COUNTRY NAME: Kingdom of Saudi Arabia
LAND AREA: 2,15 million km2
POPULATION: 26 million (2010 est.)
CURRENCY: 1 Saudi Rial (SAR) = 100 Halala; 1 EUR = 5.04 SAR (Nov. 2010)
MAIN CITIES: Riyadh (capital), Jiddah, Dammam
NATIONAL DAY: 23 September
TIME ZONE: Standard Time is GMT + 3
The Kingdom of Saudi Arabia’s 2009 budget projected a 16% increase in expenditure, reaching a record $126 billion. Several projects, in power generation, desalinisation and transport infrastructure, are seen as strategic, with the Kingdom aiming to further diversify its hydrocarbons-based economy.
Between 2003 and 2007 real GDP growth averaged around 5% a year, the strongest growth in a decade. In 2008, real GDP growth is estimated to have reached 4.5%, largely driven by strong private and public investment expenditure on the back of record oil prices and abundant liquidity. Advances have been made in improving the investment climate in recent years as is indicated by how the country has risen on the World Bank’s ranking of countries that facilitate investment, from 67th place 2005 to 16th in 2008. Economic diversification is seen as a special challenge because of decades-long dependence on oil revenues as a key source of income.
Oil & Gas
In 2008, the oil sector accounted for about 32% of real GDP while oil export revenues represented about 90% of total exports and public revenues. Crude oil is used as feedstock and fuel, in addition to products, natural gas and natural gas liquids, for industry and utilities, which benefit a wide range of industries such as petrochemicals, mining, cement, power generation and desalination. Oil also contributes to the diversification of industries in related sectors like the petrochemicals. The combined efforts of the petroleum and industry sectors led to the expansion of secondary and specialised chemical industries. This has been followed by the launch of industrial clusters. The Kingdom is seeking to attract investment in industries where it enjoys a relative advantage and which are associated with the oil industry, including metal industries and auto supplies, such as tyres, in addition to the packaging and packing industries. Saudi Arabia’s industrial clusters programme seeks to attract, facilitate and develop a number of pivotal projects by 2013. The anticipated total private sector investments in all the projects of these clusters are estimated at SR40bn. Growth in demand by industries and utilities for fuel and feedstock has resulted in the expansion of the Kingdom’s natural gas industry – in exploration, production and processing – in tandem with the progressive growth in oil production and refining. Saudi Aramco’s efforts managed to yield an increase in discovered gas reserves from 184 trillion cubic feet in 1990, almost one-quarter of which was in the form of non-associated gas, to 267 trillion cubic feet in 2008, more than half in the form of non-associated gas, notwithstanding cumulative production of some 97 trillion cubic feet during the period. Saudi Aramco’s programmes for reserve development and gas production continue with, for example, the Karan offshore gas field expected to boost production capacity by some 1.8 billion cubic feet per day. Similarly, refining projects, which are associated with petrochemical complexes, such as the Petro Rabigh and Ras Tanura projects, and other projects in Jubail, Yanbu and Jizan, aim to expand refining capacity and diversify the petrochemical products base. Cooperation between the mining and petroleum industries – implementing the active and planned projects at Ras al-Zawr Port, in preparation for completion of the railway link project connecting the Northern Frontier Area via the Central Province to the Eastern Province – is set to lead to the exploitation and processing of raw phosphate and bauxite, coupled with creation of an industrial base that combines the oil sector with the minerals and petrochemical industries, expanding from there into more diversified and more specialized industries.
Having been left largely unaffected by the international credit crisis, Saudi banks maintained their stability and will now profit from the trickle-down effect of the large government-driven infrastructural development projects. Saudi banking has remained strong due to its adequate liquidity base and asset quality, according to Fitch Ratings. A slowdown in lending in the first quarter of 2009 was apparent and, according to figures from the Saudi Arabian Monetary Agency (SAMA), the Kingdom’s commercial banks reduced lending in the first quarter of 2009 by 3.6% year-on-year to SR35.5bn ($9.48bn). Consumer credit is considered an area with large potential for growth. Demographically driven sectors, such as housing, are expected to continue growing. Mortgage schemes have long been heralded as one of the most promising areas of business for banks in the Kingdom. Government estimates put the demand for new housing at 130,000 units per year. Final approval for the long-awaited mortgage law is expected to come by the end of 2009.
