Interview: Abdulrahman Al-Tuwaijri, Secretary General of the Supreme Economic Council
Saudi Arabia's current economic situation looks very positive. What in your opinion are the reasons for this?
2004 was undoubtedly an excellent year for Saudi Arabia's economic development and growth. But in my opinion, 2005 will prove to be even more successful with possibly one of the highest economic growth rates ever recorded in the history of the country. Our private sector economy has achieved a significant growth rate of almost 6 percent in real terms, and our stock market is booming.
Now, to my mind there are two predominant factors that have helped bring all of this about. The first is very simply the price of oil. The second is the effects that are emerging as a result of all the economic structural reform that has been carried out over the last four years.
What significant economic challenges still lay ahead for Saudi Arabia?
The economic challenges we are facing right now are very clear.
Saudi Arabia has a very young population which will be entering the labor force over the next few years. The first challenge then, is to create an economy that can achieve a sustainable growth rate in order to absorb these new entrants into the labor force. What policy makers must ask themselves is are we going to be able to create enough economic growth to create the jobs that this new labor force requires?
As important, will be our ability to diversify the economy into other areas and become less dependent on oil. Of course oil is a natural resource for Saudi Arabia and we have capitalized on the industry tremendously in terms of overall economic development, but on the downside, we have also been subject to the vagaries of the oil market.
The oil sector actually makes up about 35 percent of the country's economy, which is not a huge amount, but the dependence of government revenues on oil is really very high, and it is this dependence that needs to be reduced.
Can you comment on the delay in Saudi Arabia's entry to The WTO?
There is only one country we have not formalized an agreement with, and that is the United States. We already have signed bilateral agreements with 39 countries, but what you really need is an agreement with the major trading partners. If you can achieve that - which we have - then the other countries are going to sign de-facto.
I believe that negotiations are going well with the United States and hopefully Saudi Arabia will soon become a member of the WTO.
Is joining the WTO now a priority for the council - and if so why?
The Ministry of Commerce and Industry is responsible for negotiations with the WTO. Although the Supreme Economic Council is not directly involved on a day to day basis, we do follow developments and discuss relevant issues as they arise.
I think it is important that Saudi Arabia be considered as a member of the WTO for many reasons. You just have to consider the importance of the Saudi economy in the world - the country is the main source for energy. You just cannot afford to ignore a country that has 25 percent of the world's oil reserves. So I feel we are entitled to be a part of this trading arrangement, plus Saudi Arabia's geographic location and influence on the region are also important factors to consider.
We have always been very active in international organizations and have a major role to play in both the World Bank and the IMF. Saudi Arabia has board membership and a very large share holding in both institutions, and takes its international responsibility very seriously. So it's important for us to also be a part of the WTO - which is an international organization governing policies regarding world economics, finance and trade.
What do you consider to be the most important benefits for Saudi Arabia joining the WTO?
The Saudi Arabian economy is the largest in the whole of the Middle East region - with a GDP this year of approximately 250 billion US dollars. So it really makes no sense for a country with an economy the size of ours, not to be a part of any important global trade initiative.
Saudi Arabia needs to diversify its economy, and the major impetus of this diversification has to come from exporting products other than oil. Now if we want to export other products successfully, we're going to have to have an open market, and to be excluded from a global trading arrangement would make trading in an open market extremely difficult for us. Joining the WTO will mean we'll be able to develop the country's economy by opening new markets for our products.
Another important benefit to Saudi Arabia in becoming a part of this global trade agreement is the forum it allows for discussion and negotiation with regard to our economic interests and those of our close allies. We have one of the most 'free trade' economies in the world. We don't have high tariffs. We have no quotas. We have no export taxes. In short, we have no restriction over trade whatsoever, so it's truly an open economy and it's important to project this advantage on a global platform.
What exactly is the Supreme Economic Council's role in Saudi Arabia's economic development?
The Supreme Economic Council was established just over four years ago to co-ordinate economic policy within Saudi Arabia, and to initiate economic reform programs. With Crown Prince Abdullah heading the council and the Defense Minister as its deputy, the council has the authority to act decisively and promptly. Our other members include nine ministers who are directly related to economic policies, i.e. petroleum, finance, trade, economy, labor, water, electricity etc. and also the Governor of the Central Bank.
All economic issues, programs, and laws are reviewed and assessed by the council - which has sped up the decision making process, and enabled us to achieve a lot over the last four years in terms of amending many of the existing laws, and initiating several privatization programs.
Could you highlight some of the Supreme Economic Council's major achievements to date?
The council has a structured economic reform program that encompasses all aspects of institutional change, structural change, privatization and other issues.
In terms of institutional change, the council was created to basically speed up economic decision making (The oil and mineral resources have their own separate councils).
In order to facilitate this decision making process the council created the new investment authority.
The Council has also been responsible for updating almost all the existing laws and regulations relating to the economic environment of Saudi Arabia. We initiated the foreign investment law which ensures an equal status between Saudi investors and non-Saudi investors. We have also introduced a new tax law for non-Saudi investors - which effectively reduces the tax rate from 45 percent to 20 percent.
A new mining law and an anti-trust law have been introduced recently. Hopefully in a month or two we'll have a new labor law. The new insurance law is very important because insurance is a relatively new industry in Saudi Arabia.
