ECONOMY

NON-OIL SECTOR SUSTAINS SAUDI’S GROWTH MOMENTUM

Saudi Arabia posted a budget deficit of USD 1.41 billion in the second quarter of 2023, the kingdom’s finance ministry reported, as lower oil revenue weighed on the economy.

The world’s top oil exporter recorded a budget surplus of almost USD 30 billion in 2022, beating its own estimates, as higher oil prices boosted government revenues by 31%. The year-to-date budget deficit extended to SAR 8.2 billion, raising the possibility of a tilt into a full-year deficit in 2023 after last year’s surplus.

Total revenues in the second quarter stood at SAR 314.8 billion, down 15% from the same period in 2022, while spending was up 9% year on year, at just over SAR 320 billion, the finance ministry said in its quarterly budget performance report.

Oil revenues slipped 17% during the first half to SAR 358.5 billion, while taxes on income, profit and capital gains rose 66% to SAR 24 billion. Overall, non-oil revenues rose SAR 237 billion, an 11% increase over the same period last year.

The Saudi economy grew 8.7% last year as high oil prices boosted revenue and led to the kingdom’s first budget surplus in almost 10 years.

The government has forecast a second, albeit narrower, surplus this year. However, there has been a significant drop in revenue from oil exports in 2023 as lower prices and production cuts weigh. Oil revenues in the second quarter dropped 28% year on year, to SAR 179.7 billion, making up 57% of total revenue. In contrast, non-oil revenue was up 13% during the quarter.

Flash estimates from the General Authority for Statistics (GASTAT), shows the kingdom’s real GDP grew 1.1% in the second quarter, compared to the same period last year. This growth was due to a 5.5% increase in non-oil activities, and a 2.7% expansion in government services activities. Meanwhile, oil activities decreased by 4.2% on an
annual basis.

“Seasonally adjusted real GDP decreased by 0.1% in Q2/2023 compared to the previous quarter (Q1/2023). This effect was due to the decrease in oil activities by 1.4%. Non-oil activities increased by 1.8% and government services activities grew by 0.6% on a quarterly basis,” GASTAT noted in its report.

 

BUSINESS SENTIMENT

Corporate and consumer sentiment also remains upbeat despite a summer slowdown. Purchasing Managers’ Index (PMI) from S&P Global showed another strong performance for the non-oil private sector as favourable domestic economic conditions underpinned a sharp upturn in business activity. However, overall growth lost momentum since June, mostly reflecting the slowest rise in new work for seven months and a slightly weaker pace of job creation.

“Weaker new order growth was the main factor holding back the headline PMI in July. Although still sharp, the rate of new business expansion eased considerably after reaching its highest level for over eight years in June,” S&P said in its July report. “Moreover, the latest rise in new work was the slowest for seven months. Survey respondents often commented on intense competitive pressures and subsequent price discounting to stimulate sales.” Still, business activity remained strong during the month, with manufacturing and construction companies reporting robust activity.

“Forthcoming new projects and planned business activity growth supported a sharp rise in input buying across the non-oil private sector during July,” S&P noted.

 

PIF INVESTMENTS

Public Investment Fund (PIF), the kingdom’s sovereign wealth fund, is also investing heavily on the home front to propel economic growth. Over the past month, the PIF launched a company to unlock the potential of the Saudi camel dairy industry. Sawani will work in partnership with the private sector to increase the production capacity of the camel dairy industry and boost the domestic production ecosystem by modernising operations, improving the localisation of knowledge, and investing in the sector’s latest technologies.

Al Madinah Heritage Company, a separate PIF entity, is charged with focusing on raising production of Ajwa dates, but will also foster the growth and development of the wider Saudi dates industry.

“Ajwa dates are widely considered among the finest dates in the world, due to their high nutritional value and significant health benefits, and a rich source of fibre, protein antioxidants and other nutritious factors,” PIF said. “In addition, Ajwa dates have a religious and cultural value in the Muslim world, and for visitors to the Madinah region, in particular.”

Meanwhile, PIF also launched SRJ Sports Investments, a sports investment company that aims to accelerate the growth of the sports sector in Saudi Arabia and the rest of the Middle East and North Africa (MENA) region.

The company will invest in acquiring and creating new sports events IP, commercial rights of popular and prominent sports competitions, and hosting of major global events in Saudi Arabia, targeting businesses specialised in offering unique fan engagement activities and transformative sports technology across the industry.

The new entities are expected to generate thousands of new jobs, bring in new revenue streams for the non-oil sector, and create a fertile environment for business, investment and trade opportunities for the kingdom’s private sector.