Saudi Arabia lifted customs tariff on 92 new products in June 2009 in line with World Trade Organisation (WTO) rules. The move brought the total number of products that enjoy either tariff exemption or reduction to 851. The Kingdom joined the WTO in December 2005. As listed on the custom’s website goods exempted from tariff include live horses, sheep, goats, turkey, meat of sheep, various types of fish, vegetables and fruits and wheat and rice fl our. Some major products now enjoying tariff cuts are bottled water, soap, sanitary pads, napkins, tissue papers, detergents, gypsum, paints, plastic pipes, materials required for doors, electric wire, pre-cast building blocks and fertilizers.
The non-oil sector has been expanding rapidly over the past few years and the IMF forecasts an expansion of over 3% in the sector in 2009, which would be down on the 5.3% in the previous year, but it remains positive in the context of the global downturn and the fall in world oil prices. A surge in public sector spending has been comfortably financed by assets built up during the recent oil price boom. This is strengthening the non-oil sector. Public sector deposits with domestic banks are worth around SR980bn ($260bn), according to Samba Financial Group. The value of non-oil contracts awarded by the public sector exceeded SR225bn ($60bn) — equivalent to 18% of the forecast for total GDP for 2009. The increase in investment helped reassure investors that Saudi Arabia remains committed to supporting non-oil growth and expanding and improving its infrastructure over the medium term, Riyadh-based Samba Financial Group said in a report, “Saudi Arabia: 2009 Mid-year Economic Review and Forecast”.
Construction & Real Estate
Major investment in the infrastructure and construction sector remains dominated by the approximately $120bn in the Economic Cities developments over the next five year. Despite the downturn in global markets, development and investment in Saudi Arabia’s real estate sector are expected to remain strong. At least 10 major new city and real estate projects are currently underway in the country. These include the King Abdullah Economic City (valued at $93bn), Prince Abdulaziz bin Mousaed Economic City ($53bn), Jizan Economic City ($30bn), Jeddah Project Mile High Tower ($10bn), Shamieh Project ($9.3bn), Madinah Knowledge Economic City ($7bn), Al-Zahira City ($4bn), Jabal Omar ($3.3bn), Injaz ($3bn) and Riyadh Marriland Leisure Park ($3bn). Meanwhile, Emaar Properties has been considering bids from seven architects for the contract to draw up the concept design for its 1 km tall Kingdom Tower to be built at Jeddah Kingdom City. Development manager Emaar is working on behalf of Saudi Arabia’s Kingdom Holding Company after the two firms signed a management agreement in early June 2009, under which Emaar will oversee construction of the entire 23km2 of Jeddah Kingdom City. There are sound economic arguments for the tower with industry insiders predicting that completion of such a landmark project is set to increase the cost of properties in the city. Saudi Arabia remains one of the most active construction markets in the world as it improves its infrastructure to meet domestic demand with more than 350 of the active projects in construction. The civil building construction industry has not been much affected by the economic crisis, according to a study by research house Proleads Global released in August 2009. “Insights Saudi Arabia: An Investigation into the Current and Future State of the Civil Building Construction Industry” examined more than 720 projects with a total budget of more than $430bn across commercial and retail: education and healthcare, leisure and entertainment, and residential sectors. “The market in Saudi Arabia is expected to maintain current levels throughout 2010, although slight decline is expected in the education and healthcare sectors countered with an expected slight growth in commercial and retail,” commented Emil Rademeyer, Director of Proleads Global. “Our cashflow projections show the Saudi Arabian industry will continue building from a position of strength well into 2010, whereas other Arabian Gulf markets continue to seek stability,” he added. Less than 80 active projects, with a total value of around $20bn were placed on hold or cancelled in Saudi Arabia in marked contrast with the other markets.
The important petrochemicals sector is one of the cornerstones of the country’s economic diversification ambitions with the government seeking to make it a worldwide sector leader by 2015. According to Bank Audi, it is estimated that more than $70bn could be injected into the sector by 2011in the form of public-private partnerships and joint ventures with foreign petrochemicals firms. The sector profits were impacted by the global situation in 2008, but by the second quarter of 2009, Saudi Basic Industries Corporation (SABIC) was outperforming its international rivals, despite a 76% drop in profits compared with the same period in 2008. The company reported net profits of SR1.8bn ($480m) for the second quarter, down from SR7.5bn in the same period of 2008. Bahrain-based investment bank SICO said that despite the fall in profits, the company is still performing much better than other petrochemicals producers worldwide.
