Saudi Arabia: Country Profile

Transcription

1 Saudi Arabia: Country Profile Country Profile 04 Oct 2013 The pace of growth will moderate as oil output falls and public spending slows. Gains in the non-energy sector are buoyed by government spending and rapid credit growth. Government programmes to encourage the hiring of nationals are hurting competiveness. Inflows of FDI should reach US$34 billion by 2018, up from US$3-4 billion in recent years. The latest labour force survey indicates that two million new jobs were created in but three-quarters of these went to expatriates. KEY POINTS The pace of growth will moderate as oil output falls by approximately 3.3% and government spending slows. Nonetheless, real GDP is expected to grow by 4.4% in The outlook for the non-energy sector remains bright with growth of 7.6% forecast in Gains in the non-energy sector are buoyed by government spending as well as rapid credit growth. GDP contracted by 1.1% (quarter-on-quarter) in the second quarter of The economic boom in recent years has been largely a jobless one. A revamped quota system (Nitaqat) encourages firms to hire Saudis and imposes sanctions on non-compliant firms. The system, however, is not performing effectively and is thought to be hurting competiveness. Government officials expect the non-oil private sector to lead the economy in the medium term with real growth of 6.6% per year on average in According to the government, the non-oil sector accounts for nearly three-quarters of real GDP. The potential rate of growth for the non-oil sector is thought to be 5-6%. Unemployment was 5.1% in 2012 and it will not change in The labour force participation rate is just 36% but among females it is 12%. Among those between 15 and 24 years, unemployment stands at 28.2%. The latest labour force survey indicates that roughly two million new jobs were created in but three-quarters of these went to expatriates. According to the World Bank, Saudi Arabia is the third-biggest global provider of worker remittances after the USA and Switzerland. Chart 1 Real GDP Growth and Per Capita GDP Source: Euromonitor International from national statistics/eurostat/oecd/un/imf Note: Data for 2013 and 2014 are forecast. GDP per capita are in constant 2012 prices FACTS Area 2,149,690 square kilometres Currency Saudi riyal (SR = 20 qursh = 100 halalas), pegged to the US dollar at US$1 = SR3.745 Location Page 1 of 10

2 Saudi Arabia, the largest country in the Middle East, occupies the greater part of the Arabian Peninsula and borders on both the Persian (Arabian) Gulf and the Red Sea. It faces Iran across the Gulf and borders Qatar and United Arab Emirates to the east, and Egypt, Sudan and Eritrea across the Red Sea to the west. In the south, it borders on Yemen and Oman. Its most crucial borders are in the north, where it meets Iraq, Jordan and Kuwait. Capital Riyadh GOVERNMENT Head of State HM King Abdullah bin Abd-al-Aziz Al-Saud (2005) Head of Government HM King Abdullah bin Abd-al-Aziz Al-Saud (2005) Ruling Party There are no political parties in Saudi Arabia. Political Structure Saudi Arabia is an absolute monarchy with most senior government posts filled by members of the royal family. Technically, there is no constitution except for the Koran, reflecting the country s role as keeper of the shrines of Mecca and Medina. Saudi Arabia is a Sunni state. Representation is through personal petitions to royal figures, but royal audiences are common. A new constitution includes a committee of princes to vote on the eligibility of future kings and crown princes. In July 2005, King Fahd died and was replaced by Abdullah who has presided over most government affairs for the past ten years when Fahd was incapacitated. Last Elections There are no general elections in Saudi Arabia. Political Stability and Risks The education system fails to equip students with the technical and scientific knowledge required for today s job market. Females account for more than half of all college graduates but make up just about 12% of the labour force. Critics argue that power is restricted to a limited number of members of the royal family but the subject is taboo to the government. Security forces have arrested hundreds of suspected militants, many with possible ties to al-qaeda. The government is building a security fence along its border with Yemen to try to stem the flow of militants and smuggled goods. International Issues Saudi Arabia has technical border disputes with several of its neighbours. In most cases, negotiations have created neutral zones where no oil development occurs. In a treaty signed in 2000, Saudi Arabia and Yemen agreed on the delineation of sections of their common border which had been in dispute since the 1930s. In the case of Kuwait, Saudi Arabia shares the output of one field. In return, Kuwait Page 2 of 10

