JEDDAH, 22 September 2007 — Rising oil prices are continuing to support Saudi Arabia’s foreign asset accumulation. According to the SABB’s Q4-2007 report, Kingdom’s foreign assets in the hands of Saudi Arabian Monetary Agency will break the SR1 trillion mark as of 2007, having grown by SR16.17 billion per month on average so far this year, which can support any future pressure which might be exerted on the Saudi riyal. During the same period last year assets grew at a rate of SR20.2 billion due to higher oil revenues and a greater propensity for holding assets abroad.
Most of SAMA’s foreign assets are G-7 bonds that provide safe returns during volatile times. Investment in foreign securities, which are now more than 80 percent of SAMA’s foreign assets, provide ample security in time of high global volatility.
Saudi Arabia’s acquisitions abroad are just beginning to take off. So far most large Saudi acquisitions have taken place outside the Middle East due to the size and availability of the market opportunities and also to strategic positioning by the government. From a total of SR141.3 billion in the Gulf Arab acquisitions so far this year, some 59 percent or SR83.5 billion have been invested by Saudi public and private entities in just for deals.
Dr. John Sfakianakis, SABB’s chief economist, said in the report that the acquisitions of foreign assets by Saudi enterprises will continue, by not only the Saudi Basic Industries Corp. (SABIC) and Saudi Telecom Co. (STC) but also by the private sector. The Saudi money has particularly found its way widely into the Middle East, with real estate, construction and hotels being the preferred sectors.
The UAE, Egypt, Jordan, Syria, Morocco and Lebanon have been important investment destinations for private Saudi money. Some 60 percent of the five-star hotels in Cairo, for instance, are owned by Saudi investors and about 35 percent of the new construction projects initiated over the past two years in Jordan are Saudi-owned. Saudi Arabia has also seen an increase in the inward foreign direct investments over the past few years. According to the latest statistics from the United Nations Conference on Trade and Development (UNCTAD), average annual FDI inflow to Saudi Arabia was a mere SR911.2 million between 1990 and 2000. Since 2000 to 2005, Saudi Arabia has witnessed an increase of 671 percent in FDI. For the year 2007, the FDI inflow to Saudi Arabia is expected to increase to surpass SR22.5 billion.
Despite stock market collapse last year, Saudi Arabia’s economy continues to grow at a robust pact. The SABB sees 3.7 percent real GDP for 2007 and 5.8 percent in 2008.
Sfakianakis said that in the event of buoyancy in oil prices, the nominal GDP might also enter positive territory from the current forecast of —2 percent. According to the revised national accounts, real GDP in 2005 was 6.1 percent (previously 6.5 percent) and in 2006 4.3 percent (previously 4.2 percent, with the economy (real GDP) growing in size since 2003 by 16.44 percent.
Sfakianakis said that the present-day economic boom should not be compared with that of the late 1970s as the economy at that time was much smaller. Hence, the effects of the increase in oil income were so tremendous that the economy grew 2.3 times between 1970 and 1979 from a very low base.
The construction sector is only now beginning to witness a boom, which is expected to last for at least the next decade. The bank credit for building and construction purposes has also increased between Q2-2005 and Q2-2007 by 63 percent to reach SR41 billion. During the next decade, the construction activity is expected to surpass SR750 billion.
The report said the government infrastructure spending is also picking up in the Kingdom. Saudi Arabia, over the coming decade, will have to spend SR330 billion on water, sewage and electricity projects. The railway expansion program is also taking shape for which expenditure amounting to around SR40 billion is anticipated over the next seven years.
