JEDDAH, 21 April 2008 — Backed by sustained high oil prices and a growing need to diversify the economy, Saudi Arabia is embarking on a massive spending program focused predominantly on infrastructure projects across the country.
According to the Dubai-based Shuaa Capital, the value of announced investment projects so far is SR3.2 trillion ($862 billion), with the civil sector taking the lion’s share at 39 percent of the total number of projects.
The power industry came in second at 19 percent, followed by the oil and petrochemical industries with 15 and 13 percent respectively.
The Saudi Arabian General Investment Authority (SAGIA) has taken the lead role in translating the strategic directives, given by the government, to diversify and power the Saudi economy, into an operational plan. In doing so, SAGIA devised the economic cities concept to promote balanced regional growth, achieve economic diversification and create jobs and upgrade competitiveness.
The plan is to develop six economic cities which are designed to be economic stimuli throughout the country. The four cities that have already been launched are King Abdullah Economic City, Knowledge Economic City, Jizan Economic City and Prince Abdulaziz Bin Mousaed Economic City and two others have been announced and approved. The comparative advantage of low-cost energy, abundant petrochemical resources and shared infrastructure will be the main drivers of growth and job creation for these cities.
The report said demographic reality in Saudi Arabia, the strategic significance of economic diversification to safeguard long-term national interests and the enhanced spending ability of the government as long as oil prices are above the $40 level, are key drivers behind Saudi Arabia’s desire to move into high gear now.
The growing determination by the Saudi government to place the country’s economy on a launch pad is evident from the growing liberalization and reform initiatives, which led the World Bank to recognize Saudi Arabia as one of the top reformers in the world in 2007, and the best place to do business in the Middle East. SAGIA, with its objective to turn Saudi Arabia into one of the world’s top-10 most competitive economies, played a pivotal role in this achievement.
According to the report, Saudi Arabia’s economy is expected to continue its momentum this year after recording strong GDP growth between 1999 and 2007. In nominal terms, the Saudi economy expanded with an estimated CAGR of 15 percent between 2003 and 2007. As a result, total nominal GDP is estimated to have exceeded SR1.4 trillion in 2007, compared to SR806 billion in 2002. The CAGR of GDP is projected to be around 8 percent from 2008 to 2012.
The Shuaa Capital report said GDP per capita is expected to have almost doubled from 2002 to 2007, reaching SR56,100 compared to SR32,100. GDP per capita is expected to exceed SR71,000 by 2012 on the back of high GDP growth powered by oil revenues, growing economic liberalization and diversification, increasing private sector participation and foreign direct investment.
Saudi Arabia is the dominant regional economy accounting for around 25 percent of gross national Arab product and boasting of the largest oil reserves in the world. Unlike previous oil booms with single engine economic growth relying on increased government spending, this time Saudi Arabia’s growth is being powered by multiple-engines. The government is adopting initiatives encouraging the private sector to join the economic growth drive and to further accelerate the momentum.
Saudi Arabia’s current account surplus increased from SR340 billion in 2005 to SR358 billion in 2006. The rising surplus, in turn, has led to the total capital expenditure budget for 2007 being raised to SR140 billion, more than double the 2005 outlay. Much of this will be directed toward improving basic infrastructure, such as roads, water, power and sewerage, the Shuaa Capital report said.