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Saudi Forging the Path for Infrastructure and Enjoys Vibrant Economy Despite Higher Spending Levels While UAE Comes in Third in Middle East Economies

Middle East : 27 July 2012

Highest Levels of Infrastructure Spending in Saudi Arabia

A recent report noted that Saudi Arabia boasts the highest levels of infrastructure investment in the region. “GCC 2020: Time to Shift Gears” noted that the majority of structural reforms and productivity increases fall into the construction sector, increasing economic output.

After an extended period of low investments Saudi Arabia is set to invest heavily in construction, taking the lead in MENA and addressing vital social issues like education, housing and labour, according to Philip Southwell of Bank of America Merrill Lynch.

MENA contains the most attractive construction and infrastructure market in the world, due to its size and activity. Forecasts state that $4.3 trillion in investments will come through the region by 2020, resulting in an increase of nearly 80 percent over the current state of this sector.

Saudi should continue to lead this sector that will represent 4.4 percent of the global construction market over the next ten years. MENA is forecasted to represent 12 percent of emerging markets across the globe.

The MENA region reported a substantial decline in contract awards during the opening five months of 2012, dropping 41 percent over the course of one year. Delays in Egypt, Iraq, Kuwait and the UAE have affected this rate, although Merrill Lynch Kingdom of Saudi Arabian CEO Mutashar Murshed noted that Saudi Arabia boasts strong infrastructure and construction sectors. Saudi represents 46 percent of the project pipeline in MENA, currently set at $448 billion. The Kingdom’s construction and infrastructure have grown by 177 percent in those opening five months.

Southwell stated that this trend will continue, partially due to the Kingdom’s young and growing population. Residential construction should grow due to changes in the mortgage laws and moves to address the nation’s housing shortage.

Vibrant Economic Conditions Abound in Saudi Arabia Despite High Spending Levels

Residents of Saudi Arabia remain relatively unconcerned about economic stress in the West. Deposits in Saudi banks have increased in the last year, while personal savings data is currently unavailable.

Consumer confidence levels are higher than one might assume, according to Jadwa Investments chief economist Paul Gamble.
Many companies in the private sector have handed out employee bonuses, which should have resulted in a limited consumer spending spike. Instead, that increase has continued.

Gamble stated that the current levels are surprising, recalling that the benefits of bonuses to those working in the public sector extended into 2011.
Other programs recently introduced in the Kingdom have helped to boost spending, including the SR 2,000 monthly unemployment benefit. Over one million recipients are now involved in that program, which is expected to increase spending.

Higher levels of government spending and robust economic growth have resulted in greater optimism. Gamble noted that increased consumer spending reflects a healthy economic position for the Kingdom, resulting from higher oil prices and labour market composition that concentrates on government employment.
Regional unrest has encouraged residents to spend their money locally.

Regional travel has likely decreased due to uprisings in the Arab world, causing people to spend money around their neighbourhood, according to a local analyst.
Higher levels of spending also support the claim that although social unrest and political turmoil in Iran are threatening, Saudi residents are mainly unconcerned.
Consumer confidence levels play two vital roles. They serve as a confidence barometer measuring economic stability and growth. Private consumption, including both consumer and corporate spending, represents around 30 percent of the Kingdom’s total GDP and about 57 percent of Saudi’s non-oil GDP.

These numbers also help to attract large global companies into the Kingdom, where they can take advantage of a massive population with generous spending habits. These companies tend to be outside of the oil sector, expanding the Saudi economy.

So far retailers like Marks & Spencer from the UK and the Gap from USA have opened their doors, pushing the retail market beyond luxury brands. Faced with rising costs beyond Saudi borders, local retailer Fawaz Alhokair Group has given up expansion in the UAE to focus on the escalating domestic market.
Imports on goods for businesses also continue to grow, supported by strong spending figures.

UAE Snags Third Spot for Competitive Middle East Economies

Moving into place behind Qatar and Saudi Arabia, the UAE has been named the third most competitive Middle East economy, according to the Dubai Chamber of Commerce & Industry.

On a global scale the UAE holds 27th place, behind Switzerland in first, the USA in fifth, Qatar in 14th place and Saudi Arabia in 17th place. The UAE ranks higher than other nations in the region, such as Oman, holding 32nd place, Kuwait in 34th spot, Bahrain in 37th and Egypt down in 94th place, based on WEF’s Global Competitiveness Report.

According the World Bank, the UAE moved up two places to hit 33nd in a list of 183 nations covered in the report entitled “Doing Business 2012.” This report placed the UAE in fifth for cross border trading, sixth for property registrations and seventh in terms of paying taxes.

When considering the efficiency levels of government fiscal policies, the UAE ranks in first place according to Switzerland’s International Institute of Management Development.

Insead recently released a report entitled Global Innovation Index 2012, which named Qatar and the UAE as regional leaders for overall innovations.
The UAE nabbed first place in the region in WEF’s Global Enabling Trade Report for 2012, and ranked 11th place worldwide for quality and availability of transportation infrastructure. The UAE ranks higher in this report than many other advanced economies, including Finland, Belgium and the United States.

The Dubai Chamber noted that the nation’s legal environment is better than adequate, according to the 2011 World Governance Indicators from the World Bank. In comparison to other nations, the UAE scored well in terms of rules of law.

Overall, despite several challenges requiring attention, the UAE remains an attractive destination for global and regional investments.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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