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SAUDI ECONOMY- AT A GLANCE
PERFORMANCE OF SAUDI ECONOMY
Saudi Arabian economy continued to
perform exceptionally well in 2004, with historic oil revenue
augmented by the strongest growth in 22 years in the non-oil
private sector. The 1974-1982 oil boom years were relatively
one-dimensional by comparison. Growth then was almost all
government spending of oil revenues to build infrastructure. The
next period of high growth, 1990-1991, was war-driven. In 2004,
revenue from export of crude oil were exceptional good,
resulting in large surpluses both in the budget and the current
account. GDP growth was high, inflation was under control. The
stock market showed strong growth, real estate continued strong,
and the private sector across the board had a good year. Growth
drivers in 2004 were more diverse than past growth periods. They
included global oil demand strength, which is likely to continue
and lead to a sustained step up in global appetite for Saudi
oil. Domestically, reforms taken over the past several years are
now resulting in higher rates of non-oil private sector growth.
The structural nature of the higher growth of 2004 gives
confidence that 2005, and likely beyond, will also see robust
economic performance in Saudi Arabia.
Crude oil is still the anchor of the
Saudi economy, and the Kingdom earned $106 billion in oil export
revenues in 2004, the highest in its history, and well above the
average of $69 billion for the previous 5 years. This resulted
in a current account surplus of $51.5 billion and a fiscal
surplus of SR 98 billion ($26.1 billion). The non-oil private
sector grew 5.7 percent, its highest growth since 1982, the last
year of the “oil boom” when the private sector grew 6.3 percent.
The best performance came from telecoms, non-oil manufacturing,
and construction sectors.
Strong growth stimulants like high oil
revenues, fiscal policy, robust non-oil growth, low inflation
and interest rates are likely to continue in 2005. While oil
revenues could moderate somewhat, the momentum of the private
sector would build. The forecast of real growth is 2 percent in
the oil sector, 6 percent growth in the private sector, and 3
percent in government activity, resulting in overall real GDP
growth of 4.25 percent in 2005.
Trade and Balance of Payments: The
strong oil market contributed to a healthy trade profile for
Saudi Arabia in 2004. The Kingdom ran its sixth current account
surplus in a row and the largest in its history at $51.5
billion. In merchandise trade, the Kingdom imports only about
one third the amounts it exports. In 2004, according to SAMA,
the Kingdom earned $120 billion from exports. It is estimated
that merchandise imports were approximately $38 billion.
Offsetting somewhat the merchandise trade surplus is a typical
outflow of worker and Saudi remittances, which is estimate to
$15 billion in 2004, and government's utilisation of services
from other countries. The current account balance still enjoys a
strong surplus when the merchandise balance and services &
transfers balances are combined together.
Macroeconomic Performance: The
government announced in December 2004 that it is expecting a
real GDP growth of 5.3 percent in 2004, based on the strength of
oil sector growth and 5.7 percent real growth in the non-oil
private sector, which comprises 44 percent of the economy. The
non-oil growth exceeds beyond 3.9 percent average growth rate of
previous 5 years. It recorded approximately 6 percent growth
rate, which has been identified as the long-term growth rate, a
trend Saudi Arabia should be able to sustain in its private
sector.
Factors like low interest rates are
contributing to strong growth in bank lending to both businesses
and individuals. According to the Ministry of Finance capital
lending in Saudi Arabia had grown by 26.3 percent for the year
2004. Bank lending was as important as oil revenues in 2004 as a
contributor to local growth in money supply.
Mega-projects: The transformation of
the long-negotiated” gas initiative” in the summer of 2003
unlocked many projects in water, power, and petrochemicals to go
ahead independently. During the five years of negotiations,
while not many mega projects were undertaken, the Kingdom was
busy restructuring its regulatory mechanisms for gas, power, and
telecommunications to provide an attractive framework for
private sector participation in these sectors. This effort is
now bearing fruit. The state oil company, Aramco, is allocating
feedstock (for refining, power generation, and petrochemicals)
to 24 projects totalling $30 billion in investment that will
come on-stream between 2006 and 2010. The Saudi petrochemical
giant SABIC has domestic expansion plans that currently comprise
11 projects. Saudi Aramco and Sumitomo of Japan recently signed
a memorandum of understanding for a $4+ billion project to
expand the basic Rabigh refinery into an integrated refinery and
petrochemical complex. Utility company Marafiq plans a $2+
billion power and water desalination plant at the recently
inaugurated expansion of the Jubail industrial city. United Arab
Emirates (UAE) telecoms company Etihad Etisalat, in a consortium
with Saudi investors, has started second GSM mobile phone
network in the Kingdom.
