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Economy

Exports Imports 2000 Budget

 

 

Saudi Arabia Economy

The State of the Economy

Foreign Trade

Financial Sector

Industry

Agriculture


STATE OF THE ECONOMY

Because of the decline in oil prices in 1998, Saudi Arabia experienced its first major slowdown in economic growth since 1995. GDP growth slowed by 10.8 percent in current prices in 1998, compared to the 3.7 percent growth in 1997 and a phenomenal growth rate of 10.6 percent in 1996. However, the private sector in 1998 maintained a steady growth rate of 2.12 percent and inflation, as measured by the cost of living index, is estimated to have declined by 0.2 percent. The strong private sector growth and price stability are attributed to increased privatization activities and efforts toward economic diversification as well as a continued strong performance of the banking sector.

Saudi Arabia’s nominal Gross Domestic Product (GDP) was $128.4 billion in 1998, compared to $144 billion in 1997 and $139 billion in 1996. The private sector’s share of the overall GDP in 1998 increased to 40.1 percent, compared to 34.3 percent in 1997. Non-oil industrial activity was estimated to have grown by 5.5 percent in current prices in 1998.

Saudi Arabia’s budget for 1999 projected revenues of $32.3 billion and expenditures of $44 billion, with an anticipated budget deficit of $11.7 billion. As in the previous year, the Kingdom is keeping a tight budget for 1999 by holding spending down and the deficit at manageable levels. The Kingdom reported revenues of $38.13 billion and expenditures of $50.4 billion in 1998, with a deficit of $12.27 billion. The main appropriations for 1999 are $11.4 billion for education (including vocational and technical training), $4.99 billion for health services and social development, $1.39 billion for transportation and communications, $2.27 billion for infrastructure, industry and electricity, $1.76 billion for municipal services and water authorities, $1.28 billion for social welfare programs, and $1.7 billion in expenditures committed by Specialized Development Institutions.

The Sixth National Development Plan

For the past 25 years the economic development of Saudi Arabia has been broadly governed by five year economic plans. The first five plans emphasized the development of the Kingdom’s infrastructure, with later plans focusing increasingly on human resource and private sector development. The Sixth Plan, which began in 1995, called for broadening the technical skills of the Saudi population, and an even stronger emphasis on economic diversification of industrial and agricultural sectors by increasing the private sector’s role in the economy. The highlights are as follows:

  • Limiting government spending on development programs and projects to actual revenues;
  • Relating government loans and support facilities provided to individual private firms to the implementation of Saudization commitments;
  • Deepening the dialogue with the private sector through adopting suitable institutional mechanisms, and through organizing regular meetings with private sector representatives at the sectoral level;
  • Expanding utilization of private capital in financing many government projects;
  • Improving the financial conditions for small-scale enterprises and expanding the Saudi Credit Bank’s activities;
  • Increasing the efficiency and utilization of non-conventional water resources, such as desalinated water, treated waste water and agricultural drainage water in order to maintain natural water resources;
  • Developing the necessary measures to encourage small industries and studying the possibility of establishing an agency responsible for their development;
  • Achieving full privatization of electric utilities over the medium to long term;
  • Establishing new industrial parks in locations with favorable growth potential;
  • Establishing a national system for the adoption of environmental impact assessments, particularly in industrial, agricultural and urban projects;
  • Meeting the increasing demand for modern infrastructural facilities in addition to safeguarding existing facilities through routine maintenance.

The Sixth Development Plan also provides the following estimates of broad economic indices:

  • Economic growth at an average of 3.8 percent per year during the plan period;
  • Growth in non-oil GDP at an average rate of 3.9 percent, plus other specific growth targets for certain producing sectors;
  • Private sector and government investment increases of 4.9 percent and 19 percent respectively;
  • Gross fixed capital formation increasing at a rate of 8.5 percent a year, based on fixed prices, thereby raising the contribution of investment to GDP from 14.4 percent at the beginning of the plan to 18 percent at the end;
  • Growth in refining and petrochemicals at an average annual rate of 3.9 percent and 8.3 percent respectively during the plan period;
  • Production sector growth at 4.2 percent, and services sector growth at 4.4 percent per year.

In August 1998, the Kingdom launched plans for the privatization of key government facilities. The objectives of this privatization program are providing necessary services to citizens; increasing job opportunities for the Saudi population; boosting private citizens’ participation in the stock market; raising private sector investment; and reducing the burden on the national budget.

An Inter-Ministerial Committee on Privatization has been created as the decision-making body for privatization in Saudi Arabia. The Committee is responsible for privatization policy and guidelines, likely enterprises for future privatization, strategy, regulatory structure, and selection of financial and legal advisors. The Seventh National Development Plan (2000-2005) is anticipated to continue reforms of privatization and economic diversification of the economy and to add even greater emphasis on such additional sectors as training and employment of the Saudi population.


FOREIGN TRADE

Saudi Arabia’s non-oil exports declined slightly in 1998 to $5.8 billion, compared to $6.8 billion in 1997. Saudi Arabia’s total 1997 exports amounted to $60.7 billion, continuing at the same level as in 1996. Saudi total imports increased to $30 billion in 1998, up from a level of $28.8 billion in 1997 and $27.8 billion in 1996.

 

Saudi Arabian Top Commodity Imports, ($U.S. Billions)

COMMODITY  

1996 1997 1998
Foodstuffs           4.80 5.01 4.70
Textiles & Clothes     2.03 1.89 1.99
Medicines       0.77 0.87

0.89

Chemical Products   2.48 2.38 2.58
Wood & Wood Products      0.39 0.36 0.38
Jewelry    1.18

2.20

1.67
Base Metals & Metal Articles

  2.78

2.60

2.87

Other Transportation Means/Equipment

5.83

5.68

6.00

Car & Spare Parts      1.43 1.48 2.21
Electrical Machines, Equipment & Tools 2.82 2.99 3.32
Other 3.28 3.30 3.39
Totals         27.79 28.76 30.00

Source: Central Department of Statistics, Ministry of Planning                                               

 


FINANCIAL SECTOR

The Kingdom has established a sound regulatory and financial infrastructure based on financial standards and payment systems equivalent to those in major industrial countries. This has resulted in a strong banking sector that benefits from strong management and the most sophisticated technologies. The reliability of this financial infrastructure as well as the size of the Saudi market makes the Kingdom an attractive destination for foreign investment.

The financial system in Saudi Arabia consists of the central bank, the commercial banks, the specialized credit institutions, and the stock market. Banking is regulated under the Banking Control Law issued by Royal Decree in 1966. The Council of Ministers issues licenses for the establishment of banks, based on recommendations from the Minister of Finance and National Economy after review by the central bank.

