| FOREIGN INVESTORS SET SIGHTS ON SAUDI OPPORTUNITIES |
The Saudi economy continues to attract foreign investors, drawn to the kingdom’s long-term prospects and wealth of opportunities.
The Saudi Arabian General Investment Authority data shows more than 1,130 foreign companies entering the Saudi market last year, a 45% increase over the previous year.
A separate report by the Saudi Contractors Authority noted that there were more than 850 projects with an estimated value exceeding SAR 600 billion, most of which will implement the initiatives and goals of the kingdom's Vision 2030.
The flow of new projects should help propel GDP growth, which stood at 0.46% at constant prices in the second quarter of 2019.
Key drivers of the economy where wholesale and retail trade (up 5.78%), construction (up 4.90%), and transport, storage and information and communication (up 6.36%). Overall, non-oil sector expanded 2.94% in the second quarter, surpassing the 2.47% in the second quarter of 2018, as economic activity picked up.
Credit card loans, a good measure of the health of the local economy and consumer sentiment, surged to SAR 18.28 billion in the third quarter of 2019, a 9.3% increase from SAR 16.7 billion at the end of second quarter of the same year.
Consumers were also taking on more loans, with SAR 324.7 billion piled up by the end of the third quarter, compared to SAR 321 billion in the previous quarter – an increase of 1.15%, central bank data shows.
PRIVATE SECTOR CONFIDENCE BOUNCES
Business sentiment is also rising, with purchasing manager index data showing January signalled an overall improvement in business across the kingdom’s non-oil private sector.
“Non-oil firms in Saudi Arabia are optimistic about the business outlook for 2020,” said Markit, which tracks business sentiment across the world.
Other data points to a resurgence in business sentiment. In December 2019, point-of-sales transactions rose 23%, compared to 2018, as consumers absorbed the value added tax and began spending again.
Bank assets also rose to a record SAR 3.9 trillion, its highest level in five years, according to Saudi Arabian Monetary Authority data.
Loans to the private sector reached its highest level in years to SAR 1.55 trillion by the end of 2019, SAMA data shows.
Loans to agriculture and fishing, mining and quarrying, commerce, transport and communications, finances, services and government increased, while manufacturing and construction contracted, compared to the previous year.
Saudi Arabia also saw mortgage financing surge to a record 170,275 contracts at the end of last year, compared to 46,885 in 2018. Total value of mortgage in housing stood at SAR 59.6 billion, apartments SAR 8.9 billion and land SAR 5.4 billion. Indeed, the last month of 2019 saw record contracts of 22,414 valued at SAR 9.3 billion – another record.
ECONOMIC GROWTH
The World Bank estimates Saudi Arabia’s GDP growth rate likely reached 0.4% in 2019 before rising to an average of 2.1% over 2020-2021.
“The global economy’s gradual stabilisation at a forecast growth rate of 2.5% in 2021 should boost oil demand and stabilise oil prices at USD 59 per barrel in 2020-21,” the bank said.
Economic reforms, which have characterised the Saudi economy over the past few years, is also expected to generate organic growth over the next few years.
Meanwhile, the International Monetary Fund has noted that non-oil revenue collections have increased due to the reforms.
“Non-oil revenue was 4.8% of GDP (8.2% of non-oil GDP) during 2012-15 with tax revenues being less than 3% of GDP. The new non-oil revenue measures raised 3.5% of GDP in 2018 taking total non-oil revenues to 8.2% of GDP, and making up 12.4% of non-oil GDP by 2018.
VAT revenues in 2018 were 1.6% of GDP. The IMF estimates that if the non-oil revenue reforms announced by the government are implemented in full, non-oil revenues will be 10% of GDP in 2024.
An environment of low interest rates should also continue to give Saudi economy the flexibility to weather any external headwinds. However, the coronavirus originating from China could hurt global business sentiment.
The deadly virus has claimed more victims than SARS, the last major virus originating from China in 2003. Apart from the tragic loss of life, analysts expect the Chinese economy to take a hit in the first quarter of 2020, which could cascade across the world in the form of lower demand for commodity, goods and services.
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