3 exports Saudi oil through its port. The country has lodged claims against Iraq for billions of dollars in damage from the 1991 Gulf War. Iran s nuclear programme is a major concern for the government. Saudi Arabia is a member of the Gulf Cooperation Council (GCC) which also includes Bahrain, Kuwait, Oman, Qatar and the UAE. Plans for a Gulf Arab Monetary Union were thrown into disarray in 2009 when the UAE announced that it intended to withdraw from the project. Saudi officials insist that the project will go ahead. Government Finance Although public spending has risen, Riyadh s conservative budgeting practices have resulted in a string of surpluses. Financial reserves are estimated to be in excess of US$500 billion. A fiscal surplus equivalent to 15.2% of GDP was reported for 2012 and another surplus is expected in However, the IMF forecasts that Saudi Arabia s budget surpluses will gradually decline and turn into a deficit by Saudi Arabia s public debt amounted to SR98,800 million in This was equivalent to just 3.6% of GDP the lowest debt-to-gdp ratio of any country in the G20. Public debt will fall by 3.8% in real terms in Government spending on healthcare is expected to rise sharply in the medium term. The country s rapid urbanisation is driving this change. Chart 2 Public Debt Source: Euromonitor International from national statistics/eurostat/imf/oecd Note: Data are in constant 2012 prices ECONOMY Economic Structure and Major Industries Oil exports make up 85% of total export earnings, 80-90% of state revenues, and around 40% of GDP. With Libyan production still not back to normal levels and Iranian crude unable to access the markets due to sanctions, Riyadh has been pumping crude at record levels. Investments in petrochemicals have also increased the relative importance of the downstream petroleum sector. The state-owned company Saudi Aramco will spend US$60 billion on upstream and downstream operations through 2014 in order to further advance the energy sector. Saudi Arabia continues its efforts to diversify the economy. The centrepiece of the new programme is an economic city to be built at the cost of US$26.7 billion the largest single investment ever made in the country. Five other similar cities are planned in different regions. It is hoped that this spending will attract domestic and foreign Page 3 of 10

4 investment, broaden economic activity and create thousands of new jobs. Government assistance is also being provided to small and medium-sized businesses which account for about 25% of GDP. The manufacturing sector represents 10.7% of GDP and employs 5.7% of the work force. The state-owned Saudi Arabian Basic Industries Corporation (SABIC) is the heart of manufacturing operations. Investment in refining, petrochemical facilities and related downstream operations such as aluminium, and plastics has surged as officials try to reduce their country s dependence on exports of crude oil. The Saudi Industrial Development Fund (SIDF) spent SR674 million in 2012 to expand existing industrial projects and start new ones. The government has also spent US$12 billion to develop and expand petrochemical facilities and has plans to spend another US$41 billion for future projects. The Kingdom s construction sector is the largest and fastest growing market in the Gulf. As the appetite for steel grows, output is set to rise by about 9% per year. The real value of manufacturing output grew by 13.1% in The agricultural sector is tiny. Agriculture employs 4.5% of the work force. The government has reached an agreement with Sudan to take over the cultivation of 2 million acres near Port Sudan. Saudi Arabia s banking industry is one of the most profitable in the region. One reason is that banks pay no taxes at all. The private sector dominates the Kingdom s banking industry and accounts for the bulk of credit extended as well as deposits received. Bank earnings have risen as the country ramps up its oil production. Domestic credit continues to grow at a steady pace. The real value of tourist receipts rose by 4.6% in 2012 and gains of 5.0% are expected in Overview of the Economy Saudi Arabia has outperformed most of the major economies in the G- 20 in recent years. Supported by an expansionary fiscal policy, the nonoil sector is growing by 7-8% per year. Government spending has been rising at a double-digit pace. Oil production rose during this period but the non-oil sector expanded even faster as oil revenues were used to expand airports, build roads and develop real estate. Despite its impressive economic performance, Saudi Arabia faces some serious economic challenges in the longer term. They include high levels of unemployment, a vocal radical minority and a fast-growing population. Some 60% of the indigenous population is less than 20 years old, and 70% is under 30 years old. Unemployment is the highest among Saudis in their twenties estimated to be close to 25%. Government figures suggest that approximately 175,000 new jobs are being created each year but the number of new job entrants (which is almost exclusively male) is at least 340,000. A defect of the labour market is that unskilled foreign labour is significantly cheaper than local labour. Saudis, for example, are estimated to receive wages three times that of non-saudis with the same level of education. In 2012, salaries for Saudi Arabians rose by 6% slightly higher than inflation. Officials tried to stem the use of cheap foreigners by requiring firms to fill at least 30% of their positions with Saudis. That quickly proved impossible owing to the locals lack of Page 4 of 10