The Central Bank

The Kingdom’s central bank is the Saudi Arabian Monetary Agency (SAMA), which stands at the apex of the financial system. It acts as the government’s bank, regulates and monitors commercial banks, and manages the Kingdom’s foreign assets. It executes the Kingdom’s monetary policy, and issues the country’s currency. SAMA and the banks have invested substantial resources in upgrading the Kingdom’s banking technology to cover a wide range of items such as ATMs, electronic clearing, and share trading. The Electronic Funds Transfer System provides considerable advantages for banks and their customers, permitting direct transfers of payments through an instantaneous, safe, and accurate payments mechanism. The electronic connection among the settlement systems, the payments network, and the share trading system is among the most modern in the world. SAMA is a member of the Bank for International Settlements.

The objective of Saudi Arabia’s monetary policy is to encourage the expansion of economic activity and maintain the stability of prices and the riyal/dollar exchange rate. Broad money supply increased by 3.7 percent to $75.2 billion at the end of 1998, compared with a 5.2 percent increase in 1997. Total bank deposits increased by 4.6 percent in 1998 to $63.2 billion.

Commercial Banks

There are 10 commercial banks in the Kingdom, most of which have foreign bank participation. By the early 1980s, the foreign bank branches that existed had undergone the process of Saudization, with at least 60 percent Saudi ownership and with Saudi nationals making up about 60 percent of the staff.

The National Commercial Bank began operations in 1953 and was the first Saudi bank. The Riyad Bank opened in 1957 and was the first joint stock bank. The most recently established bank in the Kingdom is Al Rajhi Banking and Investment Corporation, having obtained its banking license in 1987. Saudi American Bank (SAMBA) and United Saudi Bank (USB) merged in mid-1999, constituting the largest corporate merger in the Kingdom’s history. With a combined capitalization of about $5.6 billion, it is also the largest merger among Gulf Arab banks. The merger will be carried out through a share exchange, and the merged institution will retain the SAMBA name. The consolidation of SAMBA and USB into one institution is expected to lead to increased efficiency, improved performance, and the reduction of costs through the consolidation of the two banks’ competitive advantages. The merged bank will have 126 branches, the fourth largest network in the Kingdom, following Al-Rajhi Banking & Investment Corporation, the National Commercial Bank, and Riyad Bank. SAMBA is also expected to achieve a national presence by expanding from the east and central regions of the Kingdom. The United Saudi Bank itself was the result of a merger between United Saudi Commercial Bank and Saudi Cairo Bank in 1997.

The current banking structure in Saudi Arabia is based on branch banking. Presently, there are 1,229 branches of the 10 commercial banks operating in the Kingdom. The following banks operate in the Kingdom:

  • Al-Bank Al-Saudi Al-Fransi;
  • Al-Rajhi Banking and Investment Corporation;
  • Arab National Bank;
  • Bank Al-Jazira;
  • National Commercial Bank;
  • Riyad Bank;
  • Saudi American Bank;
  • The Saudi British Bank;
  • Saudi Hollandi Bank; and
  • Saudi Investment Bank

The expansion of branch networks has been encouraged as the economy has grown. The last ten years have seen substantial growth in Saudi Arabia’s domestic banking business in terms of products, services, technological sophistication, capitalization, and earnings. Performance in this sector continued its strong growth during 1998. By December 1998, the banks’ capital and reserves increased by 5 percent from the previous year to $10.7 billion. Net profits of reporting banks increased by 10 percent, from $1.48 billion in 1997 to $1.63 billion in 1998. Three banks dominated the banking scene in terms of profits during 1998, Al-Rajhi Banking & Investment Corporation, Saudi American Bank, and Riyad Bank. Total credit to public and private sectors during 1998 reached $73 billion, an increase of 13 percent over 1997. Net foreign assets of commercial banks decreased to $11.4 billion in 1998 from $14 billion in 1997. At the end of 1998, commercial banks’ total assets were $108 billion.

In early 1999, SAMA granted the first license to a non-Saudi bank, Gulf International Bank (GIB), for opening a branch in Riyadh. The branch is expected to open in late 1999 or early 2000. GIB merged with Saudi International Bank (SIB), based in London, in 1999 and will be focused on developing corporate and investment banking activities in Saudi Arabia. Other foreign banks do continue to work closely with Saudi banks, providing international officers, systems, training, special expertise, and access to global networks (often under technical service agreements). They may issue bonds and guarantees for projects of the Saudi Government and public corporations if they have been accredited by SAMA. Such bonds and guarantees would be issued through the foreign bank’s head office and certified by a local bank for the authentication of signatories and compliance with local regulations.

Most of the commercial banks in the Kingdom are prepared to provide financing under the Islamic banking system.

Specialized Funds

In addition to commercial banks, there are several domestic specialized credit institutions which disburse loans and advances to Saudi individuals and companies. Those institutions are:

  • Saudi Arabian Agricultural Bank;
  • Public Investment Fund;
  • Real Estate Development Fund;
  • Saudi Credit Bank; and
  • Saudi Industrial Development Fund

Total disbursements by these institutions from their inception through 1997 exceeded $70 billion. Total capital increased from $3.95 billion in 1976 to $50.7 billion in 1998. During 1998, actual loan disbursements from the five institutions amounted to $5.4 billion, with loan repayments totaling $1.6 billion.

The Saudi Arabian Agricultural Bank (SAAB) grants both medium and long-term loans to agricultural companies and farmers. Loans are typically provided for up to 80 percent of a joint venture project’s financing needs, up to a maximum of SR20 million. The cumulative value of loans provided by SAAB since its inception amounted to $7.9 billion by the end of 1998, and the number of loans extended equaled 375,919. Total loans disbursed during 1998 were $161 million, with repayments equaling $57 million.

The Public Investment Fund (PIF) arranges loans and equity participation to meet the long and medium-term financial needs of industrial and commercial projects in the government sector. To encourage private sector participation in economic development, the government entered into partnership with the private sector by creating joint stock companies. The PIF holds the government shares in those stock companies, including SABIC, and more recently acquired shares in the National Commercial Bank. The Fund extended $248 million in loans during 1998, a substantial increase over the previous year’s figure of $145 million. Outstanding loans at the end of 1998 amounted to $6 billion compared to $6.3 billion in 1997.

Individual Saudis connected to private and commercial housing projects can receive loans from the Real Estate Development Fund for assisting in the provision of housing to citizens. In 1998, the Real Estate Development Fund provided $435 million to 1,824 citizens. The Fund’s paid-up capital stood at $19.7 billion during 1997. Between 1974 and 1997, the Real Estate Development Fund extended loans amounting to $31 billion.