Saudi Arabia in December 2004,
announced a 2004 budget surplus of SR 98 billion ($26.1 billion)
and set a balanced budget for 2005 fiscal with revenues and
expenditures projected at SR 280 billion ($74.6 billion). The
budget showed an SR 50 billion rises in expenditures compared to
last year. He said the government would use the windfall from
oil price hike to provide essential services for citizens all
over the country.
Saudi Arabia has comfortable balance
of payment surplus of $ 51.5 (SR 193.13 billion). The revenue
from crude oil exports valued at $106 billion (SR 397.5 billion)
well above the average of $69 billion (333.75) for the previous
5 years. Non oil exports was valued $ 14 billion (SR 52.5
billion registered an increase of 7.5 % over the previous year.
Growth in money supply was 17.2 per cent in 2004 as compared to
8.2 per cent in 2003.
The Kingdom of Saudi Arabia has taken
a series of economic decisions during the course of the year
aimed at spurring the Kingdom’s pursuit of accession to the WTO
have fostered greater open market private enterprise policies.
Saudi Arabia has become 149th member of World Trade Organization
after long and torturous negotiations.
A major trade development was the
implementation on 1st. January 2003 of the Gulf Cooperation
Council customs union whereby the six GCC (Saudi Arabia, Oman,
Kuwait, UAE, Bahrain, Qatar) countries have a common tariff of 5
per cent on most imported goods that move freely throughout the
GCC after they enter at any one point of entry. However, while
the Customs Union is technically in place, several provisions
including the collection and distribution of tariffs between the
six GCC member countries, have been deferred. Nevertheless, the
Kingdom already had lowered customs tariffs from 12 percent to a
uniform 5 percent.
In a further sign of opening up new
sectors hitherto barred for foreign investors, Deutsche Bank
announced on 9 October 2003 that it plans to start operations in
Saudi Arabia after winning the first non-GCC banking license in
the kingdom for 23 years. Other foreign banks who have already
won licenses to open branches in the Kingdom are: Abu Dhabi
Bank, Kuwait Bank, and the Gulf International Bank. SAMA has
given Licences to 10 other Foreign banks that include among
others, State Bank of India and National bank of Pakistan to
open 100% foreign banks.
The Supreme Tourism Authority unveiled a
number of new procedures aimed at developing tourism in the
Kingdom. It has prepared a five-year work plan covering the
period 2003-2007 with the aim of implementing national tourist
projects and to attract capital to develop tourism. Efforts are
underway to develop 38 new tourist sites in addition to the
existing 175 sites in various parts of the Kingdom. There are
plans to establish a new regional airport in Al-Ola near Madinah
to promote business and tourism in the region. The historical
sites of Madain Saleh are located in Al-Ola.
The Saudi Telecommunications Company (STC)
had successful completed partial privatization in January 2003.
The STC has achieved 11 million mobile (Al-Jawwal) subscription
bases, which is highest in the Gulf region. phased opening of
the telecom sector is aimed at encouraging private investment in
networks and telecom services immediately, mobile telephone
services in 2004 and fixed lines in 2008.
The Kingdom continued to encourage foreign investment in
a manner, which will allow it to absorb the benefits of modern
technology and know how, while preserving its proud religious
and social traditions. Since its establishment in 2000, the
Saudi Arabian General Investment Authority (SAGIA) has approved
licenses for some 2000 projects worth over $12 billion, although
only a fraction of that figure has so far been translated into
actual investment. The major investing countries in Saudi
Arabia include the United States of America, Japan, Britain,
France, Germany, India, Sweden and Syria. There is a very high
level of liquidity in the Kingdom’s economy at present to
encourage new investment. SAGIA identified electricity, water,
communications, petrochemicals, gas, agriculture, railways,
information technology, tourism, education, minerals and
infrastructure projects as potential areas for new investments
in the Kingdom.
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