On Doing Business: A Conversation with Omar Bahlaiwa - Trade Mission 2005

Editor's Note:  

Last month a delegation of Saudi Arabians completed a tour across the United States to promote business relations with American companies.  At each stop -- New York, Atlanta, Houston, Chicago and San Francisco -- Mr. Omar Bahlaiwa presented "Prospects of the Saudi Economy" to set the scene for American business people interested in working with their Saudi counterparts.

Mr. Bahlaiwa is the Secretary General of the Saudi Committee for Development of International Trade at the Council of Chambers of Commerce and Industry.  While in Atlanta, Georgia on May 12, 2005, he sat down with SUSRIS for a wide ranging interview covering the breadth and depth of US-Saudi business relations.  Today we are pleased to present the first installment from that interview in which Mr. Bahlaiwa discussed the purpose of the trade mission, an assessment of the Saudi economy, Saudization and vocational training, and the booming Saudi stock market.  

SUSRIS: Thank you for talking with us today about the business relationship between Saudi Arabia and the United States and about the visit of the Saudi trade mission.

Omar Bahlaiwa: It's a pleasure to be here.

SUSRIS: Let's start with the trade mission. Your group, the Committee for the Development of International Trade in the Council of Chambers of Commerce and Industry organized this delegation that is visiting five major cities in the United States. Can you describe what the mission aims to accomplish and why it is visiting the US now?

Omar Bahlaiwa: We invited companies from all over the United States to come and meet with the trade delegation, to meet people concerned about the business relationships between Americans and Saudis.

The idea was to show the American companies the $623 billion worth of projects coming on-line in Saudi Arabia between now and 2020, to show them what we are doing and to give them the chance to come and participate in these projects.

SUSRIS: Tell us about the people you have assembled as members of the delegation.

Omar Bahlaiwa: We brought people who represent the broad range of business sectors being discussed --people from the government, from the ministries, from companies like SABIC and Aramco, people from CIT -- our Committee for Development of International Trade -- and we brought business people.

The idea is for the government people to talk about their projects, for CIT people to talk about the business environment and performance of the Saudi Arabian economy and for the Saudi business people to start to work together with American business people. If American companies need a local partner in Saudi Arabia we have them with us. So far in New York and Atlanta some have already made connections.

The sessions are organized so that American companies learn about Saudi Arabia, about what is happening there now. They hear the overview, then they get information about the sector they are interested in and then they can talk to business people about specific projects and partnerships.

SUSRIS: You mentioned CIT's role in the trade mission is to present information about the business environment and economic performance. How would you describe the environment and is the current performance of Saudi Arabia's economy related to the timing of your mission visit?

Omar Bahlaiwa: Saudi Arabia is in a period of economic expansion, a boom. The primary reason is the increased production of oil. The oil sector has generated extra income and the GDP has increased tremendously - up about 5.3% last year from 211 billion in 2003 to 248.5 billion in 2004. That is just one indicator of the strength of the Saudi economy. It also stands as the strongest economy compared to others in the Middle East. If you match the Saudi Arabian GDP to, for example, the UAE, Egypt, Kuwait, and Qatar, all together, they are less than that of Saudi Arabia. If you put Egypt's and Israel's GDP together, they are less than that of Saudi Arabia.

At the same time Saudi planners are thinking wisely and are using the oil revenues to invest in the country -- to help diversification, to reduce the dependence on oil. In 2004 the country depended on oil for about 40% of the economic activity. The current projection is that by the year 2020 Saudi Arabia will be at about 22% dependency on oil revenue. That's the idea, to grow and diversify the economy. The goal is to add value, to use the advantage of the raw materials we have and to use our competitive and comparative advantages.

SUSRIS: What other factors should potential business partners know about Saudi Arabia?

Omar Bahlaiwa: There are a number of circumstances to keep in mind. First, Saudi Arabia has a young population. About 50% of Saudis are below 20 years of age. So we have a future oriented population. Second, Saudi Arabia's location is in the middle of the world. The distances from Saudi Arabia to the West and to the East are almost the same, relatively close. Third, it has a window on the Red Sea facing Africa and to the Mediterranean. On the other side of the country lies the Persian Gulf, facing the East.

Another consideration, certainly not the last one, is that Saudi Arabia is the leader of the Islamic world. Saudi Arabia is home to the two holy mosques in Mecca and Medina. One and a half billion Muslims look toward Saudi Arabia for leadership. From that perspective you can reach the Islamic world by being a partner with Saudi Arabia.

SUSRIS: The demographics issue, the youthful population you referred to, is a challenge that some observers see as a negative consideration -- having to meet the needs of such a large, young population. How do you see it?

Omar Bahlaiwa: I agree that this is a significant challenge. Unfortunately, our education system in the last decade did not concentrate sufficiently on training our youth. We are working to correct that problem.

This is how we see it developing. There are about 250,000 graduates, boys and girls, per year from secondary schools of which about 120,000 graduates are boys. Of those, about 50,000 go on to universities. That leaves about 70,000 boys who have graduated and are not going to higher education. Add to that number the primary and secondary school dropouts - about 60,000 -- that is about 130,000.

What is happening now is that there is a training program, introduced by the General Organization for Technical Education and Vocational Training, known as GOTEVOT, for those youngsters. It will open many doors for them. If you consider that 130,000 a year will be trained, in ten years we will have 1.3 million Saudis in the skilled labor pool.

