JEDDAH — Saudi Arabia which projected a 2001 balanced budget of SR215 billion ($57.3 billion) should expect about 10 percent overspending and a $2 billion budget deficit, according to Brad Bourland, assistant general manager and chief economist at the Saudi American Bank (SAMBA).
The Kingdom set a balanced budget with revenues matching a spending with an increase of six percent over actual 2000 spending.
Driven by the strength of high oil prices and production throughout the year, the economy grew in nominal terms by 15.5 percent in 2000 and by 4.1 percent in real terms. The non-oil private sector grew slower at 2.5 percent in real terms. For 2001, said Bourland, look for the reverse — an overall decline in GDP as oil prices and production drop. However, a non-oil private sector that shows stronger growth is beginning to take hold.
“We believe about 10 percent overspending in likely and a $2 billion budget deficit. We also believe the budget was based on a $22 per barrel price for Saudi oil of 8.7 million barrels per day (bpd) production,” Bourland said in lecture yesterday at Jeddah Chamber of Commerce and Industry.
High oil prices have been the dominant economic theme in 2000 with exports rising to $77 billion from $40 billion in 1999. And since oil revenues flow to the government, Bourland said, the benefit was mostly felt in fiscal performance.
A major challenge facing the Kingdom is the fast population growth, especially a strong youth bulge, where increasing numbers of educated youth are entering the job market each year.
Unemployment among Saudi males is estimated at 14 percent and is forecast to edge up to 15 percent in 2001, said Bourland. This is because combined high growth in the private sector, increased government hiring and Saudization do not create enough jobs to absorb all of the more than 100,000 new entrants to the labor market.
“Unemployment remains the most important challenge for the Saudi economy. The front edge of the Kingdom’s “oil boom babies” is now at an age that they are entering the labor market in ever-increasing numbers. If, over the next several years, the job creation challenge is met, then the groundwork is laid for strong domestic consumption-driven growth for many decades to come. But, the job challenge comes first, and we currently estimate the unemployment rate to be 14 percent, rising in 2001 to 15 percent.”
The current five-year development plan (2000-2005) calls for employing more than 817,000 Saudis of which 488,000 will be through Saudization taking over from foreign workers and the rest through new job creation.
The number of male entrants to the job market is expected to be in the range of 100,000 each year and growing. Should the goal be achieved, the employment trend set out in the development plan would be adequate enough to employ all the new entrants and reduce the current number of unemployment, he said.
During the plan, an estimated 1 million male and female students will graduate from high school of whom 500,000 (slightly more girls than boys) will go college or technical training schools while about 400,000 Saudis will graduate from colleges. Half of them will have degrees in Arabic and Islamic or related studies.
Bourland believes that based on indirect data mainly derived from the General Organization for Social Insurance (GOSI), the economy is currently creating through both Saudization and new job creation in the private sector about 25,000 jobs each year. This is a shy figure of the 66,000 per year average called for in the development plan and only enough to provide employment to one of every four Saudi males entering the job market.
With a package of reforms and changes in business laws aimed at involving the private sector including foreign investors now gaining traction, the economy will begin to grow faster on the strength of the private sector. Bourland estimates that this will add about one half percent per year to real GDP growth until the Kingdom reaches an organic GDP growth of six percent per year. He is optimistic that the Saudi economy will see stronger non-oil growth in 2001 and accelerating growth in the years beyond.
The gas initiative inviting foreign oil firms to develop the Kingdom’s resources for domestic use is the most exciting one, said Bourland. The three core projects under discussion will include capital investment of about $25 billion over five to ten years, or $2.5 billion per year starting probably in 2002. “The ambitions in this regard are substantial, and if realized, will mean exciting growth drivers in the decade ahead.”
The magnitude of private investment sought to build infrastructure is obvious. In electricity, the cost needed to increase capacity is $115 billion until the year 2023, in telecommunication $3 billion until 2005, in petrochemicals $4 billion per year and in desalination $12.4 billion until 2020. To develop its phosphate deposits, the Kingdom needs to build a railroad at a cost of $1.2 billion. The privatization of telecommunication, air transport and many other smaller government assets will continue and this will require the raising of substantial private equity, said Bourland.
