Prospects are encouraging despite financial strains - Saudi Arabia - World Trade Outlook 1991

Saudi Arabia continues to be our largest export market in the Middle East, and future prospects, bolstered by goodwill due to U.S. support in the Gulf crisis, are encouraging. Although U.S. exports to the Kingdom in 1990 increased by 13 percent over 1989, U.S. imports increased by 40 percent, raising our bilateral trade deficit to $5.9 billion.

Most observers believe that the enormous cost to Saudi Arabia of the war with Iraq will significantly diminish the ability of the public sector to serve as the Kingdom's prime engine of economic growth. On the other hand, the Kingdom's private sector, and particularly its commercial banks, continue to demonstrate healthy profits that could support continued economic expansion should profitable trade and investment opportunities emerge. However, businessmen and investors will face considerable competition from the government, which will seek to access private sector funds to meet continuing fiscal shortfalls.

A key to growth will be the Saudi government's willingness to promote an improved business climate where productive private commerce can take place, resolving those issues that U.S. businesses have typically viewed as major impediments to profitable business operations in the Kingdom. They include speedy and equitable business dispute resolution, expeditious visa procurement, adequate enforcement of intellectual property rights, and prompt payment of commercial obligations.

With an end to hostilities, the market opportunities in the near-term will likely be similar to those of the pre-war period, with a stress on procuring operation and maintenance services and improving the livelihood of the population. Opportunities should emerge in the areas of health care, high-tech operations and maintenance, education and training, and communications. Other sectors with good potential include agriculture and agribusiness, automobiles and auto parts, construction and engineering equipment and services, and medical, aerospace, and defense equipment. Last but not least, opportunities for oil spill equipment and technologies to deal with the oil slick in the Persian Gulf should be significant, although the clean-up response has gotten off to a slow start.

Contractors look forward to a construction boom led by the reconstruction of Kuwait. Although prices of imported building materials increased rapidly during the crisis, locally manufactured building materials have remained largely stable. The sudden and massive departure of Yemenis, who constituted a large percentage of the skilled and semi-skilled labor in the construction trades, has had a significant impact on labor supply but has affected primarily the smaller contracting companies. Their absence is not expected to affect larger or foreign construction companies.

Although the crisis had a dampening effect on new investment in the Kingdom, the Saudi government continues to encourage foreign investment. This is particularly true of foreign investment in joint ventures with Saudi partners, for which a number of attractive investment incentives are offered. The Saudi government has identified a number of industrial sectors of particular interest. Among the most important are downstream petrochemical industries which can use the wide range of low-cost petrochemicals produced in the industrial cities of Jubail and Yanbu. High-technology products and processes are also of major interest. The main emphasis is on industries which are capital-intensive and highly automated.

The Commerce Department's trade promotion event schedule was an early casualty of the war, with many trade shows scheduled for 1991 either cancelled or postponed. Saudi Aircon/Elenex, originally scheduled for March 1991, has been postponed to Sept. 8-12, 1991. Saudi Build will take place on Oct. 20-24, 1991. The U.S. and Foreign Commercial Service has planned for the remainder of the year a number of Saudi buyer delegations and reverse trade missions which will attend U.S. trade shows and conferences. Firms wishing further information on marketing in Saudi Arabia should contact the Saudi Arabia Desk at (202) 377-4652.

COPYRIGHT 1991 U.S. Government Printing Office
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