The Saudi Credit Bank (SCB) was established in 1971 to provide interest-free, medium term loans for social and economic purposes. It provides loans through its 24 branches located throughout the Kingdom. In 1998, SCB disbursed loans amounting to $94 million. The institution made an extra $26.7 million available in 1999 to small and medium-sized businesses, particularly for financing micro-enterprises.

The Saudi Industrial Development Fund (SIDF) provides medium and long-term capital of up to 50 percent of the total cost of a project. The SIDF also provides marketing, financial, and technical advice and monitors its borrowers’ projects when possible. During 1998, $512 million worth of loans were disbursed, with a reimbursement total of $267 million. By the end of 1998, total SIDF commitments to the industrial sector had risen to more than $9.3 billion.

The following are the SIDF’s policies and lending criteria:

  • Any registered Saudi company or establishment with an industrial license to engage in manufacturing within the Kingdom is eligible to apply for a loan. Companies with foreign shareholders are also eligible.
  • Projects must be viable from a marketing, technical and financial point of view.
  • Loans are provided for a maximum term of 15 years with a repayment schedule designed to match projected cash flow.
  • The Fund finances up to 50 percent of the cost of fixed assets, pre-operating expenses and start-up working capital. The Fund does not finance the purchase of used machinery or equipment.
  • The Fund requires owner’s equity to represent a minimum of 25 percent of the project’s cost.
  • As security, the Fund takes a mortgage on the financed fixed assets, plus personal guarantees from the shareholders of limited liability companies.
  • The loan processing time is dependent on the completeness of information provided by the loan applicant.
  • Disbursement of the approved loan is staged in accordance with progress and actual expenditure in the financed project backed by the appropriate supporting documents.

Stock Exchange

The Saudi Arabian stock market has developed substantially over the past decade, and is now the largest in the Arab world, with a capitalization of $42.7 billion. The stock market operates through a computerized, order driven, continuous screen-based trading system which is supervised by SAMA. The system is transparent, efficient, and quick to settle. In the Kingdom, shares are settled on a same day basis.

The number of joint stock companies which trade shares has been climbing steadily with the implementation of the government’s privatization policy. Presently, there are over 70 firms listed on the stock market. A major opening of the Saudi stock market to foreigners was initiated during 1997, as SAMA approved the participation of international investors in the Saudi stock market through mutual funds. Saudi American Bank (SAMBA) is the first of the Saudi banks granted approval to offer an investment fund that is based on Saudi shares to foreign investors. The new, closed-end ‘Saudi Arabian Investment Fund’ (SAIF) is listed on the London Stock Exchange. Previously, only Saudi nationals could deal in or own shares, although Gulf Cooperation Council (GCC) nationals were also allowed to own Saudi equities (excluding banks) and certain other stocks.

Due to turbulence in international financial markets in 1998, the total value of shares traded on the Saudi stock market decreased from $16.6 billion to $13.6 billion in 1998, an 18 percent drop from December 26, 1997 to the same day in 1998. The number of shares traded during the same period also decreased 26.28 percent to 144.3 million in 1998, compared to 195.78 during 1997.


INDUSTRY

Over the past two decades there has been enormous growth in the number of industrial plants operating in the Kingdom. In 1975, Saudi Arabia had about 470 industrial plants with overall investment estimated at $2.7 billion. By March 1999, the total number of factories in the Kingdom had reached 2,557, with a total investment of about $43.3 billion.

 

Investment in Saudi Manufacturing Establishments, March 1999

Capital Outlay

Industry Number

$U.S. Billions
Food Processing and Beverages 393 2.84
Textiles, Garments and Leather 104 0.61
Woodworking and Furniture 111 0.39
Paper, Printing and Publishing 171 1.21
Chemical and Plastic Products 502 26.83
Building Materials, China-ware, Ceramics and Glass 478 5.88
Basic Metals 12 1.12
Metal Products, Machinery and Equipment 705 4.04
Transportation and Storage 19 0.10
Miscellaneous 62 0.24
Total 2,557 43.26

Source: National Center for Financial and Economic Information, Ministry of Finance and National Economy, Saudi Arabia

 

Oil

Saudi Arabia’s economic development has been driven for decades by the phenomenal success of its oil industry. Saudi Arabia accounts for more than a quarter of the world’s total oil reserves. Official estimates put the Kingdom’s proven crude oil reserves at about 260 billion barrels. Oil remains the leading source of Saudi Arabia’s income, with a share of approximately 35 percent of the nation’s GDP.

As a prominent member of OPEC and OAPEC, Saudi Arabia has played an important role as a moderating influence in negotiations over the stabilization of oil prices. The Kingdom has also been active in advocating unified pricing and adherence to production quotas.

Saudi Aramco is responsible for the operation of all of the Kingdom’s oil and gas exploration, production, and distribution, the internal and external marketing of almost all products, and most of the refining.

In mid-1998, Saudi Aramco completed its $2 billion upstream project, the massive Shaybah oilfield, which was designed to replace declining production from some of the Kingdom’s older oilfields. The oilfield began production of 500,000 b/d of premium-grade extra-light crude nearly one year ahead of schedule. Shaybah is expected to help maintain the Kingdom’s capacity to produce 10 million b/d and to boost the country’s revenue potential because of the higher market prices likely to be gained from the high quality, lighter crude in its reserves.

During his visit to the U.S. in September 1998, His Royal Highness Crown Prince Abdullah Bin Abdul Aziz Al-Saud hosted talks with several top executives of major American oil companies to discuss their potential assistance in the further development of the Kingdom’s petroleum and natural gas resources. The Crown Prince invited the oil companies to submit their proposals for investment in the Kingdom’s oil and gas industry. Since then, a number of oil companies have submitted proposals, which are currently being reviewed.

Production of gas, associated and non-associated, is under the Master Gas System (MGS), built in the 1980s. Saudi Arabia is currently planning a large-scale expansion of the natural gas sector to help meet rising local demand for petrochemical feedstock and to provide fuel for power generation. The Kingdom’s gas reserves presently stand at 204 trillion cubic feet (of which 70 trillion are non-associated) and 5 trillion cubic feet of recoverable gas is expected to be added to this figure each year. Projects currently underway in the gas sector include the construction of a $2 billion gas processing plant at Hawiyah, which is due to come online in 2002. The Hawiyah plant will process nearly 1.4 billion cubic feet of non-associated gas daily. Other projects involve the debottlenecking and expansion of gas processing plants at Uthmaniyah, Shedgum, and Berri. By the end of 1999, Aramco is expected to invite bids for a fifth gas processing plant at Haradh.

