JEDDAH, 9 June 2003 — Non-oil private sector exports financed through the ten Saudi commercial banks contracted last year by 5.9 percent, with settled letters of credit amounting to SR10.95 billion by the end of 2002 compared to SR11.63 billion during the same period the year before. This decline came on top of an 11.4 percent drop in the total value of export financing in 2001 after a six-year peak of SR13.13 billion in 2000. Meanwhile, the first three months of this year assumed a continued declining trend, with settled letters of credit totaling SR2.72 billion, a 3.16 percent decline over their level during the same three month period last year.
The slow world economic recovery, led by that of the United States, continues to dampen demand for Saudi non-oil exports, especially in the chemicals and plastics category, which make up over 28 percent of total export financing. As classified by the Saudi Monetary Agency (SAMA), export financing is divided into three broad categories. The smallest category is financing of agriculture and animal products, which constitutes less than two percent of total export financing, increased by 37.2 percent to SR187 million last year from SR136 million in 2001. However, during the first quarter of this year financing of agricultural exports fell significantly by 78 percent compared to the same three-month period of 2002.
Meanwhile, the second major component of commercial banks’ export financing is chemicals and plastics, which averaged about 28 percent of total financing last year, fell by 1.3 percent to SR3.15 billion last year compared to SR3.19 billion in 2001. This trend continued during the first three months of this year, with settled letters of credit in this category falling by a 1 percent to SR907 million compared to SR916 million during the same quarter of 2002.
The third major category of export financing is the other industrial goods, which represents about 70 percent of total financing and includes numerous manufacturing goods such as base metals, building materials, and machinery among other industrial products. Financing of this category fell significantly by 8.3 percent to SR7.62 billion last year compared to SR8.31 billion in 2001, mainly due to lower demand for Saudi industrial products on the international market. However, export financing of other industrial products edged slightly higher by 0.29 percent to SR1.79 billion during the first three months of this year compared to SR1.74 billion during the same period in 2002, yet a rebound remains uncertain.
In terms of geographical distribution of Saudi exports financed through commercial banks, the Gulf Cooperation Council (GCC) represented about 38 percent of total exports financing last year. However, the total value of exports financing to GCC countries fell by 17.25 percent to SR4.13 billion last year compared to SR4.99 billion in 2001. Despite the GCC customs union, which was enacted at the beginning of this year, export financing destined to GCC countries fell by 16.35 percent to SR943 million during the first quarter of this year compared to SR1.13 billion during the same three-month period in 2002.
Export financing to Arab countries, which represents about 15 percent of total, also fell last year by 9.87 percent to SR1.62 billion compared to SR1.80 billion in 2001. In addition to that, exports financing destined to Arab countries also fell by another 10 percent to SR379 million in the first quarter of this year compared to SR421 million during the same period of 2002. The largest percentage decrease was recorded, however, in export financing to North America, which represented about 3.5 percent of total. Settled letters of credit fell by 29.4 percent to SR379 million last year, and continued to decline during the first quarter of this year, falling by 29.5 percent to SR82 million compared to SR116 million during the same three-month period last year.
Meanwhile, financing of private sector exports to Western Europe expanded markedly last year, rising by 38.5 percent to SR882 million, about 8 percent of total financing, compared to SR637 million in 2001. This trend resumed during the first quarter of this year, on the back of weaker US dollar, which makes Saudi exports more attractive. As a result, financing of Saudi exports to Western Europe ballooned by 120 percent to SR373 million during the first three months of this year compared to SR170 million during the same period last year. The outlook for export financing remains mixed this year. On one hand, the reconstruction of Iraq should open up new opportunities for Saudi industrial products, which could give a strong boost to Saudi exports, especially in light of rising commodity prices. However, with the world economic recovery still in question, and geopolitical tensions bogging the region, the downward risk remains significant.
(Said Al-Shaikh is chief economist at the National Commercial Bank in Jeddah.)