With spending boost, budget gives Saudi reforms new impetus

King Salman during a cabinet meeting to announce the 2019 budget. (SPA)
Updated 20 December 2018

With spending boost, budget gives Saudi reforms new impetus

  • King Salman says budget is the largest in the Kingdom’s history, aiming to support economic growth
  • The government aims to boost spending by about 7 percent in 2019

RIYADH: Saudi Arabia hopes a bumper budget unveiled on Tuesday will revive the economy, with record levels of government spending intended to spur growth.

The government aims to boost spending by about 7 percent in 2019, despite a continuing budget deficit — the shortfall in revenues compared to expenditure. 

King Salman said the budget was the largest in the Kingdom’s history, and one designed to achieve financial stability.

“We are determined to go ahead with economic reform, achieving fiscal discipline, improving transparency and empowering the private sector,” he said.

Crown Prince Mohammed bin Salman, who is behind the Vision 2030 program to reform the economy, said the government would continue to “diversify the sources of income and consolidate fiscal sustainability through boosting non-oil revenues.” 

Non-oil revenues increased to $77 billion this year and are estimated to reach $83.5 billion — or around one third of total revenues. 

Minister of Finance Mohammed Al-Jadaan said the budget announcement, along with a speech by King Salman pledging to continue paying allowances to citizens, marked a “historic day” for the Kingdom.

Finance Minister Mohammed Al-Jadaan said the budget marked a historic day for the Kingdom. (Ziyad Alarfaj/Arab News)

Government spending is projected to rise to 1.106 trillion riyals ($295 billion) next year, up from an actual 1.030 trillion riyals this year, Al-Jadaan said at a briefing in Riyadh. 

The budget estimates a 9 percent annual increase in revenues to 975 billion riyals, mostly from oil. The deficit is forecast at 131 billion riyals for next year, a decline on 2018.

Saudi Arabia has been working to diversify its economy away from oil, by promoting the private sector, as well as increasing the prices of fuel and energy and imposing a value-added tax. 

Government coffers have also been given a boost by Saudi Arabia’s clampdown on corruption late last year, in which scores of top officials and business executives were detained at the Ritz-Carlton hotel in Riyadh. 

Al-Jadaan said the government had collected about 50 billion riyals this year in settlements, and he expected collections to continue next year. 

Investigators said this year they aimed to seize about $100 billion overall.

The minister said Saudi Arabia was working to fulfil payments owed by the government to private contractors. “The government is seeking to settle any dispute with the private sector with regard to the due payments,” he said.

Saudi Arabia, long reliant on oil revenues, has suffered a budget deficit every year since 2014, when a slump in energy prices lowered state income. 

Its 2019 budget announcement came as world oil prices tumbled to new one-year lows, amid concerns over demand.

Dubai property developer Damac on hunt for land in Saudi Arabia

Hussain Sajwani
Updated 31 min 11 sec ago

Dubai property developer Damac on hunt for land in Saudi Arabia

  • Brexit a “concern” for UK property market says Sajwani
  • Developer mulls investing “up to £500 million” on London project

DUBAI: The Dubai-listed developer Damac says it is scouting for additional plots of land in Saudi Arabia, both in established cities and the Kingdom’s emerging giga-projects such as Neom.
Hussain Sajwani, chairman of Damac Properties, also said the company would look to invest up to £500 million ($660 million) on a second development in the UK, and that it is on track to deliver a record 7,000 or more units this year.
Amid a slowing property market in Dubai, Damac’s base, the developer is eying Saudi Arabia as a potential ground for expansion for its high-spec residential projects.
Damac has one development in Jeddah, and a twin-tower project in Riyadh — and Sajwani said it is looking for additional plots in the Kingdom.
“It’s a big market. It is changing, it is opening up, so we see a potential there … We are looking,” he said.
“In the Middle East, Saudi Arabia is the biggest economy … They have some very ambitious projects, like the Neom city and other large projects. We’re watching those and studying them very carefully.”
The $500 billion Neom project, which was announced in 2017, is set to be a huge economic zone with residential, commercial and tourist facilities on the Red Sea coast.
Sajwani said doing business in Saudi Arabia was “a bit more difficult or complicated” that the UAE, but said the country is opening up, citing moves to allow women to drive and reopen cinemas.
He was speaking to Arab News in Damac’s London sales office, opposite the Harrods department store in Knightsbridge. The office, kitted out in plush Versace furnishings, is selling units at Damac’s first development in the UK, the Damac Tower Nine Elms London.
The 50-storey development is in a new urban district south of the River Thames, which is also home to the US Embassy and the famous Battersea Power Station, which is being redeveloped as a residential and commercial property.
Work on Damac's tower is underway and is due to complete in late 2020 or early 2021, Sajwani said.
“We have sold more than 60 percent of the project,” he said. “It’s very mixed, we have (buyers) from the UK, from Asia, the Middle East.”
Damac’s first London project was launched in 2015, the year before the referendum on the UK exiting the EU — the result of which has had a knock-on effect on the London property market.
“Definitely Brexit has cause a lot of concern, people are not clear where the situation will go. Overall, the market has suffered because of Brexit,” Sajwani said.
“It’s going to be difficult for the coming two years at least … unless (the UK decides) to stay in the EU.”
Despite the ongoing uncertainty over Brexit, Sajwani said Damac was looking for additional plots of land in London, both in the “golden triangle” — the pricey areas of Mayfair, Belgravia and Knightsbridge, which are popular with Gulf investors — and new residential districts like Nine Elms.
Sajwani is considering an investment of “up to £500 million” on a new project in the UK capital.
“We are looking aggressively, and spending a lot of time … finding other opportunities,” he said. “Our appetite for London is there.”
Damac is also considering other international property markets for expansion, including parts of Europe and North American cities like Toronto, Boston, New York and Miami, Sajwani said.
The international drive by Damac comes, however, amid a tough property market in the developer’s home market of Dubai.
Damac in February reported that its 2018 profits fell by nearly 60 percent, with its fourth-quarter profit tumbling by 87 percent, according to Reuters calculations.
Sajwani — whose company attracted headlines for its partnership with the Trump Organization for two golf courses in Dubai — does not see any immediate recovery in the emirate’s property market, or Damac’s financial results.
“(With) the market being soft, prices being under pressure, we are part of the market — we are not going to do better than last year,” he said. “This year and next year are going to be difficult years. But it’s a great opportunity for the buyers.”
But the developer said Dubai was “very strong fundamentally,” citing factors like its advanced infrastructure, safety and security, and low taxes.
In 2018, Damac delivered over 4,100 units — a record for the company — and this year, despite the difficult market, it plans to hand over even more.
“We’re expecting north of 7,000,” Sajwani said. “This year will be another record.”