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Monday, 11 February, 2002, 11:13 GMT
Saudi: The investment challenge
Saudi Aramco's Ras Tanura oil refinery
Oil remains the mainstay of the Saudi economy, despite attempts to diversify
Foreign investors have traditionally found Saudi Arabia a challenging market to enter, even as the oil-reliant regime has sought to woo more investors.

Last year, the government re-wrote its foreign investment law to try and encourage more interest in the non-oil sector.

However, even if foreign-owned companies can now do business in Saudi Arabia without a local partner, there are still clear advantages to having one.

David Barker, who advises foreign investors wanting to do business in Saudi Arabia, told the BBC's World Business Report: "It is very much a society where most major companies know each other.

"The networking that is therefore in place is a very great benefit. That is the major reason for having a very good Saudi partner," he added.

Crab farm

Kawar Farkan has a crab farm in Pakistan and he wants to fish along Saudi Arabia's Red Sea coast which is famous for its shrimps, while also taking advantage of the infrastructure the country has which Pakistan lacks.

His business may only be prepared to invest a maximum of $5m but economists say it is these kind of small investments that Saudi Arabia needs to encourage if it really wants to diversify its economy.

At present, Saudi Arabia's government depends on oil for more than three quarters of its income, while oil makes up more than one third of gross domestic product.

In recent years, the state's attempts to encourage foreign investment have focused more on major global corporations and plans for flagship projects than on small investments such as Mr Farkan's proposed crab farm.

Legal concerns

Economists say there have been some successes - gas exploration and production has been opened selectively to foreign investors - but progress outside the oil, gas and petrochemicals industries has been modest.

They say this is partly because the market size of Saudi Arabia and the surrounding region does not merit the scale of manufacturing investment the government wants.

Potential foreign investors have also expressed concern about the security of the legal environment in the country.

This has hindered development of key infrastructure schemes such as private water and power projects.

'Good time'

Prince Abdullah bin Faisal bin Turki, head of the country's investment authority, said a realisation that the world had changed "made us seriously think about plugging our economy into what is happening in the world".

"We had not been thinking about the global or the foreign direct investor, but we feel now is a good time and we have enough opportunities," he said.

The BBC's James Whittington
"Standards of living have fallen dramatically over the past twenty years"
The BBC's James Whittington
"It was the riches from oil which financed the creation of modern Saudi Arabia"
See also:

22 Jan 02 | Business
Saudi bid for foreign investment
19 Jan 02 | South Asia
Saudi Arabia pledges Afghan aid package
09 Dec 01 | Business
Saudi Arabia misses budget target
28 Dec 01 | Country profiles
Country profile: Saudi Arabia
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