During 1998, Saudi Aramco discovered over 7.9 trillion cubic feet of nonassociated gas, an important fuel and feedstock for the growth of Saudi Arabia’s industries. New discoveries were found in three new gas fields, Wudayhi, Sham’ah, and Kahlah, in the Eastern Province.

Saudi Aramco’s downstream focus currently lies in its efforts to invest in offshore refineries for its crudes to assure the company export outlets while at the same time providing a degree of stability in crude prices. Almost 20 percent of total output, 1.5 million b/d, is now delivered to refineries in which Saudi Aramco has an equity interest, and sales of refined products are estimated at over 1 million b/d.

Saudi Aramco’s downstream projects have also involved investments in joint venture partnerships in the United States. The most well-known of these projects was the partnership formed by Saudi Aramco and Texaco in 1988. Under this agreement, Saudi Aramco acquired 50 percent of Texaco’s refineries and distribution network in the U.S. East and Gulf Coast regions. Known as the Star Enterprise project, this venture opened a downstream outlet that provided quality crude in a lucrative area over a long period. In mid-1997, agreement was reached by Saudi Aramco, Texaco, and Shell Oil to dissolve Star Enterprise and merge their refining and marketing activities in the Eastern and Gulf Coast regions of the United States into one company, Motiva Enterprises, LLC. The merger of Star and Shell makes it one of the largest refining and marketing companies in the U.S.

Because of falling oil prices, upgrading of the Rabigh refinery was postponed, and upgrading of the Ras Tanura refinery was completed on schedule. Because of the upgrades, Ras Tanura will produce about 50,000 more barrels of gasoline, lifting output from 18 to 32 percent for each processed barrel of oil.

Petrochemicals

Saudi Arabia’s petrochemical industry began operations in the late 1970s and has been expanding ever since. The philosophy that guided the industry then is still applicable today: to reduce the country's dependence on crude oil and to add value to hydrocarbon products in areas where the Kingdom has a competitive advantage. The Saudi Basic Industries Corporation (SABIC) was established in 1976 to work toward these goals and to promote industrialization within the Kingdom. SABIC is now one of the largest petrochemical producers in the world, accounting for about seven percent of global petrochemical output. Besides its holdings in the Kingdom, SABIC has several joint venture partners in Saudi Arabia and throughout the Middle East. SABIC oversees 15 production companies in the Kingdom, is a partner in three production companies in Bahrain, and has several marketing subsidiaries worldwide. Most of the production companies are joint venture partnerships with well known international companies including such U.S. companies as Mobil Oil Corporation, Shell Oil, Hoechst-Celanese, Duke Energy, and Exxon Chemical Company.

SABIC produced 25.3 million metric tons of chemicals, fertilizers, plastic resins, metals and gases in 1998, up from the previous year's total of 23.7 million metric tons. Of that amount, 19.4 million metric tons were marketed worldwide after meeting the feedstock requirements of SABIC's subsidiaries which produce intermediate or downstream petrochemicals.

SABIC has embarked on a massive expansion program aimed at increasing output to about 35 million tons by 2002. New multi-billion dollar petrochemical plants are being planned and built that will greatly increase the volume and range of petrochemical products exported as they come on line over next two to three years. New projects include three worldscale petrochemical complexes consisting of olefins plants with associated derivatives units and an aromatics plant. Two of the olefins complexes are under construction in Jubail while the third olefins complex and the aromatics unit are being constructed in Yanbu. Most of these projects are scheduled for completion in mid-1999 to year-end 2000. The increase in SABIC’s production capacity as a result of this expansion program will be approximately as follows: 2.3 million metric tons/year (mt/y) ethylene, 475,000 mt/y propylene, 400,000 mt/y benzene, 375,000 mt/y mixed xylenes, 1.7 million mt/y polyethylene, 870,000 mt/y ethylene glycol, 1 million mt/y styrene monomer, 580,000 mt/y polypropylene, 350,000 mt/y purified terephthalic acid (PTA), 850,000 mt/y methanol, 500,000 mt/y ammonia and 600,000 mt/y urea.

The Saudi Ministry of Planning projects the petrochemical industry to grow at an annual rate of 8.3 percent during the course of the Sixth National Development Plan, outpacing the 3.8 percent growth that is forecast in the oil and gas sector. In addition to the SABIC expansions, the petrochemical industry is actively encouraging private investment as a means to meet these production targets. The Saudi Government is hoping that private capital will continue to be attracted by low feedstock prices, economies of scale, and increased demand growth for petrochemical products overseas. Support for private sector involvement comes from the highest level.

SABIC has conducted more than 150 feasibility studies to identify downstream projects. These studies are aimed at helping the Saudi private sector establish industrial projects using SABIC’s products as raw materials.

U.S. companies are increasingly active in the petrochemicals sector, with SABIC’s U.S. partners in the Jubail and Yanbu petrochemical ventures all actively participating in the expansion projects mentioned above. In addition, Chevron is currently involved in a joint venture with the Saudi Industrial Venture Capital Group to construct a $650 million aromatics complex in Jubail. The scheme is the Kingdom’s first wholly private petrochemicals venture. The project is due to come on stream in 1999, and will be able to produce 482,000 mt/y of benzene and 220,000 mt/y of cyclohexane.

In June 1999, A.H. Al-Zamil & Brothers announced the formation of a joint-stock company called the Saudi International Petrochemical Company (SIPC). SIPC is capitalized at SR500 million ($133 million), with A.H. Al-Zamil & Brothers having a 15 percent share. The remaining 85 percent of the shares are being offered for private placement. U.S.-based Huntsman Corporation is also participating in the joint venture, which will produce 50,000 metric tons of butanediol and 10,000 tons of maleic anhydride per year in Jubail. SIPC has also announced plans to produce 850,000 t/y of methanol, and 200,000 t/y of acetic acid.

The industry is also turning its attention to plants that manufacture higher value-added intermediate products such as fiber intermediates, industrial gases, and plastics. The plastics industry has seen tremendous growth. In 1993, SABIC produced 1.6 million metric tons of plastics; by 1998, plastics production had grown to 2.6 million metric tons and is projected to grow to over 4 million mt by 2003.

