Other priorities include the diversification of economic activity and maintenance and expansion of existing infrastructures. The government has recognized that private sector should be the engine for rapid growth. In this regard, the government has already privatized companies like the Saudi Telecommunications Company and the National Cooperative Insurance Company, and has announced schemes to privatize the Saudi Electricity Corporation, Saudi Arabian Airlines ,Ma'aden Company, etc. In the past few years, the government has also taken important initiatives including the Investment Law, the reduction of corporate taxes on foreign investments and liberalization of tourism and real estate. The government also sees significant growth opportunities for job creation in the retail trade, small enterprise, tourism and financial services. In the past year, the government has announced the creation of size economic cities in various parts of the Kingdom. These will provide significant opportunities to the private and public sector as well as to the foreign companies to invest in many industrial and infrastructure mega projects. Besides, the investment opportunities in the petrochemical sector, these economic cities would accommodate industries in steal, plastics, glass and ceramics. Another area of potential investment is the transportation sector where the government has announced several projects affecting the Railways network, air transport and land routes. There are also projects in the pipeline in electric power generation, water desalination, natural gas as well as in knowledge based industries such as health, education and tourism. The financing needs of these initiatives are immense and are becoming increasingly apparent.
The second, again rather obvious, point is that the bond market is one of three broad channels of financial intermediation, along with the better developed, at least in this region, banking and equity markets. Less obvious, perhaps, is the importance of ensuring that the bond market commands a degree of robustness and efficiency capable of channelling suddenly enlarged flows of savings to investment that may be diverted from one or both of the other two channels as a result of crises there. These channels should reinforce each other in order that financial intermediation and therefore economic growth can continue in times of financial stress. We have witnessed how the US bond market helped substitute for bank intermediation in the credit crunch of the late eighties. We have also witnessed how the US banking system in turn played the back-up role when the bond market failed to intermediate funds as a result of the LTCM crisis, thus minimising the disruption to economic growth. In contrast, the less developed bond market in this region failed to provide the necessary backup when banks in a number of jurisdictions faced difficulties. Funds simply dried up and there were debilitating economic and financial consequences. Bond market development in this region is thus an urgent task. This task is, however, hindered by a third point, which is that the three channels of financial intermediation are in competition with each other.