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U.S. DEPARTMENT OF STATE
SAUDI ARABIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS


                                   SAUDI ARABIA
          
                               Key Economic Indicators
                  (Billions of U.S. dollars unless otherwise noted)
          
          
                                             1992      1993      1994  1/
          
          Income, Production and Employment:
          
          Real GDP (1990 prices)            115.8       N/A       N/A
          Real GDP Growth (pct.)              1.0       N/A       N/A
          GDP (at current prices)  2/       121.4     122.6     119.2
          By Sector:
            Oil                              47.1      45.6      44.3
            Private Sector                   41.7      43.8      45.0
            Government                       32.6      33.2      30.2
          Real Per Capital GDP  3/          7,175     7,000     6,575
          
          Money and Prices:  (annual percentage growth)
          
          Money Supply (M2)  4/               5.5      -0.8       4.8
          Base Interest Rate  5/              3.5       3.5       3.9
          Wholesale Inflation  4/             1.3       0.6       1.4
          Consumer Price Index  4/           -0.4       0.8       0.5
          Exchange Rate (SR/USD)             3.75      3.75      3.75
          
          Balance of Payments and Trade:
          
          Total Exports (FOB)                47.0      44.9      41.1
            Exports to U.S. (FAS)  4/        10.3       7.8       4.0
          Total Imports (FOB)                30.2      25.9      23.3
            Imports from U.S. (FAS)  4/       7.0       6.7       3.2
          Aid from U.S.                       0.0       0.0       0.0
          Aid from Other Countries            0.0       0.0       0.0
          External Government Debt            4.5       4.5       N/A
          Debt Service Payments (paid)        0.0       0.0       N/A
          Gold and FOREX Reserves  4/         4.8       5.9       5.3
          Trade Balance                      16.8      19.0      17.8
          
          
          N/A--Not available.
          
          1/ Embassy estimates.
          2/ In purchasers' values.
          3/ Based on the official 1992 census data and current GDP.
          4/ For 1994, data for the first half of the year.
          5/ Average annual rate for 1-month deposits, 1994 average for
          first half of the year.



1.  General Policy Framework

    Saudi Arabia has an open, developing economy with a large
government sector.  Its regulations favor Saudis and citizens of
the Gulf Cooperation Council (GCC) states.  This bias is
reflected in virtually all government policies, including those 
affecting taxation, credit, investment, procurement, trade, and
labor.  But the government's interest in promoting economic
development, defense, and technology transfer helps reduce
favoritism toward Saudis and the GCC over foreign investors in
the domestic economy.

    Oil dominates the Saudi economy, comprising an estimated 37
percent of GDP, 75 percent of budget receipts, and 90 percent of
exports in 1993.  Much of the non-oil GDP is tied to oil, as
consumption and investment are dependent on oil receipts and
services and supplies are sold to the oil sector.  The government
sector plays a significant role in influencing resource
allocation within the Saudi economy.  Non-oil budget revenues
include customs duties, investment income, and fees and charges
for services.

    The Government of Saudi Arabia has recorded budget deficits
annually for the last decade, with the shortfall for 1993
estimated at USD 13 billion--11 percent of GDP.  The government
originally financed its fiscal shortfalls by drawing down
deposits in the Saudi Arabian Monetary Agency (SAMA), the
country's central bank, and began borrowing in 1988 through
government bonds and bills to conserve its remaining assets. 
Defense and security account for nearly one-third of all budgeted
expenditures, and the government also makes large outlays for
salaries, capital projects, services, and operations and
maintenance programs.  The government embarked on a major
austerity program in 1994--reducing planned spending by 19
percent over the level planned for 1993--but will likely record
its twelfth consecutive budget deficit for the year.  King Fahd
openly endorsed privatization in 1994, and the government has
begun studying the sale of some state-owned firms.

    SAMA allows the growth of money supply to be dictated by
government fiscal operations and the growth of the economy.  SAMA
has the statutory authority to set legal reserve requirements,
impose limits on total loans, and regulate the minimum ratio of
domestic assets to total assets for the banks.  It is also able
to conduct open market operations through repurchases of Saudi
government development bonds and treasury bills.  SAMA oversees a
financial sector of 12 commercial banks, five specialized credit
banks, and a variety of nonbank financial institutions.


