Saudi Arabia’s non-oil sector set for boost as economic reforms take off

Saudi Arabia is looking to reduce its reliance on the energy industry and boost private sector business. (Shutterstock)
Updated 14 May 2019
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Saudi Arabia’s non-oil sector set for boost as economic reforms take off

  • Under the ambitious Vision 2030 plan, the country is looking to reduce its reliance on oil
  • Such reforms are paying off, with growth in the Kingdom’s non-oil sector set for an additional “pick up”

LONDON: Saudi Arabia’s non-oil sector is set for a further boost as the Kingdom’s economic reforms pay dividends and work begins on a raft of mega-projects, a report published Sunday found.
Under the ambitious Vision 2030 plan, the country is looking to reduce its reliance on the energy industry and boost private sector business.
Such reforms are paying off, with growth in the Kingdom’s non-oil sector set for an additional “pick up” going forward, according to a report by Bank of America Merrill Lynch.
“Authorities’ ongoing fiscal reforms and possible one-off revenues are keeping non-oil revenues on track,” wrote the bank’s regional economist Jean-Michel Saliba.
Saliba said the $69 billion deal in which oil giant Saudi Aramco plans to acquire petrochemicals firm SABIC from the Public Investment Fund (PIF), could further boost the non-oil sector.
“The likely ramp-up in budget expenditures and, in particular, off-budget capital spending after the completion of the SABIC-Aramco-PIF deal, suggest non-oil activity is likely to pick up going forward,” he wrote.

FASTFACT

2.1%

Growth in Saudi Arabia’s average non-oil GDP last year, compared with 1.3 percent in 2017.

The completion of the SABIC deal and the subsequent financial boost for PIF, Saudi Arabia’s sovereign wealth fund, could help kickstart many of the Kingdom’s planned mega-projects, the report added.
That could boost growth in non-oil GDP by 2 percentage points “in the medium term” — which would be almost double the 2.1 percent rate at which non-oil GDP grew in 2018.
“The possible finalization of the Saudi Aramco-SABIC-PIF deal could unlock $69.1 billion of financing to the PIF. This could support a first phase of mega-projects. Authorities suggest the transaction would close in 2020, implying the growth impact of PIF’s off-budget capital spending could start to be felt next year,” Saliba wrote.
Saudi Arabia achieved its first budget surplus since 2014 in the first quarter of 2019, at about $7.41 billion, the country’s minister of finance said in late April.
The Bank of America Merrill Lynch said non-oil revenues stood at SR76 billion ($20.3 billion) in the first quarter of 2019, a 46 percent rise on the year-ago period.
But it cautioned that Saudi Arabia’s fiscal surplus is “unlikely to last” later in the year.
“We expect the budgetary outcomes to deteriorate going forward, following the surprising (first quarter) fiscal surplus,” Saliba wrote.
That surplus was attributed by Saliba to an increase in special dividends paid by Saudi Aramco to the government, along with seasonality and control of spending.
Government spending during the first quarter was also “unsustainably low,” the bank added, another factor in the surplus.
“Spending is likely to increase in coming quarters, particularly given the seasonally low spending figures in the first quarters of the year,” Saliba wrote.

FASTFACTS

2.1%

Growth in Saudi Arabia’s average non-oil GDP last year, compared with 1.3 percent in 2017.


Samsung shares rise as Huawei struggles

Updated 2 min 7 sec ago
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Samsung shares rise as Huawei struggles

SEOUL: Shares in Samsung Electronics climbed nearly three percent Tuesday on the back of its chief rival Huawei’s mounting problems, including a decision by Google to sever ties with the Chinese mobile phone maker.
It is the latest in the months-long saga between Huawei and the United States analysts warn could see Chinese semiconductor demand fall, threatening a nascent Asian recovery in the industry.
US Internet giant Google, whose Android mobile operating system powers most of the world’s smartphones, said this week it is cutting ties with Huawei to comply with an executive order issued by President Donald Trump.
The move could have dramatic implications for Huawei smartphone users, as the firm will no longer have access to Google’s proprietary services — which include the Gmail and Google Maps apps.
Investors bet Huawei’s loss could benefit Samsung, the world’s biggest smartphone maker which has been facing increasing competition from its Chinese rival, sending its shares up 2.7 percent at closing on Tuesday.
Analysts say the US ban will damage Huawei’s ability to sell phones outside China, offering Samsung a chance to consolidate its position at the top of the global market.
“If you are in Europe or China and couldn’t use Google map or any Android services with a Huawei smartphone, would you buy one?” MS Hwang, an analyst at Samsung Securities, told Bloomberg News, adding: “Wouldn’t you buy a Samsung smartphone instead?“
Samsung accounted for 23.1 percent of global smartphone sales in the first quarter of this year, according to industry tracker International Data Corporation, while Huawei had 19.0 percent.
But Huawei’s troubles may be a double-edged sword for Samsung — also the world’s biggest chipmaker — if it leads to a plunge in demand for semiconductors.
China dominates purchases from Asian chip makers and bought 51 percent of their shipments in 2017, Bloomberg reported citing a Citigroup analysis. Including Hong Kong, it accounted for 69 percent of South Korea’s chip production.
“In our view, China’s restocking efforts for electronic goods will likely weaken and be delayed if the tensions and the ban stay longer, which likely will hurt overall demand,” the report said.
Last week, Trump declared a “national emergency” empowering him to blacklist companies seen as “an unacceptable risk to the national security of the United States” — a move analysts said was clearly aimed at Huawei.
The US Commerce Department announced a ban on American companies selling or transferring US technology to Huawei, with a 90-day reprieve by allowing temporary licenses.