A Kingdom Rich in Opportunity - November 21, 2007
By Stephen S. Poloz, Senior Vice-President, Financing Products Group, Export Development CanadaListen to the Weekly Commentary podcast.
RSS | iTunesA visit to Boomtown, Saudi Arabia incites awe, while at the same time helping to dispel certain fears. Although the place is not without problems, opportunities abound.
As owner of some 25% of the world's known oil reserves, Saudi Arabia has lately redefined what it means to strike it rich. Oil revenues are approaching $1 billion per day, and the money is fuelling a building and diversification boom without precedent.
Diversification efforts are aimed at real opportunities, not theoretical ones. Major investments are being made into the petrochemical and plastics business, to capture more value-creating activities downstream from crude. The mining sector is just getting started – some of the same characteristics of the Canadian Shield are replicated in the northern reaches of the Kingdom, and little has been done yet to tap into this source of future wealth. But the global boom in fertilizer is prompting development of Saudi Arabia's vast deposits of phosphate. Gold mining is emerging as well, and the Kingdom is the only country on earth blessed with both bauxite and cheap energy for the production of aluminum. Incidentally, gasoline retails for 9 U.S. cents per litre.
The government's aspiration to develop six highly planned cities is steadily turning into reality. The first, King Abdullah Economic City, will offer a perfect balance between manufacturing, financial services in a central business district, a seaport, a residential zone, an education zone and a tourist resort. There will be an opportunity for foreign investors to take part. Past perceptions that foreign investment in Saudi Arabia has been difficult are being allayed as the Saudi Arabian General Investment Authority (SAGIA) rolls out the red carpet. SAGIA now offers one-stop shopping for foreign investors at its offices – it now takes only about two weeks to set up a business in the Kingdom, and the list of restrictions is shrinking rapidly.
It is natural to wonder about the issue of security in Saudi Arabia. The need to drive through a winding maze of concrete barriers and pass through airport-like security to enter a hotel is at first unnerving, yet ultimately reassuring. There is a growing sense that security is no longer an issue, but it has become a part of life.
A shortage of workers was the problem most often mentioned, and this is compounded by requirements that projects have a specific percentage of Saudi workers. The population is young, though, and investment in education should relieve this constraint through time. And, most business people are highly preoccupied with political stresses in the region, expressing concern about how the situation in Iran might evolve and how that might affect their future.
The bottom line? The outlook for Saudi Arabia is so positive it is difficult to put into words. In practical terms relevant to Canada, investments in oil, mining, water, power, transportation and the environment will be huge. While participating in this is likely to demand that exporters establish a local presence, taking that step has never been easier.
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