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Kingdom’s GDP Exceeds SR1 Trillion

Middle East : 23 October 2011

Source: Arab News

Saudi Arabia’s gross domestic product (GDP) exceeded the SR1 trillion ($273 billion) mark in the first half of this year compared to SR811 billion in the same period last year on the back of higher oil output and energy prices, the Central Department of Statistics and Information said in its report.

The GDP, unadjusted for inflation, jumped 26.1 percent from a year earlier. The statistics department said GDP of the oil sector alone soared 38.9 percent to SR573.4 billion.

The Kingdom received another boost with the annual report of the World Bank Group and the International Finance Corporation for 2012 acknowledging its regional top rank in the Middle East and North Africa region with regard to facilitating business. The report “Doing Business 2012: Doing Business in a More Transparent World,” which has been released in Washington, has ranked the Kingdom 12th in the domain of ease of doing business and other commercial transactions among 183 nations worldwide due to improvements introduced by the Kingdom concerning government procedures for corporate activities and making business easier for entrepreneurs.

The report also placed the Kingdom ninth with regard to research and studies on government regulations applied on local companies.

The report said 17 nations in the Middle East and North Africa region succeeded over the past six years in creating a better environment for business operations.

Commenting on the Saudi GDP report, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: “The government data confirms the increasingly clear impression that the economic recovery has gathered significant momentum in the Kingdom during the year. Admittedly, the key driver has been the strength and remarkable resilience of oil prices, along with increased production, first in response to the disruptions in Libya but, with some volatility, even thereafter. Moreover, there is growing evidence that also the nonoil sector is gathering momentum with the government plans of increased spending which have begun to translate into concrete projects as well as the growing willingness of Saudi banks to lend to the private sector.”

Kotilaine said these developments leave Saudi Arabia in a strong position even in an exceptional uncertain global economic environment. The troubles in the euro zone and beyond have the potential to prove disruptive to the financial markets and investor sentiment but the positive progress in Saudi Arabia looks likely to continue to be significantly underpinned by the active role of the government as well as the hydrocarbons sector, he added. Even though concerns about demand erosion have returned and will likely continue to do so, the aggregate oil demand is now firmly above pre-crisis levels and continuing to grow, albeit more slowly than previously projected, he said.

“In spite of the potential uncertainty facing the private sector — as highlighted by the PMI — both the oil sector and the government are well positioned to exercise considerable discretion in output and spending, respectively, so as to ensure a reasonably high degree of continuity in economic activity,” Kotilaine added.

However, Paul Gamble, head of research at Jadwa Investment, said: “The GDP data is in nominal terms, meaning that it is the value of output and is therefore heavily influenced by changes in prices. The rise in the first half was driven by higher oil prices and, to a lesser extent, by higher prices of petrochemical products.”

He said: “For nonoil sectors growth is much lower, as prices of these products have not risen by anywhere near as much as oil prices, but it is broadly in line with our expectations. Lower oil prices in the second half of the year mean that growth in nominal terms will slow. However, in inflation-adjusted terms, growth will remain healthy.”

Apart from the Kingdom at No. 12, the new IFC and World Bank report put other Gulf Cooperation Counci countries such as the United Arab Emirates at (33), Qatar (36), Bahrain (38), Oman (49) and Kuwait (67).

Discussing the Kingdom’s position in the list, Kotilaine said: “This ranking highlights the success with which the Saudi authorities have effectively transformed the business climate in the country by making it far simpler to set up and operate companies.”

He said it is encouraging that further preparatory work in this regard is ongoing.

A sound business climate is critical for addressing the challenges in the areas of sustainable job creation and economic diversification that have come to dominate policy making in recent years, he said. He added success in boosting employment would be critically dependent on actively fostering entrepreneurship. In mature economies such as the US and the EU, SMEs (small and medium enterprises) account for the vast majority of all jobs, up to 70 percent, he said.

“In view of further unleashing the productive potential of the economy, continued efforts will be needed to address the regulatory environment, bureaucratic hurdles and access to capital and advice. It is encouraging that the Kingdom now appears to be making steady headway in all these areas,” Kotilaine added.

This year, Singapore led on the overall ease of doing business, followed by Hong Kong SAR, China, New Zealand, the United States and Denmark.

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