Saudi nonoil exports forge ahead, with little support

Saudi Arabia has been the largest oil exporter for decades. However, there is a growing niche for nonoil exports, which account for approximately (12) percent of all its exports, but nonoil exporters complain about the limited support they receive compared to oil exports and to importers.
For Saudi Arabia to achieve its goal of diversification away from oil, it has to adopt a more proactive approach toward export promotion.
Last year, Saudi Arabia nonoil exports reached a record $51 billion, a five-fold increase over the 2003 level of $11 billion. Since 2003, nonoil exports have grown by an average annual rate of (20) percent. While those numbers are impressive, there has been a considerable degree of volatility and uncertainty. For example, last year, nonoil exports grew by a relatively modest (8) percent and in 2009, they shrank by (11) percent because of the global financial crisis.
Chemicals and plastics account for nearly two thirds of Saudi nonoil exports. Saudi manufacturers of these products enjoy a comparative advantage because of their proximity to energy sources, their greatly advanced production techniques and the relatively young age of their plants. As such they are able to compete anywhere in the world, causing traditional producers in industrial countries to seek protection.
Calls for protection against Saudi exporters have come mainly from European manufacturers of petrochemicals, although they could be occasionally heard elsewhere. They were motivated by desire to protect market share for these aging manufacturers against the agile and more advanced Saudi exports, and to keep prices high in European markets. However, accusations of dumping and unfair trade practices laid against Saudi exporters have never withstood close scrutiny by regulators.
If Saudi Arabia is to diversify its economy away from oil, it needs to expand and encourage nonoil exports. So far, as I pointed out earlier, nonoil exports have been largely chemicals and plastics, which are still largely oil-based. And while Saudi petrochemical exports can sell themselves because of the clear advantage they enjoy, other nonoil exports may need a lot of help to compete in the world marketplace.
In 2007, in an effort to streamline and increase government’s efforts to promote nonoil exports, Saudi Arabia decided to establish the Saudi Export Promotion Commission. However, six years later, it has yet to be set up. Until that commission is up and running, the job of promoting exports is undertaken by a number of public and private entities.
Exporters and their advocates have decried the delay in setting up the new commission. They also complain about the limited support they get compared to traders and importers, who they say have traditionally enjoyed full support from government agencies.
Some officials are concerned that providing support for nonoil exports may run against WTO rules. In fact, however, there are many WTO-compliant export support schemes that are used by most WTO members, including major industrial countries.
First and foremost, there is a wide variety of research support that is permitted under WTO rules. Governments may provide feasibility, marketing and economic studies to manufacturers without violating those rules. Similarly, governments could provide manpower training and education supports.
Permitted support schemes include the establishment of “special economic zones” and “export promotion zones,” where less government bureaucracy and read tape, as well as fees and taxes, apply.
They also include “export credits,” where a buyer or a supplier of exported goods or services is allowed to defer payment for a certain period of time. The types of export credits that involve a certain degree of official support are mainly granted in order to finance exports.
Related to these credits are “export credit guarantee” programs, which cover the risks of export credits. The risks covered are of both political and commercial nature. Political risks are basically risks created by government practices in the importing country, such as sequestrations, expropriations and payment regulations. But they also include such risks as unpredictable war situations or natural disasters. Commercial risks are higher for an exporter than for a domestic supplier due to greater distances, different languages, lack of information sources in the importing country, different legal systems, and a possible hostile environment toward foreigners.
A common way to promote exports is to enter into free trade agreements (FTAs) with key trading partners. However, Saudi Arabia, and the rest of the Gulf Cooperation Council member states have signed only a few FTAs. This situation means that they need to work doubly hard to promote their exports and protect them in foreign markets. Without FTAs, the only recourse is WTO dispute resolution mechanisms, which are not always quick or efficient in situations requiring quick action.
Without FTAs, nonoil exports could face sudden hostile action by trading partners’ regulatory authorities. Frequently, Saudi exporters have recourse only to dispute resolution mechanisms of the counties taking those hostile actions, which cannot always be relied upon for fairness when adjudicating disputes between foreign and national entities.

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