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Economy in Saudi Arabia to See 4.3% Rise in 2011

Saudi Arabia : 27 January 2011

Price of oil pushing the economy in a positive direction

Steady oil prices as well as record highs in budget spending and rising activity within the private sector will help the economy in Saudi Arabia to improve by 4.2 percent this year, according to statements by a leading bank in the Kingdom.

After the real GDP in Saudi expanded by 3.8 percent in 2010 and only by 0.6 percent back in 2009, this recent projection is good news. The low rates of expansion in the past were mainly due to the negative effects of the worldwide financial crisis and the collapsing price of oil afterward.

A study received by Emirates 24/7 from the BSF (Banque Saudi Fransi) noted that steady gains in the price of oil throughout the opening stages of 2011 have set up the economy for a “respectable turnaround.” The report stated that the GDP in the top global oil exporter is ready for rapid growth thanks to a higher output of crude, stimulus plans including strategic government spending and rising expansion in the private sector.

Back in 2010 the government took much of the project financing burden on itself, while in 2011 the private sector is ready to move into a greater position with more engagement in the process of economic recovery. Lending in the banking sector is expected to increase, although moderately.

Pressures of inflation are forecasted to be moderate overall but will stay at the historically high levels. This is due to the government action that sees large budgets being posted with surplus levels in the current accounts allowing the state to pay off domestic debt. It also allows them to further increase foreign assets, which sit at an elevated level right now according to the report.

The BSF noted that the expectation is for oil prices to remain steady at $80 per barrel is supporting the economic optimism.

Besides the high point in 2008 where the price of oil climbed to hit a peak of almost $150 per barrel, if the average price in 2011 were to be $80 per barrel it would be the highest annual rate on record for this decade.

On the other hand, the report noted that Saudi’s production, which was at 8.2 mbpd (million barrels per day) in 2010 and is expected to reach 8.48 mbpd in 2011, is still far below the average production of 9.1 mbpd seen in the period between 2004 and 2008.

This requires the government to maintain financial strength itself and through the participation of the private sector, to keep the economic growth moving steadily upward.

BSF made a note that the government of the Kingdom has been moving more decisively and actively within the economy since the worldwide financial crisis hit in 2008. Statistics show that the government sector grew rapidly, hitting 5.9 percent growth, the fastest rate in 13 years. The government grew quicker than the private sector that recorded 3.7 percent growth.

Over the long term a strategy of growth that relies on the government is not wise and the report states that there is already evidence that the government is encouraging both local investors and those across the globe to be involved in developments.

These changes take time though and the current 2011 budget in the Kingdom sets another record for planned spending. The pace of growth within the state has been slowed purposely to protect the Kingdom from the dangers of overspending and to encourage private companies to get involved.

In the private sector the GDP is expected to grow by 4.2 percent in 2011 and a further 4.5 percent in 2012. The growth rate of this sector continues to trail the rates seen before the fiscal crisis and, in the opinion of the BSF, it is not large enough to create the necessary amount of jobs needed for noticeable changes to occur in unemployment. Those jobs are also required to ease the pressure on the government to maintain a strain of recruitment.

Between 2004 and 2008 the GDP in Saudi’s private sector grew an average of 5.5 percent annually, based on the report. However, between 2009 and moving forward to 2013 the growth in this sector is expected to slow down to only 4.2 percent.

The challenge facing the government then, is to bring the private sector back into the development stages of both public and private partnership projects and independent projects.

There needs to be a major push in the private sector to create employment for Saudis, as only 9.9 percent of the total private sector workforce in 2009 was made of nationals.

In the study it was found that the public sector is still seen as an employment back up plan of sorts for Saudis, considering the public sector hiring in 2009 hit 71,900 nationals and the private sector hiring of nationals actually dropped by 147,576 positions.

There were almost 821,177 jobs created in 2009 throughout the private sector, but expansions within that sector rely heavily on expat labourers. This alarming pattern needs to be reversed in order to meet the needs of the local labour market, according to the BSF.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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