JEDDAH, 9 April 2007 — Saudi Arabia’s current account surplus is expected to reach SR245 billion ($65.3 billion) or 19.2 percent the of gross domestic product (GDP) this year. According to a SABB’s latest report about Saudi Arabia prepared by SABB Chief Economist Dr. John Sfakianakis, Saudi Arabia’s current account surplus was 10 percent of the world’s surplus in 2006 and was among the top five global surplus holders.
The SABB report said current account surplus would decline 46.1 percent due to decrease in oil exports, increase in imports and service and income transfer deficits.
Remittances constitute a substantial source of leakage in the Kingdom’s balance of payments. “We estimate that this year SR58.1 billion will be remitted abroad compared to SR52.4 billion remitted in 2005,” Sfakianakis said, adding around 65 percent to 70 percent goes to south Asia and the Philippines. He said “After the US, Saudi Arabia is the second-biggest source of workers’ remittances to developing countries.”
According to Saudi Arabian Monetary Agency (SAMA) preliminary data, Saudi Arabia’s trade balance is estimated to record a surplus of SR553.4 billion ($148 billion) in 2006, an increase of 17.5 percent. The current account is estimated to record the highest surplus in the country’s economic history, amounting to SR358 billion ($95.5 billion) in 2006 compared to SR337.7 billion ($90.05 billion) in 2005, an increase of 6 percent.
The SABB report said that a drop in the current account would release some of the upward pressure on the currency. The US remained Saudi Arabia’s top supplier with 14.8 percent of imports, followed by Japan and Germany. China, in fourth place, increased its share of the total to 7.4 percent from 6.6 percent in 2004. US imports grew by 60 percent between 2003 and 2005 whereas Chinese imports rose by 104 percent over the same period.
Sfakianakis said “The growth in Chinese products is not a surprise, however, as we estimate that around 11 percent of the products exported from China into Saudi Arabia are from US-owned firms based in mainland China.”
According to the latest data, total imports of goods and services rose by 27.2 percent to SR390 billion, of which SR243.7 billion was accounted for by goods imports up by 19.2 percent in 2006, which was lower than the 33 percent growth reported between 2004 and 2005. The fall in goods imports, over 2006, could be emblematic of the fall in demand/consumption caused by the declining stock market rather than the conventional view of depreciating real effective exchange rates. Sfakianakis said “This year imports will grow by 15 percent, reaching SR281.2 billion, as capital expenditure continues to develop on the back of strong government spending.”
Imports of machinery, appliances and equipment, which constitute the largest single import item, rose particularly rapidly, with a year-on-year increase of 46 percent.
According to SABB estimates goods imports in 2007 will rise by 15 percent to reach SR280 billion.
Sfakianakis said “In many ways, the 2006 import data act as proof to those who saw change in the Kingdom’s import regime post-WTO (World Trade Organization). A common fear held prior to the Kingdom’s entry into the WTO was that, on accession, the country would be flooded by imports and that agency agreements would be canceled. In fact, we have only discovered one major agency transfer post-WTO accession and that was facilitated by the liberalization of the agency regulatory regime.”
In late last month, the negative list of investment was revised to comply with Saudi Arabia’s WTO commitments. Foreign investment in distribution services, wholesale and retail trade including medical retail services, private pharmacies and commercial agencies, except franchise rights is now permitted. The revision of the negative list was a procedural matter since the wholesale and retail sector underwent restructuring upon the Kingdom’s WTO accession. Upon accession, foreign companies can hold 51 percent of the equity in a wholesale or retail distribution businesses and by December 2008, the maximum foreign equity stake will increase to 75 percent. “In 2006, the SABB report expecting non-oil exports of goods to have grown by 10.8 percent amounting to SR79 billion ($21 billion), representing 10.1 percent to total goods exported.
Although itemized export data have not been published for 2006, SABB estimates that petrochemical products comprised around 36 percent of all non-oil exports and anticipates petrochemical exports will grow further given there are no upward pressures on the riyal (revaluation), making exports more costly, hence less competitive in the international market place.
Saudi Arabia has plans to increase its petrochemical production and become a leader in the world petrochemical market. According to Saudi Basic Industries Corp. (SABIC), Saudi petrochemicals’ output is expected to rise from 40 million MT/year in 2005 to 75 million MT/year by 2010. The Kingdom’s share in the global petrochemicals industry would hence increase from 7 percent to 13 percent over the same period.
The export of construction materials has also grown between 2002 and 2005 by 77.3 percent and even more stellar export growth has been witnessed in the agricultural, animal and food products sector, which grew by 136 percent over the same period. As a result it is now quite common to find, for instance, Saudi dairy products throughout the GCC.
