Saudi Arabia Country Brief - January 2008

Bilateral Relations

Bilateral relations are friendly and have traditionally been based on extensive trade relations as well as people-to-people contacts. The first visit by an Australian foreign minister was in April 2001. Recent years have also seen visits by the then ministers for Defence, Trade and Agriculture. The Governor General went to Riyadh in August 2005 to pay his condolences on the death of King Fahd and again in December 2005 for a bilateral visit.

Victorian Premier Bracks visited Riyadh in March 2004, and Queensland Premier Beattie in November 2006. Queensland has now opened a trade office in Riyadh, working with the existing Austrade presence.

The Council for Australian-Arab Relations (CAAR) is working to broaden and deepen relations with Arab countries, including Saudi Arabia. Mr Usamah Al Kurdi, Member of the Economic Affairs Committee of the Saudi Shura Council and Saudi businesswoman Lubna Olayan have visited Australia as guests of the CAAR.

Australia has begun negotiations with the Gulf Cooperation Council (GCC), of which Saudi Arabia is a member, on a Free Trade Agreement.

Political Overview

Saudi Arabia is a traditional monarchy. King Abdullah succeeded to the throne on 1 August 2005, following the death of his brother, King Fahd. The King is assisted by a Council of Ministers which he himself appoints and which includes royal family members. In recent years the consultative Shura Council of 150 members, also appointed by the King, has developed a modest but increasing role in public debate. A process of elections for municipal councils commenced in early 2005.

Saudi Arabia is a member of the Gulf Cooperation Council (GCC), which also includes the United Arab Emirates, Kuwait, Oman, Bahrain and Qatar. It is a member of the Arab League, the Organization of the Islamic Conference and the United Nations. Saudi Arabia hosted the 19th Arab Summit in Riyadh on 28-29 March 2007. The Summit relaunched the 2002 Arab Peace Initiative for the Middle East in its original form, a proposal offering peace between Arab countries and Israel based on international resolutions and standards.

Economic Overview

The Kingdom’s economy is currently booming. Non-oil growth grew by 6 per cent in 2005 and soaring oil revenues over recent years have created significant budget and external surpluses. The booming economy has been matched by an increase in demand for imports, driven largely by massive construction projects. Despite a 30 per cent rise in imports in 2005, there was a sizeable budget surplus in 2006.

With a population of over 24 million, and over 25 per cent of the world’s conventional oil reserves, Saudi Arabia is the Gulf region's largest economy. Although efforts have been made to diversify Saudi Arabia's economy, it remains heavily dependent on the oil sector and will continue to be so for the foreseeable future. Private non-oil sector contribution to GDP has increased over the past decade, but oil and oil derivatives still account for 90-95 per cent of Saudi export earnings, 75 per cent of budget revenues and about 30-35 per cent of GDP.

Under the leadership of then Crown Prince Abdullah, the Saudi government initiated structural reform measures designed to encourage privatisation, liberalise foreign trade and reform investment regimes. Commercial laws were revised and initial steps taken to free up foreign investment and privatise parts of the state sector. As King, Abdullah has pushed this agenda and his focus on economic diversity and privatisation has been evident.

Saudi Arabia acceded to the WTO in December 2005. In March 2007, the Saudi Supreme Economic Council announced the opening of new sectors to foreign investment including insurance services, wholesale/retail trade, communications services and air/train transport services.

Bilateral Economic and Trade Relationship

Saudi Arabia is a major oil exporter and an important trading partner for Australia.In the year 2006-07, Australia's merchandise exports to Saudi Arabia totalled over A$2 billion, making it our 17th largest merchandise export destination. It is Australia’s largest market in the Middle East and a major market for Australian exports of motor vehicles, dairy products and livestock. It is a substantial market for barley, meat products and gold, and a growing market for fresh vegetables, refined metals and ICT products. Exports of services including tourism are increasingly important. There are over 3,000 Australian citizens employed in Saudi Arabia, mainly in health, education and other specialist areas.

In 2005-2006, Saudi Arabia was Australia’s largest Middle Eastern market for live sheep, importing 1.2 million head valued at around A$85 million. On 4 May 2005, a Memorandum of Understanding on the Trade in Live Animals was signed by Mr Truss as Minister for Agriculture with his Saudi Arabian counterpart. This enabled trade in livestock to Saudi Arabia to resume after its suspension in 2003. The MOU outlined conditions for the trade and includes assurances that livestock (sheep, cattle, goats) will be treated in line with international animal welfare standards.

An increasing number of Saudi students are choosing to undertake tertiary studies in Australia. In 2007, approximately one thousand Saudi students commenced studies at Australian universities in a wide range of academic fields, including health, IT, business and accounting.

The Australian Government is committed to expanding Australia’s strong and growing trade and investment relationship with the countries of the GCC, and to this end has recently entered into negotiations for a free trade agreement with the GCC as a whole.

Export Opportunities

Saudi Arabia is Australia’s leading export market in the Middle East and of particular interest to Australian business. There is scope for Australia to develop the bilateral relationship with this key Gulf state further. Saudi Arabia has a sound economy with a fast-growing and young population. It has a well-managed banking system, good infrastructure, generally low import duties and barriers, and its business community is sophisticated and very familiar with Western practices.It is a major market for Australian exports of motor vehicles, dairy products and despite past difficulties, live sheep. Education services are an expanding area of service exports with more Saudi students favouring Australia in recent years.

Saudi Arabia's needs are well suited to Australian capabilities. Australians enjoy a good reputation in the Kingdom for competence and tolerance.