2.  Exchange Rate Policy

    The Saudi Riyal (SR) is officially pegged to the IMF's
Special Drawing Right (SDR) at a rate of SR 4.28255 to SDR 1,
with margins of 7.25 percent on either side of the parity.  SAMA
suspended the margins in 1981 and, in practice, pegs the Riyal to
the Dollar.  Saudi Arabia last devalued the Riyal in June 1986
when it set the official selling rate at SR 3.75 to USD 1.  There
are no taxes or subsidies on purchases or sales of foreign
exchange. 

    Saudi Arabia imposes no foreign exchange controls on capital
receipts or payments by residents or nonresidents, beyond a
prohibition against transactions with Israel.  In accordance with
UN resolutions, the prohibition has been 
expanded to include transactions with Iraq and Serbia.  Sanctions
against South Africa ended this year.  Local banks are prohibited
from inviting foreign banks to participate in Riyal-denominated
transactions inside or outside Saudi Arabia without prior
approval of SAMA.  The monetary authorities and all residents may
freely and without license buy, hold, sell, import, and export
gold, with the exception of gold of 14 karat or less, which is
prohibited.


3.  Structural Policies

    The Saudi government has traditionally eschewed price
controls, with the exception of those for basic utilities and
energy.  Water, electricity, and petroleum products are heavily
subsidized, with prices often substantially below the costs of
production in order to share the wealth and spur development.  In
agriculture, government procurement prices for wheat (now USD 400
and 533.33 per ton to large and small farmers respectively) are
substantially above world market levels.  The government adjusted
its pricing policy for wheat in 1993 in an attempt to reduce
wheat production and encourage crop diversification.  Farmers
must now have prior government approval to produce and sell wheat
at the support price, and the government is no longer encouraging
the establishment of new wheat farms.

    Saudi taxes take three major forms:  income taxes, fees and
licenses, and customs duties.  The income tax is payable only by
foreign companies and self-employed expatriates.  The income tax
rate on business income on foreign companies and expatriate
shareholders of Saudi firms ranges from 25 percent on profit of
less than USD 26,667 to a maximum rate of 45 percent for profits
above USD 266,667.  Foreign investors receive tax incentives,
including a 10-year tax holiday for approved agricultural and
manufacturing projects with a minimum of 25 percent Saudi
participation.  Saudis and Muslim residents are subject to the
"zakat," an Islamic net worth tax levied at the flat rate of 2.5
percent.  Import tariffs are levied at a general minimum rate on
12 percent ad valorem, except for products originating in Gulf
Cooperation Council states and essential commodities.  There is
also a maximum 20 percent tariff on products that compete with
local infant industries.


4.  Debt Management Policies

    Saudi Arabia is a net creditor in world financial markets. 
SAMA manages a foreign portfolio of over USD 50 billion in its
issue and banking departments and an estimated USD 15 billion for
the autonomous government institutions:  the pension fund, the
Saudi Fund for Development, and the General Organization of
Social Insurance.  Under SAMA's current conservative definitions,
only about USD 10 to 15 billion of its more than USD 50 billion
portfolio is available.  The remainder is earmarked to guarantee
the currency or letters of credit.  In addition to the overseas
assets managed by SAMA, Saudi Arabia's commercial banking system
had a net foreign asset position of USD 19.7 billion at the end
of 1993.  The Saudi government began 1994 with a foreign debt of
USD 4.5 billion from a 
syndicated loan signed in 1991.  As of November 1994, it had made
principal payments of USD 2.7 billion on that debt.  The domestic
banks, Saudi Aramco and other state-owned enterprises have
overseas liabilities.

    Saudi Arabia has become dependent on borrowing to finance its
budget deficits after having liquidated much of the government's
deposits in SAMA.  The Saudi government began direct borrowing in
1988 through a domestic government development bond program.  The
bonds have a two- to five-year maturity.  In 1991, following the
Gulf War, the Saudi government expanded its borrowing when it
signed loan syndications with international and domestic banks
and introduced treasury bills.  By the end of 1993, total Saudi
government domestic and foreign debt was an estimated USD 80
billion, or 65 percent of GDP.  Over 90 percent of this debt is
owed to domestic creditors:  the autonomous government
institutions, commercial banks, and private Saudis.  Total
interest payments on the debt were estimated at eight percent of
expenditures in 1993.


