The Saudi economy is currently led by three major companies namely Aramco, SABIC, and Electricity Company. These companies have an influential role in the process of development, according to Omar Al Juraifani, an economic and financial analyst, said.
However, he added, the efforts by local investors willing to stimulate the small and medium-sized enterprise sector are affected and faced by a number of complexities.
The Gulf Cooperation Council’s countries are focused on looking into alternative and diverse sources of income that could be incorporated into a wider economic policy, which is at present solely reliant on oil expenditure.
The GCC countries have been looking into initiatives that will encourage investors to once again have confidence in the region, especially after the real estate sector suffered a dramatic slump a few years ago. Their main strategy is based on benefiting from the huge oil revenues by investing in new comprehensive investment projects in various fields, such as industry, various modern technologies, as well as several income-generating projects.
Financial observers and analysts specialised in the Gulf financial and economic affairs believe that the GCC economic activity is centred on the scope of oil production through the development of oilfields including loading platforms, export-oriented seaports and oil tankers and so on.
The attempt to implement new initiatives is accompanied by less reliance on local companies to provide the needs of the oil industry amid expectations of limited growth of small and medium sized enterprise sector which shoulders the biggest burden in the economic growth and the principal factor in the expected diversification of sources of income.
For instance, Aramco Company, which was established around 80 years ago, despite its vital influential role and importance, needs to take a firmer stance in cooperation with a national investor to support growth of local businesses, support national products and create jobs. Up till now it has not been able to establish a company in cooperation with a national investor, neither in terms of explaining the criteria in terms of standards of product nor in terms of supporting this product by buying a stake in it.
“There are successful experiences in the Saudi economic arena, such as the experiences of the Investment Authority, yet it needs to activate its work, given the size of what it has added to the national economy, not only increasing the volume of profits achieved. It also needs to establish giant companies in the industry that it would provide land for free in return for the employment of jobless Saudi citizens and would provide them with tax waivers for a certain period of time,” he added.
“I do not think that we are less able to apply the experience of Japan which attracted American companies and managed to set up its modern industries capitalizing on these companies. We want the Investment Authority to encourage foreign companies to open production lines for them in the kingdom, not just representation offices. If this does take place than the Saudi economy will have a very different situation than what exists now.”
Aramco Company introduced around seven years ago a study to the effect that it would invest around 5.8 billion dollars during the period from 2007-2012 on the valve industry only. To what extent it did invest and encourage local businesses is unclear however what is important is the realisation that they need to invest to encourage local growth.
At present the reliance on oil stands around 85% as an essential source of income, and there are fears that the GDP per capita – which is now $24,000 year, and $20,400 from oil at an average barrel price of 90 dollars – may result in major fluctuating changes due to the changing political and economic climate in the region as was the case when the oil prices fell to $40 at the end of 1999-2000.
The affects of an economic recession and the recent Arab Spring which has led to political and social changes in the region, with the resulting fluctuating oil prices has led many in the region to realise the importance of enhancing the principle of diversification of wealth sources so as to meet the requirements of the GCC economic integration and growth.