Mining

The mining sector occupies a prominent position in the Saudi government’s strategy to diversify the Kingdom’s economic base. Saudi Arabia is home to the largest mineral deposits in the Gulf, including about 20 million tons of gold ore, 60 million tons of copper, 10 billion tons of phosphates, and a large spectrum of industrial minerals. Saudi Arabia’s objectives for this sector include reaching out to the private sector and foreign investors to establish industries for extracting and processing those minerals, providing the Saudi manufacturing sector with its requirements in raw materials, as well as becoming a leading exporter of minerals. The mining sector in the Kingdom is expected to become the second largest source of government revenue within the next decade.

The Saudi Arabian mining sector presents a high-growth potential. The Kingdom’s sixth five-year development plan (1995-2000) anticipates the sector to grow at a rate of 9.9 percent per annum. To date, over 920 licenses have been given to companies for the exploration of mineral resources, and scores of others are being processed. The incentives the Saudi government has granted private investors have made investment in this sector highly profitable. According to the Ministry of Petroleum and Mineral Resources, between 1990 and 1996, the profits of companies that had mineral franchises exceeded SR11.2 billion ($3 billion). By mid-1997, government investment in the mining sector reached SR25 billion ($6.67 billion).

A further catalyst for private sector investment in mining has been the creation of the Saudi Arabian Mining Company ("Ma’aden") in 1997, with an initial capital of more than $1 billion. Ma’aden is responsible for regulating the mining sector, consolidating the mining projects wholly or partially owned by the government, and rebuilding them on a commercial basis in partnership with private investors. Ma’aden is also involved in the revision of the mining code, with the goal of streamlining administrative procedures, and making the sector more appealing to private investors.

The Saudi government has also been working on building the infrastructure necessary for the development of the Kingdom’s mining industry. Ma’aden is contributing to the development of water, electricity, and telecommunications in remote areas where some of the mineral ores are located, while an integrated mining and transportation policy is expected to be unveiled by the government some time this year.

The Deputy Ministry for Mineral Resources has located 1,273 sites of precious metals, and 1,171 sites of non-precious metals. Over 30 minerals have already been identified in the Kingdom, with at least 15 industrial minerals that could be successfully exploited by investors. Feasibility studies have shown that many of the industrial minerals identified in the Kingdom would have a return on investment close to 30 percent. The Deputy Ministry for Mineral Resources has identified more than 64 mining projects that offer investment opportunities for private investors. The minerals discovered in Saudi Arabia include basalt, bauxite, bentonite, copper, dolomite, expandable clay, feldspar and nepheline syenite, garnet, gold, granite, graphite, gypsum, high grade silica sand, kaolinitic clays, limestone, magnesium, marble, olivine, phosphate, pozzolan, rock wool, silver, and zeolites.

The Kingdom also holds some of the largest phosphate deposits in the world. Located mostly in the north and northwestern regions, Turayf, Sanam, and the impressive Al-Jalamid deposits are estimated to be about 10 billion tons. The Al-Jalamid phosphate deposits in northern Saudi Arabia contain 213 million metric tons of ore reserves, with 86 million tons of proven recoverable phosphate concentrate, which will be produced at a rate of 4.5 million tons per year. With private sector investment, Saudi Arabia can locally utilize the produced phosphate to consolidate its position as one of the leading exporters of fertilizers in the world. The Ministry of Petroleum and Mineral Resources anticipates that the Kingdom will capture 16 percent of the world phosphate market. Identified future markets for phosphate include China, India, Japan, Pakistan, and Iran.

Saudi Arabia is home to 20 million tons of gold ore. Gold has primarily been extracted from the two gold mines of Mahd al-Dhahab and Sukhaybarat, but with the development of three additional gold mines, Al-Hajjar, Al-Amar, and Bulga, the Kingdom’s gold reserves will increase by 38.4 million tons. Ma’aden oversees the production at Mahd al-Dhahab, which is expected to yield 180,000 ounces of gold in 1999, owing to the additional 2 million tons of gold ore recently discovered at that site. Sukhaybarat, a 50/50 joint venture between Ma’aden and Boliden, was responsible for the production of 83,000 ounces of gold in 1996. Al-Amar, one of the most recently discovered mines, has proved to hold 3.5 million tons of gold ore. Its working life has been projected at 12 years, with an annual production of 2.15 tons of gold. Al-Hajjar, located 350 kilometers southeast of Jeddah, contains 4.2 million tons of ore reserves, with a concentration of 2.6 grams per ton. With a projected production of 750,000 tons a year, this mine’s expected life is more than five years. A final feasibility study has recently been conducted in Al Suq for a 500,000 ton/year open-pit, heap-leach operation with reserves of 2.1 million tons at 2.79 gram/ton of gold and 6.01 gram/ton of silver. In December 1998, Ma’aden was granted a license to explore for precious metals at Dowaihi, in the Makkah region. This site is believed to contain 14,000 kilograms of pure gold. Exploration for gold is also in progress at the Samran, Shayban and Hamdah prospects.

One of the most important metals found in Saudi Arabia is magnesium. Presently, there is no magnesium metal production in the Kingdom; however, the fact that raw materials do exist offers scope for commercial exploitation of this metal. A major source of magnesium is dolomite, which is found in Huraysan, 60 kilometers east of Al-Kharj. Another extensive source of dolomite is the Wadi Ar’ar, with deposits covering more than 100 square kilometers on both sides of the Al-Jawf Ar’ar highway, in the northwestern part of the country. Saudi Arabia is also home to the world’s largest deposits of magnesite. Two sites containing impressive amounts of magnesite have already been identified. The first, located in the Zarghat area about 400 kilometers north-east of Madinah, is home to 4.5 million metric tons of magnesite. The deposit at this site has been estimated to be worth $3 billion, based on 1996 prices. The other major site is in Jabal Rukman, about 180 kilometers southeast of Madinah.

Saudi Arabia also has over 60 million tons of copper. The Ministry of Petroleum and Mineral Resources has recently invited private investors to bid on an exploration license centered on the Jabal Sayid deposit, located approximately 150 kilometers from Madinah, and believed to contain 17 million tons of copper. The capital investment required for the project is SR412 million ($110 million). A pre-feasibility study conducted by the Deputy Ministry for Mineral Resources on the Khnaiguiyah zinc and copper deposit established reserves of 1.9 million tons grading 15.26 percent zinc and 0.89 percent copper mineable underground, or 3.2 million tons at 12.17 percent zinc and 0.81 copper mineable by open pit. Annual production is projected at 34,400 tons of 56 percent zinc concentrates and 2,400 tons of 25-30 percent copper concentrates. The initial required investment for this project has been estimated at $45.2 million.