5 skills. A more flexible system is now in force. Foreign Trade Exports drive the Saudi economy. In 2012, exports represented 53.4% of GDP, down from 60.3% in Saudi Arabia s exports (in dollars) are expected to rise by 6.5% in Saudi Arabia s exports are highly concentrated with mineral fuels accounting for 85.3% of the total in However, export markets are diversified geographically. Several Asian countries are important markets for Saudi exports, including Japan (13.6%) and China (13.6%). In addition, exports to the USA constituted 14.2% of the total in The current account surplus was 22.7% of GDP in 2012 and it should narrow to 17.9% in 2013 as oil production and oil prices ease. Chart 3 Total Foreign Trade Source: Euromonitor International from national statistics/oecd/imf Economic Prospects The pace of growth will moderate as oil output falls by approximately 3.3% and government spending slows. Nonetheless, real GDP is expected to grow by 4.4% in The outlook for the non-energy sector remains bright with growth of 7.6% forecast in Gains in the non-energy sector are buoyed by government spending as well as rapid credit growth. GDP contracted by 1.1% (quarter-on-quarter) in the second quarter of Inflation was 4.6% in 2012 and prices are expected to rise by 4.0% in The high cost of housing is one of the main drivers of inflation. The real value of private final consumption rose by 5.1% in 2012 and gains of 3.7% are forecasted for Consumer expenditure is supported by huge amounts of public spending. Unemployment was 5.1% in 2012 and it will not change in The labour force participation rate is just 36% but among females it is 12%. Among those between 15 and 24 years, unemployment stands at 28.2%. The latest labour force survey indicates that roughly two million new jobs were created in but three-quarters of these went to expatriates. According to the World Bank, Saudi Arabia is the thirdbiggest global provider of worker remittances after the USA and Switzerland. Chart 4 Real GDP Growth Page 5 of 10

6 Source: Euromonitor International from national statistics/eurostat/oecd/un/imf Note: Data for 2013 and 2014 are forecast Evaluation of Market Potential The country s ambitious programme of economic diversification is promising but it is unrealistic to expect the Kingdom to reduce its oil dependency significantly. The best that can be hoped for is that the investments will help to smooth out long-run fluctuations in growth. Inflows of FDI are expected to reach US$34 billion by 2018, up from US$3-4 billion in recent years. Government officials expect the non-oil private sector to lead the economy in the medium term with real growth of 6.6% per year on average in According to the government, the non-oil sector accounts for nearly three-quarters of real GDP. The potential rate of growth for the non-oil sector is thought to be 5-6%. Oil output will increase very slowly over the next five years. The country faces a housing shortage of up to two million homes but the government s new housing programme should help. The country s housing plan is based on a forecast that an additional 1.25 million new homes need to be built by Riyadh will spend US$110 billion to construct affordable housing units and provide financing. Increased spending on entitlements means that Saudi Arabia s vulnerabilities to a sustained fall in the price of oil have risen. BUSINESS ENVIRONMENT Economic reforms began in earnest when Saudi Arabia joined the WTO at the end of However, the state still maintains a pervasive control over all key parts of the economy. Large state corporations dominate the economy. Foreign investment is permitted except in several industries in the manufacturing and services sectors. To encourage more foreign investment, the government introduced a variety of tax incentives in In 2012, the government approved the Kingdom s first mortgage law. The law stipulates the regulations to establish mortgage companies and their activities. At present, only 2% of home purchases have been financed through mortgages. Procedures to streamline the registration of businesses especially small and medium-sized businesses have been simplified in an effort to boost employment of locals. A revamped quota system (Nitaqat) also encourages firms to hire Saudis and imposes sanctions on noncompliant firms. The system, however, is not performing effectively and is thought to be hurting competiveness. Page 6 of 10

7 The business culture is difficult and opaque. Corruption is regarded as widespread and the legal system is subject to political influence. Saudis and citizens of the Gulf Cooperation Council pay no income tax. Attempts to integrate Saudi Arabia s economy more fully into the global economy are opposed by extremists who have threatened to attack the country s oil industry. Table 1 Indicators of Business Environment 2013 Ease of doing business rank (out of 185) 22 Starting a Business Cost (% of GNI per capita) 5 Time (days) 21 Dealing with construction permits Time (days) 103 Cost (% of GNI per capita) 24.7 Getting Electricity Time (days) 61 Cost (% of income per capita) 31.5 Employing workers Minimum wage for a 19-year old worker or an apprentice (US$/month) 0.0 Ratio of minimum wage to average value added per worker 0.0 Standard workday in manufacturing (hours) 8 Tax rate Total tax rate (% profit) 14.5 Labour tax and contributions (% of commercial profits) 12.4 Time (hours per year) 72 VAT (%) - Exporting Documents for export (no.) 5 Time to export (days) 13 Cost to export (US$ per container) 935 Importing Documents for import (no.) 5 Time for import (days) 17 Cost to import (US$ per container) 1,054 Protecting investors Strength of investor protection index (0-10) 7 Resolving Insolvency Time (years) 2.8 Cost (% of estate) 22 Source: Euromonitor International based on the World Bank Note: Data is sourced from the World Bank s Doing Business Doing Business presents quantitative indicators on business regulations and the protection of property rights - and their effect on businesses, especially small and medium-size domestic firms. The data for all sets of indicators in Doing Business 2013 are from June 2011 until June 2012 (except for paying taxes data which refers to January December 2011). Rankings are based on data sets across 185 countries Page 7 of 10

