Low Risks

Today the value of Iran’s exports to Saudi Arabia is $100 million and it is predicted that this figure would increase five folds in the future

A bility to take collective measures is a great challenge Iran is facing to expand its trade relations with other countries. Two destructive wars raged in the region in the past decades and regional countries are still suffering the consequences. In order to create an amicable atmosphere, regional countries – particularly Iran and Saudi Arabia as two major powers of the region – should expand their economic cooperation, which would serve as a guarantee for promotion of relations in the field of cultural, political and security matters, an objective pursued by the Saudi Commerce Minister Usama ibn Jaafar Ibrahim Faqih, in his recent visit to Tehran. Here is an account on the latest developments in Iran-Saudi trade relations:

Saudi Arabia, with an area of 2,149,690 sq. km and population of 20 million, and Iran, with a 1,648,000 sq. km area and over 65 million population, are two important countries in the region and the Islamic world as a whole. Political and economic relations between the two nations have entered a new chapter since 1997 and are growing day by day.
Bilateral trade relations are also growing: the value of trade exchanges between Iran and Saudi Arabia stood at $33 million in 1995, while during the years 1996, 1997 and 1998 the figure increased to $113, $88 and $104 million respectively. Based on recent statistics, in the first nine months of 1999, the same figure was $80 million which shows that with the amiable atmosphere created in the bilateral relations, the value of trade exchanges has increased three folds comparing to pervious years. Also during the past 15 years, the trade balance between the two countries has been to the benefit of Saudi Arabia, but in 1999 for the first time the balance changed to Iran’s benefit.

As expressed by the Saudi commerce minister in his visit to Iran, Saudi Arabia has taken practical steps to reinforce closer relations with Iran. Cooperation between Iran and Saudi Arabia within the Organization of Islamic Conference (OIC) and the Organization of Petroleum Exporting Countries (OPEC) are examples of practical improvement. The two countries enjoy historical and religious commonalities. It is believed that Iran and Saudi Arabia are two important and powerful countries in the region and mutual favorable relations are not only in the interest of both countries but also will lead to keeping and promotion of peace and stability in the region and the world.
During his visit, Saudi commerce minister expressed the readiness of his country for expansion of relations with Iran in all areas especially in political and economic fields.
One of the latest developments in Iran-Saudi economic ties was Iran 2000 exhibition held February 2-11 in Jeddah. The exhibition was the largest trade fair ever held by the Islamic Republic in a foreign country. Iran’s exportable goods or services were on display by 300 large manufacturing companies in an area of 11,460 sq. meters. The sections of the exhibition included: machinery, industrial tools, construction materials, sanitary facilities, wood industries, ornaments, house appliances, agricultural products, food industries, chemicals, pharmaceuticals, handicrafts, auto industries, jewelry, carpets and tourist services.
Simultaneous with the trade exhibition, an Iranian economic delegation comprising 650 business people and managers of large companies visited Saudi Arabia. The delegation was the largest one from the Islamic Republic to a foreign country. The delegation visited Saudi traders, industrialists, employers of various industrial, agricultural and service projects and signed various contracts with them.
Of major features of the fair were large partnership by exporters and top manufacturing companies, introducing capabilities of the Islamic Republic in the export field at a large scale. The fair opened a new chapter in Iran-Saudi relations and offered a suitable example of amicable ties for other Islamic countries. It also was a good marketing for Iran’s tourist attractions, helping the setting up of an Islamic Common Market and fostering regional cooperation in a bid to reduce dependency on petro dollars.

Within five years, the value of trade exchanges between Iran and Saudi Arabia is predicted to reach one billion dollars

In the Third Economic Development Plan, the Islamic Republic has adopted a strategy for expansion of non-oil exports. Based on the Plan, over a five-year period (2000-2005) the country would export $41 billion worth of non-oil commodities, 58% of which are industrial exports, including food products, textiles, chemicals and cellulosic, metal and non-metal minerals, petrochemicals and metals. Fifteen percent of exported goods are agricultural and farm products, 10% are handicrafts and carpets and 17% are services, especially technical and engineering services.
Within five years, the amount of trade exchanges between Iran and Saudi Arabia is predicted to reach one billion dollars. If this objective were achieved then Saudi Arabia would become one of most important trade partners of the Islamic Republic of Iran. At present, the main items Iran exports to Saudi Arabia are: petrol, hand-woven carpets, white cement, fresh apple, raisin, clinker, marble stone, die casting molds, ferrosilicon, saffron, tires, steel, sanitary tools for buildings, plastic objects, wheelchair, telephone sets, sweet and chocolate, mineral water, spare parts of combustion engines, safety shoes, etc.
Promotion of political relations between Iran and Saudi Arabia has certainly had a positive impact on their economic relations. Three years ago, Iran did not have any exports to Saudi Arabia, but today the value of exports to that country is $100 million and it is predicted that this figure would increase five folds in the future.
Easing the rules and regulations of exports and supporting exporters by the government is a main solution which can open the doors of international trade to Iran. Also creating associations, good packaging, high quality and low prices, fast transportation and observing the international standards in manufacturing activities are other important factors in this regard.
Saudi Arabia has an advanced banking system and no important problem exits in this area. The presence of Iran’s Export Promotion Bank in this country can serve as a bridge between Iran and Saudi Arabia.
For Iranian business people Saudi market has low risks comparing to European markets and the main reason behind it is the commitment of Arab traders to Sharia. The Export Guarantee Fund would issue guarantees for those traders that export goods to Arabic country. Also, in order to institutionalize trade in the region, trade fairs should not become markets only to offer products for sale.
It is hoped that the Joint Economic Commission of the two countries can come up with some practical means by which to remove any possible difficulties which may exist in the way of mutual trading. Another important issue for Iranian traders in relation with Saudi Arabia and Arab countries as a whole is paying sufficient attention to cultural issues.