How will new Saudi king handle the economy?

The newly appointed Saudi King Salman bin Abdul-Aziz should focus on the economy by promoting local industries to decrease the reliance on oil revenues.

al-monitor Investors talk as they monitor screens displaying stock information at the Saudi Stock Exchange (Tadawul) in Riyadh, Nov. 12, 2014. Photo by REUTERS/Faisal Al Nasser.

Topics covered

saudi arabia, oil, king salman, jubail, education, economy, eastern province

Jan 29, 2015

Economists clarified that the custodian of the two holy mosques, King Salman bin Abdul-Aziz, has many economic and industrial files to handle. They underlined the big role he played in supporting the Saudi economy during King Abdullah bin Abdulaziz’s rule. Moreover, they indicated that while he governed the Riyadh emirate and was crown prince, he also led the development process in industrial and commercial sectors. He managed to achieve major accomplishments and build industrial cities that raised the industrial sector’s contribution to the national income.

Salman al-Jishi, the former chairman of the Industrial Committee in the Chamber of Commerce in Saudi Arabia’s Eastern Province, told Al-Hayat that one of the main economic issues that King Salman has to address is the diversification of income sources, instead of relying mainly on oil revenues, as is currently the case. Jishi pointed out that the second source of income must be the industrial sector, which is facing several obstacles, despite its quick development. This sector needs swift and decisive decisions.

Jishi also noted that there are many industrial cities in the kingdom, most notably the Jubail Industrial City, which has investments worth billions of dollars. Several areas in the kingdom can be turned into similar spots. One of the most crucial decisions that can be taken during Salman’s rule is uniting and reviewing industrial procedures in order to strengthen this vital sector and attract many foreign investments.

Jishi stated that the files suggested to Salman include starting a higher commission for small and medium enterprises. Many rules and regulations have been issued in this regard, but they haven’t become applicable yet. The middle-sized and small enterprises need a higher commission that deals with their affairs and increases their effectiveness and contribution to the national economy. Jishi noted that such a commission would carry out several tasks; notably facilitating the work of these facilities, providing subsidies, funding and training, and supporting emerging businesses. It's noteworthy that these facilities account for about 93% of the total establishments in Saudi Arabia.

He added that these facilities suffer constraints and funding and organizational problems and noted that they must be supported, not to mention that their work must be organized. After all, they are quite weighty in global economies, especially since the kingdom only has new incubators created by small and middle-sized enterprises in some chambers of commerce. However, they are not up to the level that would provide comprehensive care to the owners of small and middle-sized enterprises.

Jishi pointed out that many small businesses begin their operations without preparing economic feasibility studies for their project. About 60% of them start without those studies, while 80% lack the basics of planning and suffer from problems in marketing and finance. What’s more, they conclude contracts and deals without consulting legal experts.

Jishi said: “82% of the small and medium enterprises have a due debt accumulation, and most of them are pricing their products based on the prevailing market price. Nearly half of them suffer from a stock accumulation, and more than one third have an excess of liquidity that is not being employed. Some do not take bank loans to fund their activities, and many have disputes.”

He noted that one of the most important issues that are being raised is technical education and training, and its partnership with the private sector, in terms of enhancing technical education methods. He added that there are promising job opportunities in the industrial sector, and a qualified technical staff needs to be graduated, to work in the large factories in the kingdom instead of relying on foreign labor in technical professions.

Faisal al-Quraishi, head of the Industrial Commission in the Eastern Chamber of Commerce and Industry, said one of the most prominent files in the industrial sector is “the industrial strategy,” which needs the right foundations in order for the industrial sector to be developed and to be a main source of income in the Kingdom.

He noted that a panel of experts in the cabinet is still examining the strategy that was submitted by the Consultative Assembly a long time ago, and stressed that if approved, there will be a quantum leap in the kingdom’s industrial sector, which will attract huge investments, create thousands of jobs, and thus largely reduce youth unemployment and create a new culture toward the industrial sector, whose promotion needs sharp decisions and significant capital. He added that Salman realizes the importance of this sector, and that at present the kingdom needs to diversify its sources of income, particularly since oil prices have declined.

Mohammad Jaafar, an economics professor, said that many economic files need to be tackled, and it is illogical to prioritize them according to specific order, because we are dealing with a diversified economy of a developing country. He added that a set of files needs to be worked on at the same time, including funding bodies, and the manufacturing industries associated with the most pressing national files, such as the housing file, including its impact on the reduction of the house’s final price.

He added that there are studies at the Ministry of Economy and Planning on the most pressing manufacturing industries, and they can be relied upon in the beginning in the establishment of factories that produce the products that are imported in large quantities and at high prices, before the domestic product becomes a priority thanks to its quality and competitive price.

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