Saudi Arabia’s non-oil private sector growth was the big winner, climbing to an 18-month high in June. (Reuters)
WTI futures gained 30 per cent in the first three months of the year while Brent crude was up 25 percent over the quarter
RIYADH: Saudi Arabia’s economy grew at 1.7 percent in the first quarter of 2019, the Kingdom’s media ministry said on Monday.
The expansion reflects ongoing economic reforms and the modernization of the financial sector, analysts said.
The Kingdom’s non-oil private sector growth rose to an 18-month high in June, according to PMI data released earlier this month.
Financial analyst Talat Zaki Hafiz told Arab News the positive economic growth trend, especially in the non-oil economy, showed that ongoing reforms were producing results.
“The commitment of the Saudi government is to diversify the economy and move it from dependence on oil, and this is what we see — the mix of non-oil and oil revenue,” he said.
A recovery in the oil price in the first three months of the year has also spurred growth.
WTI futures gained 30 per cent in the first three months of the year while Brent crude was up 25 percent over the quarter.
Caught in the middle of a global trade war and regional political tensions with Iran, Gulf economies such as Saudi Arabia and the UAE are seeking to introduce rapid economic reforms as their oil revenues come under pressure. (Shutterstock)
Purchasing managers’ index reveals that inflows of new orders from abroad rose for the fourth month running
LONDON: A key business output measure has hit a 19-month high in Saudi Arabia driven by new business growth but tempered by geopolitical worries.
The Emirates NBD Purchasing Managers’ Index revealed that inflows of new orders from abroad rose for the fourth month running.
However, overall business confidence in Saudi Arabia and neighboring UAE has suffered from rising regional geopolitical tensions, which has increased in recent months following attacks on shipping.
“While both output and new work increased at a solid rate in June, there was almost no change in private sector employment,” said Khatija Haque, head of regional research at Emirates NBD. “Firms remained optimistic about future output, although this component of the survey declined to the lowest level since August 2018, possibly reflecting heightened geopolitical tension in the region.”
Caught in the middle of a global trade war and regional political tensions with Iran, Gulf economies such as Saudi Arabia and the UAE are also seeking to introduce rapid economic reforms as their oil revenues come under pressure amid rising shale production in the US and faltering global demand.
The headline seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index rose to 57.4 in June, up from 57.3 in May and the highest since November 2017. A reading above 50 indicates expansion.
The Saudi Purchasing Managers’ Index rose to 57.4 in June, up from 57.3 in May.
“In contrast to the headline PMI, output growth in Saudi Arabia’s non-oil private sector slowed to a three-month low during June. That said, the rate of expansion remained sharp and was broadly in line with the long-run series average,” Emirates NBD said.
June also saw a second consecutive monthly rise in average cost burdens faced by non-oil private sector businesses in the Kingdom. Despite this, the rate of inflation was fractional and eased from May.
Business confidence towards future growth prospects was strongly optimistic during June, Emirates NBD said.
The Kingdom is seeking to grow foreign direct investment as part of a broader economic reform push.
Sami Al-Obaidi, chairman of the Council of Saudi Chambers, told the Arab British Economic Summit in London yesterday that it was important to boost economic cooperation and investment ties with the UK.
PMI data also released yesterday for the UAE reported a decline from 59.4 in May to 57.7 in June.
Backlogs of work increased amid reports of delays in receiving payments from customers, the bank noted.
Non-oil companies remained strongly optimistic that business activity will increase over the coming year, although sentiment eased again from April’s record high.
Next year’s Expo 2020 was highlighted as a key factor behind overall business optimism.
Saudi women make up 23 percent of Saudi Arabia’s labor force. (File/AFP)
The Kingdom’s labor force comprised of 23 percent female in 2018
our countries – Argentina, US, India and China – saw a decrease in women’s participation in their labor forces
DUBAI: Saudi Arabia recorded the highest growth rate of women joining the labor force over the past 20 years among the G20 countries, Pew Research Center data revealed, as the group steps up efforts to promote women empowerment.
According to the research, the Kingdom’s labor force comprised of 23 percent female in 2018, an increase of seven percent from 1998 figures, owing to an ongoing national push to empower locals as part of the Saudi Vision 2030.
This represents the highest increase among the G20 member states, followed by Australia and Germany, both recording a six percent increase.
