US urges Saudi Arabia to allow more foreign ownership
Saudi Arabia-USA, Economics, 3/1/2006

Saudi Arabia can attract more investment to strengthen and diversify its economy by relaxing equity caps on foreign business ownership, US Commerce Secretary Carlos Gutierrez says.

Such a move would "signal investors that the Kingdom welcomes even more foreign investment, and therefore it will compete for capital with larger economies," he told US business groups in Riyadh on February 26.

Even though the oil sector will continue to play a key role in the Saudi economy, Gutierrez said, growth will be more stable if the government can diversify markets to create more employment opportunities outside this sector.

He said that some democratic reforms, more education opportunities, stronger rule of law and other changes also would help attract capital and create jobs.

"We applaud the foresight and the courage of any country in the region that is pursuing reforms," Gutierrez said.

He praised the Saudis for launching economic reforms that led the country to membership in the World Trade Organization (WTO).

But Gutierrez said the country's accession to the WTO, which he called the crowning achievement of the reform process, will benefit people and the economy only if the government implements its accession commitments.

In general, Saudi Arabia allows full foreign ownership of property and licensed projects. However, in several important sectors, including oil exploration and production, pipelines, media and publishing, and some services, foreign ownership is restricted, according to the US Energy Department's Energy Information Administration. Under the WTO accession agreement, the country has committed to relaxing foreign investment restrictions in insurance, banking and telecommunications services.

A stronger business relationship between the United States and Saudi Arabia, he said, is in the interest of both countries.

"There is a great deal more business that we could be and should be doing together," Gutierrez said.

During a press conference on the same day, he suggested that US economic relationships with the Arab states in general will remain strong despite some political disagreements, according to news reports.

"If the private sector sees the environment is conducive to investment, we believe that investment will happen," he reportedly said.

Riyadh was the first stop in the commerce secretary's February 24-March 2 trip to the Middle East, where he has promoted stronger commercial ties between the United States and the region, encouraged economic reforms, and promoted investment, private sector development and better protection of intellectual property rights (IPR).

At his next stop in Bahrain, Gutierrez commented February 27 about the significance of IPR for the US economy and other countries. He told a Bahrain business conference that, in the long run, even fast-growing developing countries have much to lose from weak IPR enforcement.

"As growing economies like Bahrain also develop innovative products and brands, IPR piracy will threaten their national prosperity," he said.

Gutierrez said the US free trade agreement (FTA) with Bahrain, signed into law by President Bush in January, will be implemented once the government in that country makes a few modification to its laws concerning IPR protection.

Gutierrez espoused the practical benefits of the FTA for both sides. What is most important though, he said, is that the FTA with the United States will make Bahrain an even more attractive destination for global commerce.

The White House has welcomed this FTA as a significant step toward the creation of a Middle East Free Trade Area envisioned by President Bush.

Gutierrez said the United States believes the region will realize its full potential only when individual countries strengthen their ties to the global economy and open their markets to trade from other countries of the region.

The Middle East faces many economic challenges as its populations expand. Economic growth in the region needs to rise to at least 6 percent to 7 percent per year from an average rate of 3.7 percent per year in 1998-2002 to create between 80 million and 100 million new jobs, according to the Organization for Economic Cooperation and Development (OECD). These jobs are likely to be needed to absorb young people entering regional labor markets, OECD said.

As part of the trip, Gutierrez made an unannounced visit to Afghanistan, where he assessed that government's efforts to open its markets to foreign investment. In a February 28 news release, Gutierrez said his department will help the private sector in Afghanistan increase trade with the United States and improve the legal framework for promoting investment.

Egypt is scheduled to be the last stop on Gutierrez's itinerary before he returns to Washington.

Previous Stories:
  Accord with U.S. opens way for Saudi World Trade Organization bid   (9/10/2005)
  Projects worth $ 620 billion from Riyadh to Washington   (5/7/2005)

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