Saudi Arabia plans to start up its first car manufacturing company with a capital of $500 million and expects a prototype within two years, state media reported.

Riyadh-based King Saud University's president Abdullah Al-Othman signed a memorandum of understanding with a South Korean car manufacturing firm to set up the new company.

'(The company) will have a capital of about $500 million,' Othman said, quoted by the state news agency SPA.

Up to 15 percent of the financing for the new venture is to be provided by the university's investment arm, Wadi Al-Riyadh Technology, while 30 percent will be covered by the Korean firm. The rest will be offered to investors, the agency said.    

A prototype of an economic car suitable for local use will be ready within the next two years, Al-Othman said.

He said he hoped that Saudi Arabia could export its first car to other Gulf states as well as North African countries. Saudi Arabia, the largest Arab economy, is heavily dependent on oil and is trying to diversify its revenue to other sources. - Reuters