Threat to Britain's Saudi trade

SAUDI ARABIA security fears come at a time of unprecedented business opportunities there for British companies. The kingdom signed a trade agreement with the European Union last September, paving the way to membership of the World Trade Organisation.

The deal is expected to make it easier for EU, including British, firms to win a share of the country's planned infrastructure spending as it opens up sectors such as telecoms and construction.

Saudi Arabia is already Britain's largest trading and investment partner in the Middle East.

UK Trade and Investment, the Government agency that helps British companies do business overseas, says trade in goods and services between the two countries is running at about £4bn a year, with more than 90 UK-Saudi joint ventures in the kingdom. Britain is the second-biggest investor there, after the US.

'The Saudi market is of enormous importance and potential to Britain,' UKTI says. 'Its young and rapidly growing population has accelerated the need to diversify the economy and the drive towards attracting far greater levels of foreign direct investment.'

Sectors targeted by the agency include airports and aviation, IT and communications, education, petrochemicals, tourism and water.

Official data show Saudi Arabia was Britain's 19th biggest export market last year, below the US and most European countries but above South Africa, Singapore and Russia.

Exports totalled £1.8bn, having peaked at £3.7bn in 1997 thanks to two huge Al Yamamah defence deals. Crucially, however, Britain has retained a positive trade balance with the country for the past decade.

So opportunities abound, but will they be realised? Jan Randolph, chief economist at the World Markets Research Centre, says: 'Saudi Arabia is a relatively closed economy and heavily regulated, apart from its oil exports, import trade and overseas financial investment links.

'While the Government is working to open the economy up to foreign investment, the realities of independent foreign business activity within Saudi Arabia are yet to be fully tested in all but a few sectors.'

The near-collapse of Saudi Arabia's initiative last year, which invited foreign companies to invest in gas projects, indicates the high level of uncertainty in securing contracts. However, Shell and France's TotalFinaElf later struck a smaller deal.