Power & Water
Saudi Arabia has one of the largest per capita electricity consumption rates in the world and its growing population means that demand is rising rapidly, with regional electricity consumption estimated to be growing at 5–6% a year. According to current industry reports, demand for power in the Kingdom is projected to double by the 2030 to reach 50 gig watts. In addition to meeting the needs of the growing population, Saudi Arabia needs to expand its power capacity and network to support its ambitious industrialisation plans. Saudi Arabia has one of the most sophisticated water desalination sectors in the world and spending is set to remain high with an estimated $90bn needing to be spent over the next 20 years on the expansion and maintenance of existing water desalination plants and on the construction of new projects to meet the high water consumption levels. GE Energy opened a technology centre in the city of Dammam in the summer of 2009 highlighting its growing commitment to providing new water solutions at a time when the kingdom is facing unprecedented demand for reliable sources of water. The GE Saudi Water & Process Technology Centre, built at a cost of nearly $10mn, will serve the company’s industrial customers in Saudi Arabia and the wider region.
The telecom sector witnessed a growth rate of 15% year-on-year in 2008, from 10% in 2007. Factoring in slower economic growth in 2009, Shuaa Capital said that it expected “the telecom sector, led by the mobile and broadband (fixed and wireless) segments, to deliver high single digit growth with a possibility to surprise us with a low double digit growth.” The country’s active mobile penetration reached approximately 125% in 2008, and was forecasted to grow toward a 145% active mobile penetration rate by 2010, the report Saudi Vision 2009 added.
High levels of investments have been set aside to upgrade of its whole transport infrastructure, with seaports, airports and road and rail networks across the Kingdom all being expanded. The 2009 budget announced total spending of SR475bn ($126.8bn), with an allocation to the transport sector of SR19.2bn ($5.1bn) for new and ongoing projects. A “Saudi Arabia Freight Transport Report” for the first quarter of 2009 from Business Monitor International predicted an average growth in freight transport of 3.7% a year until 2013. Maritime transport is expected to grow at 5.8% a year while train and airfreight are predicted to grow at 4.7% and 4.2%. In response to increasing demand pressures port infrastructure is set to be significantly upgraded. Competitiveness will certainly be boosted by new projects, like the King Abdullah Economic City Seaport, expected to cost $5bn and be able to handle about 20m containers a year. Other port facilities are also being upgraded with the Red Sea Gateway Terminal expansion at Jeddah Islamic Port set to increase capacity of the port by around 45%. In May 2009, it was announced that the UK’s Foster & Partners had won an SR142 million contract to design four stations for the new high-speed Haramain Railway linking the two holy cities of Makkah and Madinah with Jeddah. The rail link, initiated by the Saudi Rail Organisation, is seen as one of the country’s major infrastructure projects, intended to bolster social and cultural connections between western cities, as well as improving transport options for pilgrims making their way to the holy cities. Transport Minister Jabara Al-Seraisry said that the four stations would be located in Jeddah, Makkah, Madinah and King Abdullah Economic City in Rabigh and added that Foster & Partners had long-standing experience
in the field.
In recent years, the Kingdom has sought to capitalize on its potential as a global tourism destination, focusing primarily on local tourism and regional visitors, but now increasingly looking towards creating more specialized packages for foreign visitors. The Kingdom enjoys some breathtaking natural landscapes and a wealth of marine life which is a big attraction for scuba diving. In addition, important archaeological sites are situated at Madain Al Saleh, Jeddah, Hofuf, Najran, Taif, Takub, Al Jouf and Hail. The Supreme Commission for Tourism (SCT) oversees the development of the tourism industry and tourism is now being significantly upgraded with public and private sectors partnering to deliver a national tourism strategy.
Source: Austro-Arab Trade Directory 2011.
The mentioned data are subject to modification. No responsibility is taken for the correctness of the details provided.
Last modified: 28 January 2011