JEDDAH, 13 April — Saudi Arabia’s non-oil exports are estimated to have increased by 2.4 percent to SR25.4 billion last year compared to SR24.8 billion in 2000, despite the global economic slowdown. Non-oil exports are estimated to account for about 11 percent of total exports and 3.8 percent of nominal GDP. However, non-oil exports financed through commercial banks are estimated to have constituted 46 percent of total non-oil exports last year compared to 53 percent in 2000 and 48 percent in 1999. The Saudi Basic Industries Corporation (SABIC), a major contributor to the Kingdom’s non-oil exports, accounting for one-third of total industrial production in the country, cited a reduction in its exports due to the global recession. Given that around 70 percent of SABIC’s total production is destined for the export market, its net profits fell by more than 50 percent to SR1.78 billion in 2001 compared to SR3.63 billion in 2000. However, SABIC does not seek its financing through commercial banks and therefore would not reflect on the non-oil exports financed through commercial banks. Meanwhile, the Saudi cement industry increased its exports by 3.7 percent to 2.88 million tons in 2001, mostly to countries in the region, including Jordan, Syria and Egypt.
The value of non-oil private sector exports financed through commercial banks fell substantially by 11.4 percent to SR11.63 billion in 2001 compared to a six-year peak of SR13.13 billion the year before.
The Saudi Arabian Monetary Agency (SAMA) classifies non-oil exports financed through local banks into three major categories: Chemicals and plastics, agriculture and animal products, and other products. Export financing of chemicals and plastics dropped sharply by 16.7 percent to SR3.19 billion last year compared to SR3.83 billion in 2000. Moreover, chemicals and plastics exports accounted for 27.4 percent of the Saudi commercial bank’s financing in 2001, compared to 29.2 percent in the previous year. This decline was attributed to the global economic recession, which reduced demand for Saudi chemicals and plastics. Agriculture and animal products, the smallest category of non-oil exports financing accounted for only 1.2 percent of total banks’ financing and was nearly halved to SR136 million in 2001 over a year ago. This continued decline reflects the non-competitive nature of the Kingdom’s agricultural industry where most products are backed by direct and indirect subsidies.
The third major component of export financing is the other industrial goods category, which represents a substantial 71.4 percent of total financing and includes numerous manufacturing goods such as base metals, building materials, paper products, textiles, machinery and electrical appliances. Export financing of this category decreased by 8.1 percent to SR8.31 billion last year, after reaching a six-year peak of SR9.04 billion in 2000. Again, the fall of this category was largely attributed to lower demand for Saudi industrial products on the international market, due to the US-led global recession. The decrease of total export financing was also reflected by falling international commodity prices. According to the International Monetary Fund (IMF), the market price indices for metals and agricultural raw materials dropped by 9.5 percent and 7.2 percent, respectively, in 2001.
The Gulf Cooperation Council (GCC) increased its share of Saudi non-oil export, as bank’s financing rose to 43 percent in 2001 from 38 percent the year before. This is due to the favorable custom treatment among GCC countries where goods produced domestically with at least 40 percent local value added and 51 percent GCC ownership are exempted from tariffs. Export financing of Saudi products through local banks’ to GCC countries amounted to SR5.0 billion last year, up 1.3 percent from SR4.93 billion in 2000. Meanwhile, other Arab countries constituted the second largest market for Saudi exports financed through local banks with a 15.5 percent share, but remained relatively flat at SR1.80 billion in 2001 compared to the previous year. Elsewhere, the shares of Saudi exports financed by local banks to Western Europe and the United States remained small at 5.5 percent (SR637 million) and 4.6 percent (SR537 million), respectively. Moreover, the share of export financing to Eastern Europe shrank significantly to a mere 0.4 percent (SR52 million) in 2001, from 3.3 percent (SR338 million) in 1996. Accounting for around one-third of the total export financing, goods to the rest of the world fell sharply by 33 percent to SR3.61 billion last year compared to SR5.41 billion in 2000. However, Saudi Arabia’s non-oil exports are expected to rebound in 2002, given the current recovery in the US, which ought to trigger growth in Europe and the Far East. Therefore, export financing through Saudi banks are forecast to rise, given the expected rise in demand of chemicals and industrial products, thus benefiting the private sector.
(The author is chief economist at National Commercial Bank in Jeddah)
