Relatively weak credit flows have seemingly not constrained
private investment growth. Data from MEED Projects put the total value of
contract awards for projects underway over the January-mid-September period at
just over $68 billion, around twice the value recorded in the same period of
2009.
Banks have in general terms been happy to lend to these
types of projects, though sponsors have also had to draw on additional sources
of funding.
Public sector investment also shows no sign of abating. MEED
data put the total value of public sector contract awards for live projects in
the nonoil sector at over $100 billion for the January-September period, up
from $37 billion in the corresponding period of 2009. Indeed, public sector
contract awards in the past three and a half months have alone exceeded $70
billion. Power and water projects have dominated, though health, education and
transport infrastructure projects have also featured heavily, the Samba report
said.
The Kingdom unveiled the Ninth Five Year Development Plan in
mid-August, covering the 2010-14 period. This projects spending of SR1.4
trillion ($386 billion) over the five-year period, which is around 67 percent
higher than programmed spending under the 2005-09 plan. Much of this will be
directed toward civil infrastructure-especially education, which receives just
over half the total allocation. Another key area is housing, in which the
country has a deficit variously put at between 500,000-1 million units. The new
plan increases the funds available for municipal and housing services by 53
percent, though at SR20 billion, or $5.3 billion a year, this can only really
be viewed as an adjunct to a broader private sector push to build new homes,
particularly at the lower end of the income scale.
Inflation
Consumer prices have risen sharply in recent months, with
the cost of living index (CLI) in August 6.1 percent higher than a year ago,
compared to a January rate of 4.1 percent.
The report said inflation in Saudi Arabia is driven by three
main factors: Housing shortages, food prices and trading partners' inflation.
The report said rental inflation, meanwhile, is largely
driven by expansion in the nonoil economy. The lack of marginal supply means
that demand for additional expatriate workers is quickly registered in higher
rents. On a year-on-year basis, rental inflation has been trending downward
since the top of the previous economic cycle in mid-2008. However, there are
signs that the 12-month rate is stabilizing-at a rate of almost 9 percent. The
number and scale of public sector projects should see expatriate demand pick up
significantly in the final four months of this year and into 2011, and with
limited additions to supply, rental inflation may well begin to increase as we
move into 2011.
By contrast, the outlook for trading partners' inflation is
largely benign. The global economy is expanding again, but the pace is slow and
excess capacity is large, with unemployment in many OECD countries at or over
10 percent. Global growth is expected to gather pace in 2011, but inflation
likely to remain modest in most of the OECD.
The bank said in its report that inflation will ease a
little from its current highs, and should average around 5.4 percent this year.
The rate might well tick up slightly to around 5.7 percent in 2011 as the
impact of higher rents is offset to some degree by softer food prices.
The Samba report said new figures from the IMF
(International Monetary Fund) show that the central government's 2009 fiscal
deficit was 6.1 percent of GDP (SR86 billion), up from the authorities' earlier
preliminary estimate of 3.2 percent of GDP. The deficit is the first since 2001
and the largest since 1999.
The Samba report said cause of the deficit was a steep decline
in revenue, allied to a sharp surge in spending. The Fund puts total revenue at
SR510 billion, a 54 percent decline on 2008. Oil revenue fell by 56 percent - a
much larger fall than the 42 percent decline in oil export earnings -
reflecting the fact that Saudi Aramco withheld a larger share of oil export
earnings for its own investment needs, as it completed a multi-year program to
raise oil production capacity to 12 million barrels/day. Thus, government oil
revenue fell to just 71 percent of oil export revenue, down from 93 percent in
2008 and the lowest ratio since 2002.
