LONDON, 11 December 2006 -- Saudi Arabia today celebrates the first anniversary of its accession to the World Trade Organization (WTO) - its 149th member - both with optimism and expectancy.

While most Saudi officials and businessmen will no doubt shower the plaudits about the benefits of WTO membership, the truth remains that it is still way too early to assess and do a cost-benefit analysis of the Kingdom's membership of the world trade body. For a start both the concessions which Saudi Arabia made in the negotiations and the grace period which the WTO gave the Kingdom especially in terms of phasing out subsidies or lowering tariffs are still being worked through. This process will take at least two to three years.

The impact of accession it was projected would initially concern foreign ownership in services sectors, such as retail and distribution; the operation of producers and distributors of liquefied natural gas on the basis of normal commercial considerations, based on the full recovery of costs and a reasonable profit; gradual lowering of trade barriers; greater market access for foreign goods; and the opening of the insurance sector to foreign operators.

Earlier fears that Saudi Arabia's membership in the WTO would lead to the Kingdom being swamped by foreign goods and companies; and that membership would prove counter-cultural in that it would limit the Kingdom's right to restrict the import of goods prohibited under Islam such as pork, alcohol and pornography, have remain unfounded.

In general foreign ownership in Saudi industries has been liberalized up to a point, although there is a fair way to go to unfettered foreign ownership, whether in industry, banking, investment and even property. There remains ambiguity especially in the application of which laws - the civil code or Islamic law and which has precedence over the other.

The insurance sector has been opened up and a new law was adopted. But, there still remains confusion in the market about whether the cooperative insurance law is conventional or Shariah compliant, or both. The dominant role of NCCI effectively as a quasi-utility has also exacerbated this confusion.

Nevertheless, the single immediate quantifiable benefit which Saudi Arabia has gained through WTO accession is investor confidence. According to Fawaz Al-Alamy, chief technical WTO negotiator, foreign direct investment (FDI) into the Saudi Arabia increased by 250 percent.

"Membership of the WTO," explained Al-Alamy, "has created a level-playing field. Overseas investors have more confidence in the Saudi market because of transparency, predictability and due process. They see our market as mature and applying the rule of law. They feel they can invest." This confidence is further underlined by the knock-on effects of WTO membership, such as the upgrading in April 2006 of Saudi Arabia's long-term foreign currency rating from A to A+ by international rating agency Standard & Poor's.

Bankers such as Dr. John Sfakianakis, chief economist at SABB in Riyadh, are bullish about business and investment opportunities in the Kingdom in an era of high liquidity driven by high oil prices, and of course WTO membership. "There is great business for all of us to be taken and done," he stresses. "Clearly, the opportunities are huge, both for local businesses, private individuals and investors - and for foreign entities in Saudi Arabia and the wider GCC."

These opportunities range from construction, real estate and the oil and gas sector, including upstream (through the subcontracts Saudi Aramco places with both local and foreign companies) and downstream, especially petrochemicals. In the banking sector, Sfakianakis sees growth in all areas - retail banking, corporate finance, project finance and consumer lending, especially real estate. "In banking, for instance, you see more competition than before. Banks can open up and there is 100 percent ownership. HSBC, Deutsche Bank and BNP Paribas are here. You will see this with the financial services sector soon. Even Citigroup is willing to come back."

Sfakianakis is confident that the impact of the Kingdom's membership of the WTO would be positive. "It has been a process whereby economic reforms and changes have been gradually implemented in order for Saudi Arabia to comply with WTO," he explained. "It is not a case whereby the Kingdom had to enforce certain rules and regulations out of the blue. Both the government and the private sector were aware of the changes and these have been slowly coming about."

WTO membership, he contended, would bring Saudi Arabia gradually from now until many years to come into he full process of being a global partner. This process may not materialize immediately but in the medium term. "The advantage is that you do open your market to foreigners; but foreigners also open their markets to you. In the petrochemicals sector, the WTO has the right to follow any violators who charge a tariff above 6.5 percent for petrochemical exports. Saudi Arabia has a sizeable petrochemicals export market share globally - some 7 percent, and this is expected grow in the years to come."

Saudi Arabia as an investment location is already bearing fruits. A report published earlier this year by the International Finance Corporation titled "Doing Business in 2006" rated the Kingdom as the best investment locations in the Arab world and 38th out of 155 locations worldwide.

The Kingdom, according to Al-Alamy, has earmarked a staggering $1 trillion projects over the next few decades, including $180 billion for infrastructure, $140 billion for power generation; $112 billion for petrochemical expansion; and $100 billion for water desalination. This ambitious spend is underpinned by the five fundamentals of the Saudi economic reform and restructuring strategy: Streamlining the decision-making process; diversification of the economic base; strengthening the role of the private sector; creating a favorable investment climate; and the integration of the Saudi economy into the world economy.

Saudi Arabia also has the largest market access at 81 percent in the Gulf Cooperation Council (GCC), which has been further enhanced by the Kingdom's accession to the WTO.

The GCC region, according to latest United Nations Conference on Trade and Development (UNCTAD) figures, attracts a mere three percent of all FDI flows in the world. In 2005, the entire GCC, for instance, attracted $35.8 billion of FDI. China, on the other hand, attracted $170.72 billion for the first six months in 2006. The stock of FDI inflows into Saudi Arabia, according to SABB, totaled $20 billion by the end of April 2006.

In terms of capital investment, Saudi Arabia attracted $16.46 billion for the first eight months of 2006 for 43 projects. This compares with $3.58 billion for the whole of 2005 and only $783 million in 2003. The US is by far the largest investor in the Kingdom, followed by the UAE, the UK, India and Japan.

By Mushtak Parker

© Arab News 2006