Saudi Arabia has several iron ore deposits, not the least of which is the Wadi Sawawin deposit. This deposit holds reserves of 84 million tons at 42.5 percent iron. These reserves are sufficient for 25 years of pellet production at 2.2 million tons/year, with a total capital outlay of $660 million. Ore deposits at Wadi Sawawin are proven to have metallurgical properties equal to, or better than, industry standards. The Ministry of Petroleum and Mineral Resources has invited bids on the exploration and manufacturing of pellets from this site.

Several sites in the Kingdom are currently being investigated for bauxite including Al-Zughbiyah and Al-Tiniyat. Extensive exploration and testing have been conducted on the proven deposit of Al-Zabirah, situated about 650 kilometers west-northwest of Jubail. This deposit remains the only known bauxite site in the Middle East, with an annual capacity of 2.5 million tons. Tests have shown that bauxite at this site is amenable to the Bayer Process of alumina production. Total reserves would allow open-pit mining at an annual rate of 2.5 million metric tons initially for at least 20 years. The Al-Zabirah deposit has the potential to supply an aluminum industry in the Gulf Cooperation Council (GCC). Mining costs at Al-Zabirah are estimated at $54 million. The Ministry of Petroleum and Mineral Resources has already issued a tender for an exploration license centered on this deposit.

The Kingdom is also planning to set up plants for the production of gypsum. According to a pre-feasibility study in Al-Qassab, there are gypsum reserves close to ten million metric tons. A gypsum plant can be set up at a cost of $18.93 million, with a net profit of $45 million during its lifetime. There is a growing domestic market for gypsum owing, in part, to a thriving construction industry.

Investment opportunities in the Kingdom abound in mining-related sectors. These include the service sector, where expertise in exploration, design and construction, and training services is in high demand. Investment is also needed in the mining equipment sub-sectors including crushing, drilling, and loading.

The Kingdom has moved beyond the mere extraction of the minerals, into the creation of a well-integrated mining industry. Plans to develop downstream industries in the mining sector are starting to materialize. A French-Saudi offset company has already set up a 160-ton design capacity refinery for gold, silver, and other basic products at the Jeddah industrial estate. The plant’s output is expected to meet the Saudi market requirements for these products.

Power and Energy

Saudi Arabia is among the world leaders in per capita consumption of electricity, water, and gas, and demand for such services is continuing to grow. From 1975 to 1996, the generation capacity of electricity companies in the Kingdom increased 16 times from 1,173 to 18,780 megawatts (MW). Not included in these figures is power generated by desalination plants. The minimum generating capacity of such plants was estimated at 2,330 MW in 1996. At the same time, demand for such services has expanded rapidly. Electricity consumption of industries in Saudi Arabia increased 10 times during the same period from 2.17 million MW hours in 1975 to 22.5 million MW hours in 1996. The number of electricity subscribers also increased dramatically during this period, from 351,531 to 3.03 million.

To meet accelerating demand, Saudi Arabia is encouraging local and foreign private sector firms to assist in the implementation of its 25-year plan to expand its power generation, transmission, and distribution facilities. The Kingdom’s 25-Year Electricity Plan will require capital investment of $117 billion to increase its generating capacity to 70,000 MW. The number of subscribers in the Kingdom is projected to increase from the present three million to nearly seven million by the end of the plan. The government has earmarked $5.6 billion for augmenting power generation during the Sixth Development Plan, with another $7.2 billion for distribution.

As a result of these priorities, a ministerial ruling was issued in August 1997 that defines power generation as an industrial activity, thereby placing it under the authority of the existing foreign investment code. The decision was welcomed by private investors both domestic and abroad, who will now be able to invest freely in electric power generation facilities and benefit from government-offered investment incentives, including 10-year tax holidays, exemption from customs duties, and concessionary finance (up to 50 percent of the capital cost of the project) from the Saudi Industrial Development Fund.

Other reforms are also underway in order to increase efficiency and cut costs in the sector. In 1999, the Ministry of Industry and Electricity approved a proposal to merge the Kingdom’s four electricity companies into one entity under the new name of the Saudi Electricity Company. The government is also considering restructuring the power tariff to make investment in the sector more commercially attractive to local and foreign investors.

In March 1999, Asea Brown Boveri (ABB) International signed a $3.1 billion deal to begin construction on the Shuaiba power plant. The turnkey contract called for the construction of three power generating units, a high tension power transmission network, and a fuel handling facility. The work is scheduled for completion by 2002. Shuaiba is located in the Western Province, 75 miles south of Jeddah. Once completed, the first phase of the project is expected to increase the current power output of the Western Province by 25 percent. The second phase is projected to boost output by an additional 25 percent. The plant’s three power generating units will generate a combined 1,100 MW. The Saudi Electricity Company in the Western Region is currently negotiating contracts for the implementation of the planned transmission facilities, which will consist of a line linking Jeddah and Makkah.

Private investment is also a key component of the plan of the Royal Commission for Jubail and Yanbu to provide electricity for consumers in the two industrial cities. In mid-1999, the Saudi government approved creation of the joint stock Utility Company (UCO) to provide infrastructure operations and maintenance services for companies located in Jubail and Yanbu. UCO will carry out operations, maintenance, administration, expansion work, construction and ownership of infrastructure facilities and water cooling, desalination, water supply and electricity supply systems. After three years of operation, the new company will offer shares to the public. UCO anticipates providing service to non-industrial firms for a state-approved fee and to industries for a fee based on the cost of service in each city.

Other current projects include SCECO-East’s 2,400 MW expansion of its Ghazlan plant, with an estimated completion time of 2002. Another 1,200 MW power plant under construction in Riyadh will also be completed by 2002.

Construction

The construction sector is vital to the economy’s health. Saudi Arabia experienced an upturn in this sector in 1996 and 1997. The private sector has kept growth in the construction business steady as Saudi Arabia’s overall economic growth slowed in 1998. The government expects growth of up to 6 percent annually in the sector during the course of the current Sixth Development Plan (1995-2000) and is hoping that the private sector will continue to generate an impressive number of new projects. The 1999 budget estimates that the construction industry will grow by 1.9 percent in current prices. By mid-1999, the construction sector was experiencing a boom, with 200 major building projects underway.

Much of this new growth is evident in Riyadh, where a number of major private-sector projects are underway that will alter the city’s skyline and add to its rich heritage. The Kingdom Holding Company and the King Faisal Foundation are both building major highrise buildings. Kingdom Holding Company’s Kingdom Center development will include a 300 meter-high tower, Four Seasons hotel, shopping mall, office and retail area. The King Faisal Foundation’s project, the Al-Faisaliyah Center, is a major complex that will include a 260-meter tower with 30 floors of office accommodations, a hotel, apartments, conference facilities, and a shopping center. In Qasim, a new construction project involves a two-level shopping center with a supermarket and entertainment facilities. Other major projects include a $67 million contract for a high-rise residential and commercial development in Makkah and an exhibition center for the Riyadh Chamber of Commerce.

