse and a strategic source of energy. Consequently, Saudi Arabia was eighth on an International Monetary Fund list of the world’s 10 high growth economies of 2012. Economy and Planning Minister Muhammad Al-Jasser said recently that the economic progress being witnessed by the Kingdom is the result of the intensive efforts of the government and its continuous economic reforms.
The IMF has predicted that the growth rate of Saudi Arabia will reach six percent in 2012, and Al-Jasser said this buoyant IMF economic outlook about the country is significant as it comes at a time when most countries in the world are facing an economic downturn as a result of the global recession and the euro zone debt crisis.
Despite this, the government for some time has prudently been talking of diversifying the economy in a bid to move away from the country’s complete dependence on fossil fuels. The good news is that this objective is indeed achievable. The vision is there, the will is there and the means are there. Boosting Foreign Direct Investment (FDI), strengthening the service and private sector, and making tourism a reality are some fundamental factors that can help Saudi Arabia shift it’s reliance on non-renewable resources.
Encouraging small and medium enterprises (SMEs) and inviting FDI are in place already. The Saudi Arabian General Investment Authority (SAGIA) came very close to achieving its 10-10 Vision - to be among the top ten most competitive investment destinations in the world to do business in by 2010. Net FDI inflows, harnessed by SAGIA, contributed to raising the internal FDI stock value to US$ 170.4 billion by the end of 2010. The pace needs to increase and there is evidence that it will. A new report from the United Nations Cooperation for Trade and Development (UNCTAD) announced a 35 percent drop in FDI in the GCC in 2011 as a result of geo-political disturbances in the region, sovereign debt crises in Europe and the struggling economy in the US, which I believe are only temporary setbacks. Furthermore, establishing automobile assembly plants, having Saudi Arabian Airlines emerge as a regional airline tiger, like Emirates, Qatar Airlines and Etihad, with Jeddah as its bustling and thriving hub, and opening the country to domestic and in-bound tourism are but a few feasible ideas and initiatives that can help make the diversification dream a reality.
Saudi Arabian Airlines, with its huge investment in a modern fleet of aircraft, subsidized fuel, and geographical advantage (Jeddah virtually straddles the middle of the globe), can build an excellent network enabling people to travel to all parts of the world. And offering Muslim passengers transit visas to perform Haj or Umrah and non-Muslims tourist visas could be an added advantage. In this way Saudia will evolve further and fly ahead of the likes of Emirates and Qatar Airways. Moreover, the ongoing plans of expanding and modernizing King Abdul Aziz International Airport so that it will eventually be able to receive 45 million passengers a year will help Jeddah become a thriving transit hub like Dubai. Imagine the revenue this will generate for the airline and related businesses.
Similarly, opening the doors to inbound and domestic tourism will provide numerous commercial opportunities. We know this is the strong desire of the government and the ardent vision and mission of the Saudi Commission for Tourism and Antiquities (SCTA) which is making admirable strides in this direction. New hotels are being built and there will be 11,400 hotel rooms, in the 4 and 5 star category added to the Riyadh inventory by 2014.
In Makkah, with the Jabal Omar project complete, the supply of rooms is expected to double in the next three to four years. Residents and visitors alike will be attracted by new industrial cities in all parts of the Kingdom, the Knowledge City in Madinah, the world class financial plazas, science parks and aquariums in King Abdullah Financial District, the world’s largest university for women, top research centers and hospitals and modern malls.
Apart from this, travelers will benefit from the initiative of the General Authority of Civil Aviation (GACA) to allow more airlines, local and foreign, to operate in the Kingdom, along with the development of the nation’s rail network that will connect the eastern and western parts of the country.
That is the service sector. Now, let’s take a look at the possibilities and potential of the nation’s private sector. Saudi Arabia, with its growing population and financially sound economy, is one of the biggest consumers of automobiles in the region, if not the world. With the nation’s excellent infrastructure, its young and intelligent population with a love of cars, and its affordable energy costs, it is an ideal place to set up auto assembly plants and convert the country into the Detroit of the Middle East. Business models can be based along the lines of those of automobile giants like Mercedes, BMW, Toyota, Honda, Nissan, Hyundai, General Motors, Ford, etc. This will create countless job opportunities for the young Saudi workforce and help reign in capital outflows. Additionally, allowing expatriate earnings to be invested in real estate and the manufacturing sector with the promise of healthy returns can help reduce the exodus of expatriate funds. SR 420 billion have been remitted from Saudi Arabia in the last four years, according to Western Union. Such a flight of capital is perhaps unique. Harnessing even 25 percent of that for domestic investments and the above initiatives, can potentially create billions more and create hundreds of thousands of jobs for the young, willing and dynamic Saudi workforce entering the market every year. Remember, more than 50 percent of the population is below the age of 30, which makes it more imperative that such initiatives are realized as soon as possible.
The possibilities of achieving the dream of diversification are as numerous as the date trees in the Kingdom. I am sure, the will of the Saudi authorities and the resources of this gifted land will succeed in achieving the goal of diversifying the nation’s economy and reducing its reliance on finite fossil fuels.
— The writer is an aviation and hospitality industry specialist who has been working in the Kingdom for more than 17 years and is currently the director of sales for an international chain of hotels.