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The giant is awake...and moving ahead

It is the largest country on the Arabian Peninsula, the world's leading petroleum exporter, the Middle East's most important manufacturer of petrochemicals and consumer goods, and one of the richest countries in the world with a GDP of US$351bn in 2006. With many of the right ingredients in place, it is quite surprising that Saudi Arabia hasn't witnessed an economic boom similar to that of neighbours the UAE. It seems, however, the Gulf giant has finally awakened from its oil-based economic snooze and is heading towards serious progress by diversifying its massive economy away from oil. The question is: Will Saudi Arabia enjoy the region's next big economic boom?

All signs so far seem positive. Over 10 new banks are expected to open in the Kingdom before the end of this year and 50 new companies will list on the Saudi Stock Exchange. This will further boost a strong financial sector that has made huge strides in the last few years. Saudi banks are among the world's top 1,000 while the three biggest banks in the Middle East are Saudi-based.
Now, with Saudi's six economic cities - considered industrial zones - underway, the figures are certainly bound to hit the roof especially as the projects attract worldwide interest from companies on a daily basis. Recently, Taiwan has been invited to invest in an oil refinery in one of the cities, while talks with Malaysia to bid for the technology part of the projects has been initiated. The plan to implement an e-Government system in the Kingdom after more than 25 years of unaltered infrastructure is a huge step that will open up new doors to conducting business. At present, the budget allocated for the IT part of the developments is estimated at US$3.5bn. Other countries that have shown interest in investing include Egypt and Turkey and a number of Dubai's top developers like Emaar and Damac have also stepped in for a piece of the action.

Every economic city is planned as a multipurpose economic hub featuring housing complexes, educational facilities, entertainment areas, agriculture, logistics, food processing, mining and a variety of industries. This will create an astounding number of new jobs estimated at 1.3 million.

The six cities are intended to turn Saudi Arabia into one of the world's 10 most competitive nations by 2020. And while the projects succeeded in capturing international investors' interest, factors that hinder their stepping into this new field remain.

Although Saudi ranks first in energy prices, high profit ratios for local, foreign and shared projects with low risk exposures, and property registration fees, it is noteworthy that bureaucratic practices and other factors hinder the implementation of many major projects. This contributes US$16bn in investment losses to the Saudi economy annually and over 120,000 lost jobs - something it needs to rapidly alter. The main challenges that investors face are the nature of regulations and internal procedures as well as a severe lack of up-to-date infrastructure.

Also to be considered, with the Saudi real estate market rapidly picking up and international construction companies fiercely knocking on its door, is establishing a mortgage law. With over US$400bn of construction works planned over the next decade in Saudi, the biggest investments are projected to lie in real estate, industry and infrastructure. It will not be surprising if the very high demand - which is by far exceeding supply for housing - triggers one of the biggest construction booms in the region. Also signalling an approaching construction boom, is the rapid growth of the Saudi building materials industry, as cement production is expected to double to more than 90 million tonnes a year by 2010. So far, all the indicators are promising, but whether Saudi will change some of its policies towards investment, in order to become the next big attraction, is yet to be seen.

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