Saudi Arabia - Index of Economic Freedom

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October 2, 2008

Kingdom�s �Economic Freedom Index� Raised
Querubin J. Minas

Kingdom�s �Economic Freedom Index� Raised
Querubin J. Minas

Saudi Arabia is the world�s 60th freest economy, and is ranked 6th out of 17 countries in the Middle East-North Africa region, according to this year�s �Index of Economic Freedom� report by The Heritage Foundation, a Washington-based think-tank and The Wall Street Journal.

The Kingdom�s overall score is above the regional average, the report said. It�s economy �is 62.8 percent free (and).. ..overall score is 1.2 percentage points higher than last year, reflecting improved scores in four of the 10 economic freedoms,� the report said.

Saudi Arabia scored very well in fiscal freedom, labor freedom, and business freedom. Except for a 2.5 percent Islamic zakat charitable contribution, the government imposes no taxes on personal or corporate income. The labor market is flexible, the report noted.

In the most recent year, overall tax revenue as a percentage of GDP was 5.1 percent.

However, the report said that more should be done on in investment freedom, though some aspects of foreign investment �has begun to liberalize.�

The Kingdom�s accession to the World Trade Organization in 2005 has led to gradual economic reforms, and the government has sought to attract foreign investment and promote diversification.

Moreover, the report said �overall freedom to start, operate, and close a business is relatively well protected by Saudi Arabia�s regulatory environment.�

Starting a business takes an average of 15 days, compared to the world average of 43 days. Obtaining a business license takes less than the world average of 19 procedures and 234 days. Bankruptcy proceedings are relatively straightforward.

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 32.1 percent of GDP. State participation in the economy remains substantial, the report pointed out.

In monetary freedom, the report said the Kingdom�s inflation is low.

In investment freedom, the report noted that in accordance with WTO accession, the government has heightened the allowable foreign equity in telecommunications and several other sectors. Regulations clarifying and liberalizing investment in insurance and tourism were issued in 2003 and 2006, respectively. There are no controls or restrictions on payments and transfers. Credit operations must be approved.

The Kingdom�s banking sector�s health is largely tied to oil earnings. The report noted that regulatory, supervisory, and accounting standards are generally consistent with international norms. The insurance sector has undergone some liberalization. Capital markets are relatively well developed, and commercial banks may conduct transactions, the report added.

However, the report pointed out that improvements should be done in the courts� efficient enforcement of contracts.

�Laws on intellectual property rights are being revised to bring them in line with the WTO�s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, but enforcement is weak, and procedures are inconsistent,� it said.

In labor freedom, the report said flexible employment regulations enhance overall productivity growth and employment opportunities, adding �regulations relating to the number of work hours are relatively flexible.�

Source: "Saudi Gazette"

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