Burgeoning population growth is likely to trigger similar expansion in residential construction. By the year 2020, the Saudi population is expected to more than double, to 38 million. The private sector will continue to be the source of a variety of construction projects as many new private schools, office buildings, hospitals, shopping complexes, recreation areas, and hotels are built around the Kingdom.

Construction projects in the petrochemical, petroleum, power, water, and telecommunications sectors are also moving ahead, with a number already underway and many more in the planning stages. Industrial giants Saudi Aramco and SABIC continue to provide major opportunities for contractors and developers. The development of the Shaybah oilfield in the southeast generated an impressive number of subcontracts, with work that involved the construction of residential and recreational facilities, an office building, an airstrip, a fire station, mechanical facilities, utilities, and communications facilities. Since the decline in oil prices, Aramco has focused most of its attention on a project to build a grassroots gas processing plant at Hawiyah. More than 30 international companies were invited to bid on an estimated $900 million engineering, procurement and construction package. The project also called for the installation of a pipeline from Hawiyah to the PP9 power station outside Riyadh, which is worth at least $100 million. The debottlenecking and upgrading of Aramco’s existing gas plants is also expected to generate further contracts. SABIC is increasing its capacity at its petrochemical plants, while continuing to expand its presence in the industrial cities of Jubail and Yanbu. Such broad and rapid development of the Kingdom’s infrastructure will require significant contributions from private firms and contractors.

The Saudi cement industry today ranks third after petrochemicals and banking in terms of annual yield. With a total of eight cement companies, the sector produced 13.6 million tons of cement in 1998, only slightly down from its 1997 figure of 14 million tons. Cement factories in the Kingdom are now turning to export markets and looking to augment their sales.

Healthcare

The Saudi Government has allotted $6.1 billion for healthcare spending during the Sixth Development Plan (1995-2000), and there are many opportunities for private and foreign firms in this sector. The current plan calls for improvement of primary care in a number of areas, such as increasing immunization of children, upgrading of existing facilities, improving maternal health care, reducing the incidence of infectious disease, and introducing quality control systems in hospitals and health centers.

Saudi Arabia takes great pride in providing its citizens with free, high quality health care. After significant expansion in the mid-1980s, Saudi hospitals are among the best-equipped in the Middle East. By the end of 1997, there were a total of 303 hospitals in the Kingdom with 44,500 beds, as well as 3,300 health centers. The Al-Waha hospital in Riyadh is the Arab world’s second largest medical rehabilitation and referral hospital. In addition to medical and surgical care, the three-story structure houses 20 out-patient clinics, laboratories, pharmacies, medical record rooms and a shopping area on the ground floor.

Annual expenditures for the health sector are anticipated at $3.2 billion during 1999. In February 1999, the Saudi Ministry of Health announced plans to renovate and expand 215 existing hospitals and build eight new ones. In the private sector, there are 66 general and specialized hospitals as well as polyclinics and specialized medical centers.

A number of opportunities exist for both medical equipment and service providers as several major projects develop over the coming year. The Kingdom anticipates spending $1.6 billion on health projects during 1999. Within the next four years, Saudi Arabia plans to open five new hospitals with a combined capacity of 2,000 beds. The five hospitals are King Fahd Medical City in Riyadh, the Gulf Hospital in the Eastern Province, a specialized hospital in Taif, a maternity and pediatric hospital in Madinah and a hospital in Makkah.

Transportation and Communication

A $7.5 billion dollar aircraft deal was signed by Saudi Arabian Airlines (SAA), Boeing, and McDonnell Douglas in late 1995 for the purchase of five Boeing 747-400s, 22 Boeing 777s, four MD-11Fs, and 29 MD-90s. SAA secured a $4.33 billion syndicated loan in late 1997 to fund the first part of its contract. The warehouse and maintenance facilities to house these new aircraft will constitute a major construction project, as the number of passenger jets in the national fleet will almost double, reaching a total of 129 planes. The initial shipment of planes was received in December 1997. Saudi Arabia is also looking at its defense requirements in the aerospace sector.

In 1998, a new airline, National Air Service (NAS), was established in line with the continued privatization objectives of Saudi Arabia. With an initial capitalization of $320 million, the new firm’s purpose is to develop the air transport sector and meet the growing demands of businessmen, companies, and officials. NAS is Saudi-owned but operated by two American companies, Gulfstream Aerospace Corporation and Executive Jet. Transportation equipment was one of the largest U.S. exports to Saudi Arabia in 1998.

Saudi Arabia has eight major ports with 183 piers, making it the largest seaport network in the Middle East. The Kingdom receives 12,000 ships per year and is capable of receiving 183 ships simultaneously. Many opportunities for investment are available in seaport operations, since privatization of this sector began in 1997. Incentives are available to the private sector to invest in the heavy equipment necessary for the operation of the ports.

The Kingdom’s network of asphalted roads and highways reaches a total distance of 45,000 kilometers. The agricultural road network is even more extensive, totaling 95,900 kilometers in distance. Saudi Arabia is home to the only rail system in the Arabian Peninsula. It consists of a 571-kilometer single-track line between Dammam and Riyadh and a line in excess of 300 kilometers between Riyadh and Hofuf. A 237-kilometer link was recently built between Dammam and Jubail, which includes connections between the cities’ industrial centers and port areas. In addition, the Saudi Government is building a 400-kilometer link between the cities of Makkah, Mina and Arafat.

The expansion of telephone services has been an important objective in Saudi Arabia’s Five-year Development Plans. In 1996, Saudi Arabia had only 10 lines per 100 people, compared to the average for a middle income country at 30 lines per 100 people. These numbers are rapidly changing because of a concerted effort to upgrade and expand existing services in this sector.

In April 1998, the Saudi Government began privatizing telecommunication services by passing control of the services to a joint stock company called the Saudi Telecommunications Company (STC). The STC will be a major holding company and eventually will consist of several subsidiaries. The company was formed with a nine-member board, headed by the Minister of PTT, which has made expansion of the network an absolute priority. A regulatory intra-Governmental Telecommunications Commission was created to handle the balancing of STC revenues and economic feasibility against social and political needs to link various regions of the Kingdom. The private sector is expected to acquire equity participation in the new STC by the end of 2000, which might include a foreign strategic partner. J.P. Morgan & Company has been appointed as its overall privatization advisor, with assistance from the Saudi International Bank.

