JEDDAH, 3 August 2004 — With the continued growth in world oil demand and rising prices, Saudi Arabia is expected to register an economic growth of 6.4 percent this year.
Growth in real GDP (gross domestic product) is strongly influenced by the performance of the oil and non-oil sectors.
According to the Saudi Economic Bulletin, 2nd quarter 2004, issued by the Saudi British Bank (SABB), the non-oil sector is fairly consistent in its annual growth performance staying within a range of 2.4 percent to 4.0 percent over the last six years.
Despite the Saudi government trying to bring down public sector growth, it has averaged 2.7 percent annually, more than twice the target growth of the Seventh Development Plan (7DP) and the 2020 vision, the SABB bulletin, which was prepared by SABB economic adviser Prof. John Presley, said.
Manufacturing growth has averaged 4.0 percent and kept within a narrow range of 2.3 percent to 4.8 percent. Growth in wholesale and retail trade has fallen below 5 percent per annum over the last four years; this compares with growth in excess of 8 percent per annum for both 1998 and 1999.
The utilities sector has continuously recorded strong annual real growth, typically in excess of 5 percent per annum except for 2000.
Growth in finance, insurance, real estate and business services has been more modest in recent times (2000-03) remaining between 3 percent and 4 percent per annum, the bulletin said.
It added that the construction sector is also more volatile than most other sectors with a wide range of growth rates (-2.4 percent to 5.9 percent) and overall a disappointing average growth rate of around 2 percent per annum.
In terms of 7DP targets, the sectors exceeding expectation appear to be wholesale and retail trade, transport, storage and communications as well as the utilities; those sectors short of 7DP targets are finance, insurance and real estate, construction as well as non-oil mining and quarrying which continues to disappoint, the bulletin said.
The overwhelming influence on the Kingdom’s development will remain that of the oil sector because it is the main determinant of the level and growth of government spending, for its influence upon business and consumer confidence, the liquidity of the economy, the level of public debt and the volume of private sector contracts emanating from the public sector, the bulletin said.
The Kingdom will be benefited enormously due to major developments in the world oil market.
So far this year the OPEC (Organization of Petroleum Exporting Countries) basket price has averaged well about $28 a barrel recorded in 2003 which itself was above the average in 2002 of about $24.4 a barrel.
According to the SABB bulletin, world oil demand growth continues to rise and the IEA (International Energy Agency) now expects 2.2 percent growth in 2004 and the same in 2005, with non-OPEC oil supply growing by only 2.1 million bpd to end 2005 and therefore unable to meet the overall increase in oil demand (creating more demand for OPEC oil).
The Chinese economy, in particular, is putting ever higher demands upon the oil market in order to sustain its current growth rate, with demand growing from 5.5 million bpd in 2003 to 6.5 million bpd by 2005. Overall world oil demand is forecast to grow from 79.5 million bpd in 2003 to 83.0 million bpd in 2005.
The bulletin said that as to the longer-term future there are a number of key factors which will determine the Kingdom’s future performance and may cause divergences from past trends:
• The push toward privatization and the sectors/organizations selected for privatization.
• Changes in government policy toward various sectors; for example, how will support of agriculture will change in future? Will foreign investment receive even more favorable treatment? How will health and education be treated in the annual budget?
• Population and other demographic changes influencing the demand upon individual sectors.
• Possible impact of WTO (World Trade Organization) membership on the liberalization and competitiveness within domestic industries.
• Change in access to finance within the Kingdom and the development of capital markets.
