GCC Insights: Terrorism may undermine Saudi economic initiatives

It is feared that repeated terrorist bombings could undermine government plans for an orderly reduction of foreign workers and discourage foreign investment.

First, the attacks could lead to an exodus of foreign workers and their dependents and discourage the entry of others. The terrorists have been striking at compounds housing foreign nationals, Western expatriates in May and Arabs in the first half of November.

Clearly, the objectives include driving out international professionals and experts from the kingdom on the grounds that their presence consolidates government rule. To be sure, Saudi Arabia heavily relies on foreign workers, who comprise two-thirds or 5.36 million of the estimated workforce of 8.13 million.

The fact is the authorities had earlier decided to make foreign nationals working and living in Saudi Arabia represent merely 20 per cent of the population by 2013. Currently, foreign workers and their dependents constitute 31 per cent of the 24 million inhabitants.

The policy is part of a broader government strategy to address unemployment, which stands at 8.2 per cent by official figures but considerably higher by other estimates. The seventh five-year plan running up to 2005 calls for creating some 817,000 jobs for Saudi nationals through a combination of new jobs and the Saudisation process.

The Ministry of Labour and Social Affairs bans expatriates from working in some 34 job categories including public relations officers, administrative assistants, purchase managers, secretaries, operators, debt collectors, taxi drivers and tour guides. But the attacks could disrupt the plans altogether.

Second, the attacks could further complicate efforts to entice foreign investment. Attempts to attract foreign investment date back to April 2000 when the government passed the foreign investment law.

Consequently, the Saudi Arabia General Investment Authority (Sagia) was set up to regulate and promote foreign investment. It acts as one-stop shop, housing representatives from government bodies and promises a maximum of 30 days to process investment licence applications.

To its credit, the law allows full ownership of companies, grants foreign businesses the right to own land, imposes no restrictions on repatriation of profits and capital, provides protection against expropriation of property without just and fair compensation and eliminates local sponsorship of foreign investors.

Sagia has granted 1,375 investment licences worth more than $12 billion to local and foreign investors for industrial and services projects, but apparently only a minority of these have actually been implemented. In fact, according to UNCTAD, Saudi Arabia suffered negative foreign direct investment of $350 million last year.

It is widely believed that the September 2001 terrorist attacks on New York and Washington adversely affected investment in the kingdom. Third, the repeated terrorist attacks could delay real progress in the ambitious gas programme.

For months, authorities have been exerting efforts to entice international oil firms to help develop the gas sector.

A breakthrough occurred in July when a consortium led by Royal Dutch/Shell agreed to explore and produce gas from 209,000 square kilometres in the south of the kingdom, requiring investment as high as $2 billion. The government plans to issue tenders for three other projects in the next few months.

Fourth, the attacks could derail plans to attract tourists. Last year, some 8 million people visited Saudi Arabia, primarily pilgrims to the holy sites. But the Supreme Commission for Tourism has been hoping to entice wealthy pilgrims to visit other parts of the vast kingdom.

Undoubtedly, this year will leave its mark on the prospects for the Saudi economy. The suicidal bombing on November 9 was only the latest in a series of attacks to hit the Saudi capital of Riyadh. The terrorists, possibly linked to the Al Qaida network, partly aim at discouraging foreign nationals and businesses from living and investing in Saudi Arabia.

The author is assistant professor, College of Businiess Administration, University of Bahrain