Analysing the Impact of the World Trade Organisation (WTO) on the Sustainability of Competitiveness of the Petrochemical Industry in Saudi Arabia

Abstract

Saudi Arabia undertook measures to liberalize its economy in order to be a part of the WTO, which were carried out in a gradual manner long before the country was accepted as a member of the organization. The reform measures are still being implemented and the economy opening up to foreign investors. The WTO accession has enhanced the optimism of the investors towards the benefits that are expected to be achieved from this membership. The stock market has already responded to these changes through a positive signal and a higher level of foreign direct investment (FDI) is expected in the coming years. This flow of investment will provide an opportunity for diversification of the oil rich economy of Saudi Arabia. Saudi Arabia has been gradually growing into a centre for production of petrochemicals in the world. Owing to the competitive and none fluctuating price of natural gas, investments in olefins and derivatives have increased, which also bring high returns.
The aim of this research, hence, is to analyse the impact of Saudi Arabia’s accession to the WTO on the petrochemical industry, and to analyse whether the competitiveness of the industry is sustainable under these new circumstances. In doing so, this study also analysis the strengths, weaknesses, opportunities and threats of the industry with the objective of identifying the competitive advantage of Saudi Arabian petrochemical industry by utilizing Porter’s model. The study also provides a discussion on the possible steps that the government might take towards establishing an economy conducive to foreign investment, competition for the growth of the petrochemicals industry.
In responding to the aims and objectives of the study, both the qualitative and quantitative approaches were used. The qualitative analysis includes an analysis of expert opinions collected through elite interviews using semi-structured questionnaires. All these are structured to obtain the opinions of 20 participants regarding the trends and developments of the petrochemical industry and the related policies undertaken by the government. The quantitative analysis includes collecting secondary data for exports and imports of products of the industry along with relevant secondary data analysis of some of the leading petrochemical companies.
The results of the analyses at various levels demonstrate that the petrochemicals industry has the potential to contribute to the gross output, diversification of the economy and the sources of earnings, and hence reducing the dependency on oil as the only source of income. In addition, the analysis shows that the industry has potential for the creation of jobs, new openings for investments in businesses, opening up the domestic markets towards certain new products and at the same time bringing down the reliance on imports. Furthermore, the qualitative analysis shows that government has already taken steps towards promotion and encouragement of FDI inflow in the industry but several other measures related to infrastructure and security factors need to be adopted. The nation already enjoys competitive advantages and benefits of location advantages apart from the cost advantage in oil extraction and petrochemicals production. Accession of Saudi Arabia to the WTO as a member country has opened the economy to the outside competition and the petrochemical industry was supposed to be getting the gains from trade and open economy. The global investors have demonstrated their optimism about investment in Saudi Arabia. The existing opportunities in the petrochemical sector will receive a boost apart from diversification of the oil-based economy. The country is gradually becoming a booming centre of petrochemical industry and the growth is exponential. Technological barriers are gradually broken and the industry is moving towards sustainable development. Owing to the competitive pricing of the natural gas sector and cheap availability of feedstock have made it a lucrative place for investment in petrochemical production. However, it will take some more years to realize the full benefit of the accession to the WTO as complementary sectors are also being developed. The membership has however opened the strengths as well as the weaknesses of Saudi’s petrochemical industry to the entire world. Thus, the membership brings on greater transparency, enabling easier and faster assessment and remedies.