But for me, the most important law has been the capital market law and the creation of an organized agency for capital markets.
There are usually a lot of fiscal issues that need addressing within the process of any economic reform. When it came to the Electricity industry for instance, the government had to not only create an electricity company, but then ensure that all government control over it and subsidies that may have been applied were removed.
When it came to privatization, the council first created a proper legal framework. In doing this, we were able to put together a privatization strategy. We issued a list of 22 areas and services for privatization, and created regulators for each area. For instance, regulating agencies have been set up for telecommunications and electricity, so that these major industries can now be properly regulated. Of course Telecommunications has been one of our major success stories in terms of privatization. One license alone brought in 12 billion riyals for the government.
Saudi Arabia has sectors that used to be closed to the private sector that we are now opening for the first time, and that's really the major thrust of the council's privatization program. The council establishes the legal framework, formulates a plan of action, the required timeframe, and then implements the project for privatization.
Large service sectors like desalination which is government owned and government run, are now being opened up with major contracts being awarded to the private sector - which has never been done before. This year we will probably witness the largest desalination project - a multi-billion dollar project that has been taken up by the private sector in Saudi Arabia, and is the first of 4 such projects in this sector alone.
Railroads are also a major sector opening up for privatization. Saudi Arabia currently has one railway line which is owned and run by the government. The country must now expand its network to cater to the needs of the Mining Industry for instance, in the north as well as the all important Mecca and Medina commercial aspect. It's a huge project and we are inviting bids from the private sector to take up the challenge. The country's largest mining company, Mahaden, is itself up for privatization - so there are vast opportunities in almost every sector.
I'm also optimistic that we'll see some movement within this year on our national carrier, Saudi Arabian Airlines. Final studies and analysis reports have been completed.
More significantly, the council last year took a decision to open up the market for new airline companies and the government is in the process of giving a license to at least one local company. The council has taken this decision primarily to bring in new operators and more competition into this industry.
Approximately 600 billion dollars have been earmarked for investment projects in Saudi Arabia, up until 2020. Could you highlight the kingdom's investment opportunities and advantages for international business leaders?
Look, we are a growing economy with a young population that has the potential providing an excellent labor force. We have the markets, the resources, and the geographical location. On top of all this we also have an abundance of oil and gas reserves. We have agreements with the GCC as well as other Arab countries for free trade, so that gives us a pretty big market by any standards. Although our population is only about 22.6 million, their purchasing power is extremely high. Regionally, our industry is probably more developed than our neighbors' and we have the expertise and the experience, especially in the industries where we have comparative advantage. We have been doing very well exporting to 120 countries and now those projects will be available to the private sector - both local and international.
International investors are important for us because they not only bring the know-how and experience but also the ability to market products and training which is extremely important for our citizens.
In creating a new legal framework for investors that applies to Saudi and non-Saudi investors indiscriminately, we have ensured that all investors will be treated equally, and can benefit equally. And that really makes Saudi Arabia a country with not just investment opportunities, but also an ideal investment environment.
Based on your work experience in Washington with the IMF, how would you assess the current relationship between the United States and Saudi Arabia?
The United States and Saudi Arabia have been friends for over 70 years, and hopefully we'll continue to be friends. There's a mutual dependence between the two countries - the United States needs our oil, and we need their sizeable economic investment. So it really would be in the interests of both countries to continue the close relationship we have.
On a personal level, what motivates you to contributing so much to the development of your country?
This is really the only work I know!
I was educated and trained as an economist both in Saudi Arabia and in the United States and later worked at the IMF, so economics is what I've been learning all my life. I've been fortunate enough to have had the opportunity of applying that knowledge and actually seeing it work. I do believe that it's my national duty to employ what I've learned in international organizations.
I was serving on the board of the IMF when the Soviet Union was being dismantled and I saw first hand the new economic reforms that were being implemented, and similarly with the Asian crises. I've seen a lot of reforms applied world-over, some succeed and others fail. So I think that by using this knowledge I can benefit my country.
The Crown Prince's personal interest and involvement in the work of the Supreme Economic Council is also a key motivating factor. Knowing that we have the full support of the country's leadership is vital to the council's effectiveness.
What factors have helped make your leadership such an extraordinary success?
Knowledge and teamwork are both extremely important. In economic reform, like any other kind of reform, there are those who gain and those who lose. That's why you can't ever please everybody. But if you can work in an atmosphere of team spirit, and if you can convince most of the people contributing to the process that a reform is beneficial for the country, then at least you can move forward. First you must know what you're doing, then you must know where you're going, and then you must create a good team spirit that will get you to your goals.
As one of the most prominent leaders within Saudi Arabia, what is your final comment to business leaders both around the world and in neighboring GCC countries?
Saudi Arabia is in the process of extraordinary change in all areas, especially its economy. We are entering a new era of economic development and investment, one that we'd like to share with our close regional and global trading partners. Significant work has already been done to reform the economy, and this important work will continue. Our aim is to create an extremely investor friendly atmosphere.
We want to see more people coming to Saudi Arabia to benefit from this economic change and at the same time contribute to it, with their technology, training, expertise and experience. We'll welcome them.
Copyright 2005 Summit Communications