OPEC [Organisation of the Petroleum Exporting Countries] kingpin Saudi Arabia has taken a major step down the road to economic liberalisation with government approval to set up a real stock market and end the state monopoly over the domestic aviation sector, economists said on Tuesday.
The two decisions, endorsed by the cabinet on Monday, follow a series of crucial steps adopted in recent years in a bid to accelerate economic reforms, boost transparency and lure foreign capital.
The approval of the long-awaited Capital Market Law clears the last hurdle to establishing a fully-fledged stock exchange to replace the current interbank bourse.
The legislation provides a legal and regulatory framework for all capital-related activity, such as foreign investment or trading in securities, and increases transparency and accountability.
”It came at the most appropriate time, as we need to accelerate the pace of economic reforms. The oil sector is no longer able to meet national economic needs,” said Nahed Taher, senior economist at the National Commercial Bank.
”The steps will activate the private sector role in the national economy … They will create much needed jobs, improve the investment environment and lure foreign capital, besides helping cure other economic ills,” she said.
Experts widely view economic reform as crucial to Saudi Arabia, where government faces the dilemma of having to deal with conflicting goals — high population growth, low economic growth and repayment of a staggering public debt.
That debt, which is almost entirely owed to the domestic market, reached $173-billion at the end of 2002 and is tipped to increase as the state has projected a R10,4-billion deficit in 2003.
The kingdom, which sits on a quarter of the world’s oil reserves and has a current crude production of more than eight million barrels a day, generates more than 80% of national income from oil.
”A real stock exchange will attract a large number of small investors. It will attract more capital and accelerate economic activity,” said Abdul Aziz al-Daghestani, head of the independent Economic Studies House.
He called for the establishment of more shareholding companies to be able to trade on the market, and said that the domestic aviation sector must also be opened to foreign investors.
Radhi al-Haddad, head of the assets management department at Riyad Bank, believes an official stock market will form an important tool for financing major infrastructure projects which require huge investments.
”It will help set up more companies, provide huge finance, and accelerate privatisation to promote the private sector role in the economy,” Haddad said.
Daghestani however said he believes that more is still needed.
”We must review the so-called negative list of sectors open for foreign investors. Privatisation must be expanded and the state role must be limited to the main sectors only,” he said.
In the past few years, Riyadh set up the Supreme Economic Council to speed up reforms. In 2000, it established the Saudi Arabian General Authority for Investments to facilitate the flow of foreign capital.
The kingdom has recently reduced the income tax rate on foreign capital to 25% from 45%, and opened more sectors to foreign investors, but its mega natural gas initiative is in serious difficulty with oil majors at loggerheads with the government over the massive investment costs.
Daghestani said the new economic decisions will facilitate the entry of Saudi Arabia into the World Trade Organisation (WTO), which is the main reason blocking the flow of foreign capital.
But Taher warned that this also requires a decisive decision to liberalise the trade sector by approving an Anti-Trust Law, being studied by the Shura Council, to ban monopolies and encourage competition.
Riyadh has managed a budget surplus only once since 1982 with $6,7 billion in 2000 when oil prices increased sharply.
Growth rates in real terms were 0,74% last year, 1,2% in 2001 and 4,9% in 2000. – Sapa-AFP