JEDDAH, 12 May 2004 — The same high oil prices jeopardizing the global economy have sparked a building boom in Saudi Arabia, the world’s leading oil producer, a recent study says. The Saudi government nearly doubled its capital projects spending from last year to 42 billion Saudi riyals, based on record high oil prices, the Jeddah-based National Commercial Bank said in a research note. The bulk of the money will be spent on much-needed hospitals, schools and sewage and desalination plants, according to the report. Saudi Arabia’s population growth is fast outstripping the government’s ability to provide services essential to maintaining stability.
The Saudis need around $29-$31 a barrel for London benchmark Brent futures or $32-$34/bbl for crude on the New York Mercantile Exchange to pay down staggering debt and provide essential social services, the Center for Global Energy Studies says.
The continuing bull run — crude futures hit $40/bbl last week in New York for the second time since 1990 — will probably push construction up again this year, the bank said. Oil revenue in 2003 doubled initial government estimates of SR122 billion, topping out at SR247 billion, fueling “exuberant construction activity.”
Last year, publicly announced building contracts in the Kingdom increased 17%, to SR18.14 billion, on the back of an injection of capital spending by a government flush with oil revenue, it said.
Public spending spurred the private sector. Bank lending for construction rose to the highest level ever, up 4.8% to encompass 9% of all bank commercial credit. That’s expected to grow more this year.