5.  Significant Barriers to U.S. Exports

    Although the U.S. is the Kingdom's largest supplier and
investor, trade and investment barriers appear in a variety of
forms.  The foreign capital investment code requires that foreign
investment be made in line with the nation's development
priorities and include some technology transfer.  While there are
no legal limitations on percentage of foreign ownership, prior to
1994, wholly foreign-owned ventures were unlikely to receive
government approval.  Foreigners may not invest at all in joint
ventures engaged solely in advertising, trading, distribution or
marketing.  Real estate ownership is restricted to wholly-owned
Saudi entities or citizens of the Gulf Cooperative Council (GCC).

    Saudi labor law requires companies registered in the Kingdom
to give preference to Saudi nationals when hiring.  The
expatriate workforce in the Kingdom is approximately four
million.  Saudi Arabia announced implementation of a Business
Entry fee of Saudi riyals 1,000 (USD 267) in 1995 for working
involving Saudi and non-Saudi companies.

    On September 30, 1994, the GCC foreign ministers publicly
announced that the GCC was no longer enforcing the secondary and
tertiary aspects of the Arab League boycott of Israel.  Some
Saudi commercial documentation continues to contain references to
the Arab League boycott.  U.S. firms often have to seek revision
of these documents before they sign the documentation.  The
primary boycott against products and services from Israel remains
in force.

    Import licensing requirements designed to protect domestic
industries or restrict importing to nationals are an obstacle to
free trade.  Saudi Arabia requires a license to import
agricultural products.  In addition, contractors of civilian
projects may not import directly and instead must purchase
equipment and machinery from Saudi agents.

    Restrictive shelf-life standards for food products act as de
facto discrimination in favor of European and Asian products,
which take less time to ship than products made in the United
States.

    In 1987, Saudi Arabia enacted regulations favoring GCC-made
products in government purchasing.  GCC items now receive up to a
ten percent price preference over non-GCC products.  Under a 1983
decree, foreign contractors must subcontract 30 percent of the
value of the contract, including support services, to majority
Saudi-owned firms, a restriction which U.S. businessmen consider a
serious barrier to exports of U.S. engineering and construction
services.  Saudi Arabia negotiates offset requirements in
connection with certain military purchases and, recently, for
some major civilian projects.

    In addition, the government reserves certain services for
government-owned companies.  Insurance services for government
agencies and contractors are reserved for the national company
for cooperative insurance.  A "fly-Saudia" (Saudia Airline)
policy applies to government-funded air travel.

    Saudi Arabia applies a "fly-Saudia" policy to foreign Muslims
traveling to the Kingdom to visit the holy city of Mecca during
pilgrimage every year, as well.  The government reserves a
percentage of foreign pilgrim traffic for Saudia Airline, and
enforces this policy by regulating the number of foreign carriers
permitted to land during the pilgrimage period.  The government
also gives a preference to national shipping companies: up to 40
percent of governmental purchases must be shipped in Saudi-owned
vessels.

    Saudi customs rules require that incoming goods be
accompanied by documentation certified by an approved member of
the Arab-U.S. Chamber of Commerce and the Saudi Embassy or
Consulate in the United States.  The latter requirement slows
shipping, adds man-hours and fees, and ultimately increases the
cost of the product to Saudi customers.


6.  Export Subsidies Policies

    Saudi Arabia has no export subsidy programs specifically
targeted at industrial products, though many of its industrial
incentive programs indirectly support exports.  Agricultural
export subsidies are discussed above.


7.  Protection of U.S. Intellectual Property

    The United States Trade Representative placed Saudi Arabia on
the Special Section 301 Priority Watch List in 1993 mainly
because the Kingdom's copyright law does not protect foreign
works.  On April 13, 1994, Saudi Arabia acceded to the Universal
Copyright Convention (UCC).  It began enforcing reciprocal
protection for UCC signatories July 13, 1994, although pirated
products may still be commonly found in shops.