The other factor, besides the need to find jobs for our youth, is that we have seven million non-Saudis living and working in the country. There is a program, we call it Saudization, that aims to replace non-Saudis with Saudis, but you just cannot do it haphazardly. You have to qualify your youth. And to qualify your youth you have to spend some time on them. This is what we are doing now. We are training and qualifying our youth.

You are starting to see Saudis taking jobs that used to be filled primarily by foreign labor. The signs of progress are starting to be seen in the marketplace. You see many companies talking about their Saudization programs. There is also a challenge for companies from the government to employ Saudis by setting and enforcing goals for Saudization, to increase their representation by five percent each year.

SUSRIS: How have Saudi business people responded to Saudization?

Omar Bahlaiwa: Obviously they want to make sure the requirements are applied carefully and wisely. We don't want to have a charity program just to employ Saudis. We want to have qualified Saudis.

This is where the government comes in. They are working hard to make sure there are qualified employees. I've met with the officials of GOTEVOT, the government's vocational training organization, and I know first hand they are doing a terrific job. Over the next five to ten years we will see many qualified boys and girls from Saudi Arabia taking over a bigger role in the labor force. We're not just talking about the boys, there are about 40 new colleges for girls coming into service as well.

SUSRIS: So this is a cooperative effort - the government fulfilling its role of properly training the work force to enter the business market?

Omar Bahlaiwa: You bet. And the great thing is that they have secured the budget for five years so they won't have any financial constraints. It provides for new schools, new colleges for girls, upgrading existing schools, equipment, facilities and curriculum. It is really very impressive. I did not know how well organized the plan was until I saw it for myself. It's very well done.

SUSRIS: Are there forecasts for closing the gap, for providing qualified Saudis to the job market?

Omar Bahlaiwa: I think we are closing the gaps. There have been a substantial number of Saudis who have submitted their applications to GOTEVOT for training. I believe a good plan is in place and in no time there will be more qualified Saudis in the labor pool. The great part is that the market is grabbing them as fast as they graduate. They are highly qualified and are very much in demand in the labor pool. The marketplace is asking for more.

SUSRIS: It seems that the benefits of Saudization, besides finding work for the large amount of young people in the population, would be to reduce the outflow of capital that results from a large base of foreign guest workers sending money home. How will that affect the Saudi economy?

Omar Bahlaiwa: The repatriation of currency, hard currency - it's sent as dollars, or euros, or whatever - is a consideration. It's about $20 billion a year.

In the long term Saudization will mean extra currency in the Saudi market and the circulation of that capital will create more jobs. As those Saudi boys and girls get married they will have certain needs. They have grocery needs. They have furniture needs. The economy will be stimulated and the economy will get stronger. People will benefit financially.

SUSRIS: Let's talk about the performance of the economy. Samba's annual report said 2004 showed the best "balanced performance" in Saudi economic history. What developments in the Saudi economy do you see as noteworthy?

Omar Bahlaiwa: One area that showed significant improvement has been the Saudi stock market. It is booming and is spreading the benefits of the strong economic growth. It has become an extra source of income for Saudi families. Last year was a very good year for the stock market and I believe 2005 will be another good year.

SUSRIS: So the Saudi stock market is becoming more accepted as a place for people to invest their money?

Omar Bahlaiwa: Oh yes. I'll give you an example. Three months ago there was an initial public offering for shares of Al Balad, a new bank that was established. Fifty percent of the population bought shares. Eight million buyers went to buy shares in that stock. The high level of interest is due to the prospects of the capital market itself.

The stock market is becoming very attractive to Saudis. They have the expectation of at least doubling their money. In the case of Al-Balad Bank the opening share price was about 50 Riyals, or $18. Today a share is worth about 700 Riyals.

SUSRIS: Are the values of the companies keeping up with the cost of the stock shares? Do people worry that the stock market might be overheated?

Omar Bahlaiwa: That's something to be watching. It's a market driven phenomenon. People are driven by the prospects of the market. But, as with stock markets anywhere you need to be cautious. You might have a "Black Monday" or, as we say in Saudi Arabia, "Black Saturday" because Saturday is the first day of the work week there.

Saudis are confident, however, in the market because the economy is strong. We have looked at the prospect for growth of the economy for the next fifteen years. Through year 2020 we expect the market to grow by 4.15% per year. The income of the country is very high. After September 11th a large amount of cash came back to the country. People are looking for new fields for investments. The market fluctuates, yes, but at the end of the day, it's still stable. The economy is very strong.

NEXT: Economic reforms, diversification, privatization, and competitors to the US-Saudi business relationship.

ABOUT OMAR BAHLAIWA

Omar Bahlaiwa is the Secretary General for the Saudi Committee for the Development of International Trade (CIT) of the Council of Saudi Chambers of Commerce and Industry in Riyadh, Saudi Arabia.

Prior to this position, Mr. Bahlaiwa was the Assistant Secretary General for Foreign Affairs for the Council of Saudi Chambers of Commerce and Industry.  From 1997 to 1999, he was a general manager of the Saudi company for manufacturing carpet materials (Mattex) and prior to this worked as the Vice President of Sales and Marketing at the Saudi Industrial Export Company.  From 1983 to 1989, Mr. Bahlaiwa worked with the Saudi Industrial Development Fund as a technical analyst in the Project and Portfolios and Electric Utilities Departments.

Mr. Bahlaiwa holds a B.S. in Electric Engineering from the King Saud University.