8 ENERGY Saudi Arabia has 266 billion barrels of proven oil reserves. There are 80 oil and gas fields (but over half of all oil reserves are contained in just eight fields). Saudi Arabia has seven refineries and produced 547 million tonnes of crude oil equivalent in The oil industry has committed investments of US$165 billion, mostly generated by state-owned energy companies. Proven natural gas reserves are estimated at 8.2 trillion cubic metres, ranking fifth in the world (after Russia, Iran, Qatar and Turkmenistan). In 2010, however, the government announced that the country also had trillions of cubic metres of unconventional resources such as shale gas more than doubling its proven reserves. In 2012, production of natural gas amounted to 92.5 million tonnes of oil equivalent. Chart 5 Primary Consumption of Energy (% of total) 2012 Source: Euromonitor International from BP Amoco, BP Statistical Review of World Energy SOCIETY Population Saudi Arabia s population was 28.7 million in 2012, up from 9.6 million in Population is growing at an average rate of 2.1% per year. The median age is rising but the populace is still very young. Although fertility has fallen over time, it has been exceptionally high in the past and even in 2012 it was about 2.7 births per female (well above replacement level). Other factors that ensure continued population gains include the government s pro-natalist policies and the continued rise in the number of women of childbearing age (15-49 years). The government s programme of Saudiization was launched in The long-term goal is that foreign workers and their families should not exceed 20% of total population by 2013 and that the total for any single nationality should not be greater than 10% of the total expatriate community. Most demographers doubt that these targets can be met. Chart 6 Age Pyramid in 2012 and 2030 Page 8 of 10

9 Source: Euromonitor International from national statistics/un Income and Expenditure Saudi Arabia s savings ratio amounted to 6.6% of disposable income in It will rise to 7.0% in Consumer expenditure per capita totalled SR24,382 (US$6,502) in In 2013, the indicator will rise by 1.6% in real terms. Total consumer expenditure (in real terms) will rise by 3.8% in It is forecast to grow at an average annual rate of 4.2% in in real terms. The indicator will increase by a cumulative value of 39.5% during this period. Total consumer expenditure will represent 25.8% of GDP in Disposable income per capita amounted to SR27,950 (US$7,453) in In 2013, the indicator will grow by 1.9% in real terms. During the period , total disposable income will increase by a cumulative 41.7% in real terms growing at an average annual rate of 4.5% in real terms. Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio Source: Euromonitor International from national statistics/trade sources/oecd Note: Data are in constant 2012 prices Statistical Summary Inflation (% change) Exchange rate (per US$) GDP (% real growth) GDP (national currency millions) 1,558, ,949, ,609, ,975, ,510, ,727,399.9 Page 9 of 10

10 GDP (US$ millions) 415, , , , , ,306.6 Population, midyear 25, , , , , ,012.3 ('000) Birth rate (per '000) Death rate (per '000) No. of households 4, , , , , ,168.8 ('000) Total exports (US$ 233, , , , , ,165.9 millions) Total imports (US$ 81, , , , , ,666.4 millions) Tourism receipts 5, , , , , ,269.9 (US$ millions) Tourism spending 10, , , , , ,530.8 (US$ millions) Urban population 20, , , , , ,663.7 ('000) Urban population (%) Population aged (%) Population aged (%) Population aged (%) Male population (%) Female population (%) Life expectancy male (years) Life expectancy female (years) Infant mortality (deaths per '000 live births) Adult literacy (%) Imports and Exports Major export destinations 2012 Share (%) Major import sources 2012 Share (%) Asia-Pacific 56.8 Asia Pacific 39.2 North America 15.0 Europe 30.1 Europe 11.5 North America 14.2 Africa and the Middle East 11.4 Africa and the Middle East 9.2 Other countries 3.7 Latin America 3.1 Latin America 1.2 Other countries 2.4 Euromonitor International 2014 Page 10 of 10