In an effort to keep pace with worldwide growth of telecommunications markets, the Saudi Government launched the Global System for Mobiles (GSM) in 1994. The GSM contract, known locally as "Al-Jawal," was awarded to Lucent Technologies in August 1994 for the installation of 500,000 GSM mobile telephone lines in the Kingdom. By late September 1996, more than half of these were operational, with additional lines quickly being made available. During this time, mobile phone demand has rapidly increased. To meet this demand, mobile telephone expansion projects continue, with the current number of 550,000 mobile users expected to grow to 1.1 million by the end of 1999.

Since 1994, Lucent Technologies has been working on a $4 billion project, Telephone Expansion Project-6 (TEP-6), to install new digital telephone lines in the Kingdom. By the end of 1999, TEP-6 will effectively double the number of phone lines already in existence to 3 million. The Government has plans for further expansion with TEP-7 and TEP-8, involving a 4-million line expansion of the fixed system. The new lines have a standard industry capacity of 65,000 bits per second, and will enable subscribers to access such network services as the Internet.

 Two companies were awarded the TEP-7 project, Siemens and Lucent Technologies. Siemens was contracted for an installation of 500,000 lines, and Lucent was given a contract for the installation of 600,000 fixed lines. In Saudi Arabia, TEP-8 will be one of the most valuable telecommunications projects to date. The project calls for installation of 2.2-million fixed lines, 900 switches, outside plant, long-haul fiber optic connections, wireless loop systems, intelligent networks and microwave transmission systems. TEP-8 will be awarded by the end of 1999. STC has gradually begun taking over operation of these projects.

Other areas to be upgraded by the projects include network management, engineering, customer service, and information systems. Many of the new lines provided by the telephone expansion projects are also being allotted for data communication, as demand rises for high-speed transfer of information.

The STC is increasingly turning to private firms for important service projects. In August 1998, STC issued seven licenses for the provision of pre-paid calling card services. Other service areas with potential for privatization include data processing and GSM.

In mid-1997, the Council of Ministers approved a resolution giving coordination, introduction, and management of initial Internet services to King Abdul Aziz City for Science and Technology (KACST). Internet service has been available in Saudi Arabia through domestic servers since January 1999. The Saudi market for Internet-related software is at $50 million and is expected to be four times that amount by the year 2000, reaching approximately $200 million. As a result, Internet and computer markets will be the most dynamic for foreign investors.

The introduction of the Internet into Saudi Arabia has also seen contracts awarded to private providers for basic service. Twenty-six local service providers are to provide Internet access to a number of subscribers currently estimated at 65,000, with an estimated 115,000 subscribers by the end of 1999.


AGRICULTURE

The Saudi agricultural sector has become one of the largest and most successful non-petroleum sectors in the Kingdom. The sector has grown at an average annual rate of 8.7 percent since 1970 and accounts for more than 9.4 percent of Saudi Arabia’s GDP. Self-sufficiency has been achieved in the production of certain food items and the Kingdom is nearing self-sufficiency in others. In 1995, self-sufficiency reached 68 percent of the local consumption of chicken broilers, 85 percent of vegetables, 66 percent of fruit, and 46 percent of red meat. In 1997, Saudi Arabia produced 2.7 million tons of fresh vegetables, 501,000 tons of fruit, 662,000 tons of red meat, and 54,000 tons of fish. Land under cultivation in the Kingdom has risen from 370,000 acres in 1975 to about 14 million acres by 1998.

The government is currently encouraging the cultivation of several crops, including wheat, alfalfa, dates, rice, corn, millet and palm seedlings. The Kingdom produced 400,000 tons of wheat in 1997 at a value of $722 million. By October 1998, Saudi Arabia produced nearly 3 million tons of cereal annually. The production of alfalfa in Saudi Arabia and neighboring countries for use by dairies continues to increase. Date production reached 600 million tons in 1998, making the Kingdom the world’s largest producer of dates with 18 million date palms under cultivation.

Gains have also been seen in the poultry, dairy and livestock (sheep and camels) sectors. The Kingdom is self-sufficient in raw milk production, which has increased from a yearly average of 2,040 tons in 1974-1976 to an estimated 450,000 tons in 1995. By 1998, the Kingdom was producing 816,000 tons of dairy products and 397,000 tons of poultry meat annually. Saudi Arabia is also the home of the Al Safi Dairy Farm, the largest integrated dairy farm in the world. Al Safi Dairy Farm has over 24,000 head of cattle and maintains production of 125 million litres of high-quality milk annually. Two new modern dairy processing plants began operating during 1998 and have exported significant quantities of liquid milk to the Gulf Cooperation Council (GCC) countries. The two largest poultry producers in the Kingdom are undertaking expansion projects to increase broiler production to more than 400,000 metric tons. Livestock production has increased from 1.13 million tons in 1993 to 1.20 million tons in 1996. Growing camel and sheep herds will require larger imports of barley. By far one of the world’s largest importers of barley, Saudi imports for 1997 reached 5 million metric tons.

Despite significant gains in local production of agricultural products (particularly fresh fruits and vegetables), Saudi Arabia remains the leading importer of food in the Middle East, accounting for 62.5 percent of food imports for the Gulf countries. The Kingdom imports about $4.7 billion worth of food products annually. With a young and rapidly expanding population, demand for new and reputable food products is growing. There are now more than 250 Western-style supermarkets in Saudi Arabia, and the number is rising. Local food processors also rely on imports for many raw ingredients, and the demand for institutional-size food products by the catering sector continues to be strong. The United States remains a leading exporter of food products to Saudi Arabia. U.S. agricultural exports to the Kingdom were slightly down from $243 million in 1997 to $211 million in 1998. The leading exports in terms of dollar value were wheat, corn, rice and corn oil. The Kingdom is also a leading market for U.S. exports of honey, canned vegetables, corn chips and soup.

Saudi Arabia is producing a combined total of about 800 million gallons of desalinated water per day in 25 plants run by the Saline Water Conversion Corporation (SWCC), as of mid-1999. This volume accounts for 30 percent of the world’s total production and meets 70 percent of the country’s drinking water requirements. There are now 190 dams in Saudi Arabia with a total storage capacity of 775 million cubic meters.

Significant opportunities for foreign firms are present in the Saudi desalination industry in areas such as manufacturing, consulting, contracting, operation and maintenance, and training. During the current five year plan, 17 desalination plants are to be built, with 12 on the Red Sea and 5 on the Arabian Gulf. Projects now underway include a second desalination plant in Shuaiba on the Red Sea, with estimated completion time of 2001. Four other pipeline projects are now being studied to extend SWCC’s coverage area.

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