Expert View, Chris Walker: Out in Saudi, they don't stick their heads in the sand

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The Independent Online

I sat down last week to dine with a group of prominent bankers and businessmen. The conversation was typical of such gatherings anywhere in the world: that day's movements in the stock market and the prospects for interest rates. But in this case we were lying on exotic carpets in the middle of the Arabian desert, eating barbecued lamb. Saudi Arabia has lost none of its colour and culture, but the current boom is carrying it into the economic super-league.

When I told banking chums in New York I was going to Saudi, they gave me that pitiful look reserved for the condemned man. The 11 Saudi participants in 9/11 have had a lasting effect on the Western psyche, as have the terrorist attacks in the country in 2003-04. In the latter case, the perpetrators were quickly caught or killed by the crack Saudi anti-terrorist police.

While it would be foolish to be complacent about the security situation, the reality is that al-Qa'ida has failed to cause the chaos it threatened against a government it hates even more than that of the US. While the latter struggles to achieve anything tangible in Iraq, Saudi is currently winning its war on terror.

Meanwhile, the economy has never had it so good. Nominal GDP growth will be close to 20 per cent this year and yet inflation remains contained. The current account surplus is forecast to reach $114bn (£60bn). Income per capita growth is one of the fastest in the world.

Of course, the black stuff is central to this, with oil export earnings pouring in to the value of $17bn a month - roughly 25 per cent up on last year (itself a record year). Saudi is in a unique position, not just as Opec's biggest producer (31 per cent of output) but also as the ultimate determiner of the oil price. This is thanks to years of sensible investment in productive capacity, unlike Iran and Venezuela. Output will rise by an astonishing 30 per cent by 2010.

But oil is not the whole story. While in much of the West, 9/11 led to increased isolationism, the Saudi response was greater openness and structural reform, culminating in membership of the World Trade Organisation in 2005. This has helped the economy to diversify, with bigger contributions now being made by construction, transport and communications.

This expansion is driven by the metamorphosis of the Saudi infrastructure - evidence that the economic windfall is being well spent. Some of the projects under way are gargantuan: the King Abdullah Economic City stretches over 168 million square metres and will eventually have a population of two million.

Such dynamism creates numerous opportunities for international partners, many of whom are British, given our enduring relationship with the Arab state. Some FTSE companies have major operations in the country, including BAE, Shell, Amec, Glaxo and Tate & Lyle.

Some foreign companies were unsettled earlier in the year by the dramatic collapse in the Tadawul stock market, which lost nearly half its value. But this has done nothing to slow the economic pace, with the most recent forecasts for growth edging upwards.

If anything, the gyrating stock market is evidence of the need for even greater reform. Too much of the Saudi windfall was channelled by individuals into the relatively few stocks that make up the index. There is a desperate need for Saudis to invest internationally.

This topic dominated conversation on my last night in the kingdom - a magnificent banquet prepared by the finest Egyptian chefs for more than a dozen leading industrialists. Like hyper-successful businessmen in any part of the world, their minds are turning from wealth creation to wealth protection. Reaching out overseas combines both.

We will hear more from them.

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