    The Kingdom's copyright law went into effect in 1990.  The
law provides protection for the life of the author plus fifty
years in the case of books, and in the case of sound and audio
visual works, for the life of the author plus twenty-five years. 
Computer programs are also covered, although the law 
does not specify a period of protection.  The law does not apply
to Western works, however, Saudi authorities have indicated that
through the Kingdom's accession to the Universal Copyright
Convention, they will be able to extend protection to Western
works.  As of November 1994, overt computer piracy has decreased,
but many pirated videos and sound recordings are still available
in the marketplace.

    Saudi Arabia enacted a patent law in 1989.  The criteria for
determining whether an invention is patentable are similar to
those applied in the United States.  Saudi law prohibits the
unlicensed use, sale or importation of a product made by a
process subject to patent protection in Saudi Arabia.  At the
same time, the law allows the government to declare that certain
areas of technology are unpatentable.  It also permits compulsory
licensing of patented products and processes, with or without
compensation to the patent holder, for non-use of the patent or
for public policy reasons.  As of November 1994, the Saudi Patent
Office had not yet acted on any of the 3,000 applications it had
received.

    The Kingdom's trademark laws and regulations conform to
international norms, but U.S. businesses have complained of
excessive registration and search fees, as well as problems with
enforcement.  Counterfeiting in spare auto parts, cologne,
pharmaceuticals and other consumer products is widespread. 
Infringement proceedings are spotty.  Some proceedings can take
years and cost tens of thousands of dollars, while others can be
resolved in less than two weeks.  Moreover, many Saudi judges are
trained only in religious law and are perceived as unsympathetic
to trademark claims brought by foreigners.

    U.S. industry groups have estimated losses due to lack of
copyright protection at over USD 110 million in 1992.  When
losses from trademark counterfeiting and patent infringement are
included, this figure is substantially higher.


8.  Worker Rights

    a.  The Right of Association

    Government decrees prohibit both the formation of labor
unions and strike activity.

    b.  The Right to Organize and Bargain Collectively

    This right is not recognized in Saudi Arabia.

    c.  Prohibition of Forced or Compulsory Labor

    Forced labor is prohibited in Saudi Arabia. However, since
employers have control over the movement of foreigners in their
employ, forced labor, while illegal, can occur, particularly in
the case of domestic servants and in remote areas where workers
are unable to leave their places of employment.

    d.  Minimum Age for Employment of Children

    The labor law provides for a minimum age of 13, which may be
waived by the Ministry of Labor with the consent of the 
child's guardian.  Children under 18 and women may not be
employed in hazardous or unhealthy industries such as mining. 
Wholly-owned family businesses and family-run agricultural
enterprises are exempt from the minimum age rules, however.

    e.  Acceptable Conditions of Work

    Saudi Arabia has no minimum wage.  The labor law establishes a
48 hour work week and allows employers to require up to 12
additional hours of overtime, paid at time and one-half.  It also
requires employers to protect employees from job-related hazards
and diseases.

    f.  Rights in Sectors with U.S. Investment

    Major U.S. companies operating in the oil, chemicals, and
financial services sectors are good corporate citizens and adhere
strictly to Saudi labor law.  Conditions of work at major U.S.
firms are generally as good or better than elsewhere in the Saudi
economy.  U.S. firms normally work a five and one-half day week
(44 hours) with paid overtime.  Overall compensation tends to be
at levels that make employment in U.S. firms very attractive. 
Safety and health standards in major U.S. firms in Saudi Arabia
compare favorably with non-U.S. firms in Saudi Arabia.



  Extent of U.S. Investment in Selected Industries.--U.S. Direct
Investment Position Abroad on an Historical Cost Basis--1993

(Millions of U.S. dollars)
    
    Category      Amount

Petroleum       (1)
Total Manufacturing       (1)
  Food & Kindred Products(1)
  Chemicals and Allied Products    (1)
  Metals, Primary & Fabricated     (1)
  Machinery, except Electrical      2
  Electric & Electronic Equipment   5
  Transportation Equipment0
  Other Manufacturing    35
Wholesale Trade 27
Banking         (1)
Finance/Insurance/Real Estate       (1)
Services       104
Other Industries(1)
TOTAL ALL INDUSTRIES    2,567     

(1) Suppressed to avoid disclosing data of individual companies

Source: U.S. Department of Commerce, Bureau of Economic Analysis
(###)


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