Four countries – Argentina, US, India and China – saw a decrease in women’s participation in their labor forces, with economic giant China recording an 11 percent decrease over the past two decades.
These numbers come as more people in the G20 nations “are strongly in favor of increased gender equality in their country,” according to the US research center.
The G20 countries previously committed to a 25 percent reduction in the gap between the shares of men and women participating in their countries’ labor forces by 2025.
Saudi Islamic Affairs Minister Sheikh Abdullatif Al-Asheikh receives Dr. Tamader bint Youssef Al-Rammah, deputy minister of labor and social development, at his office in Riyadh. (SPA)
RIYADH: Saudi Islamic Affairs Minister Sheikh Abdullatif Al-Asheikh held a meeting with Dr. Tamader bint Youssef Al-Rammah, deputy minister of labor and social development at his office in Riyadh during which they discussed aspects of joint cooperation between their respective ministries to further develop the nonprofit sector in line with Saudi Vision 2030.
Al-Rammah said that the two ministries could jointly work to promote moderate values in society.
Recently, the Islamic Affairs Ministry successfully carried out a project in 35 countries around the world to promote Islamic values of moderation and tolerance.
The program included scientific activities, preaching, advocacy, awareness lectures and training sessions.
The Saudi Labor Ministry is also taking steps for the empowerment of all citizens, including women and those with disabilities, to ensure a prosperous future for the country and achieve sustainable development.
It also aims to increase the nonprofit sector’s sustainable economic contribution to the gross domestic product from 0.3 to 0.6 percent, and the percentage of workers in the sector from 0.13 to 0.32 percent of the total workforce.
BP raised its estimates of Saudi Arabia’s crude oil reserves at the end of last year by 12%. (AFP/File Photo)
Saudi proved oil reserves were revised to 297.7 billion barrels
Increase due to Kingdom reporting separately oil, gas and natural gas liquids (NGL) reserves
Estimates of Saudi Arabia’s crude oil reserves have increased by 12 percent, closing in on Venezuela’s top spot in the world.
In the first major change to the estimated reserves since 1989, BP revised Saudi Arabia’s proved oil reserves to 297.7 billion barrels at the end of 2018 from 266.2 billion a year earlier, only slightly behind 303 billion in Venezuela.
Canada was third with 168 billion barrels, followed by Iran with 156 billion and Iraq with 147 billion.
Saudi oil reserves
Saudi Arabia’s proved oil reserves were revised to 297.7 billion barrels at the end of 2018, BP said on Tuesday. The estimate is considerably higher than both its previous estimate and a certification by consultants DeGolyer and MacNaughton announced in January. The latter estimate put the Kingdom’s proven oil reserves at the end of 2017 at about 268.5 billion barrels, including reserves in the Partitioned Zone jointly owned by Saudi Arabia and Kuwait.
In its benchmark 2019 Statistical Review of World Energy, BP recalibrated some Saudi gas reserves as oil after Saudi Arabia started separate reporting of oil, gas and natural gas liquids (NGL) reserves, BP chief economist Spencer Dale said.
Saudi Arabia has begun reporting its reserves as it prepares to float the national energy company Saudi Aramco. The listing was postponed and is now planned for early next decade.
• BP revised Saudi Arabia’s proved oil reserves to 297.7 billion barrels at the end of 2018 from 266.2 billion a year earlier.
• BP recalibrated some Saudi gas reserves as oil after KSA started separate reporting of oil, gas and natural gas liquids reserves.
Riyadh has rarely changed its oil reserves estimates in the past, despite pumping 8-10 million barrels per day.
BP also said oil reserves for the US, which became the world’s top producer in 2018, were revised upwards by 22 percent to 61.2 billion barrels from 50 billion barrels at the end of 2017.
Overall, global reserves were little changed at 1,729.7 billion barrels, about 50 years’ supply at current levels of global demand.
Saudi Arabia’s private sector was subdued last year as it felt the impact of fuel price hikes. (Shutterstock)
Business bounces back after ‘relatively soft’ 2018
Purchasing Managers’ Index well above the 50 mark indicating expansion
DUBAI: Saudi Arabia’s non-oil private sector growth rose to a 17-month high in May as credit conditions improved, output expanded and output prices increased, a monthly survey of companies showed on Monday.
The seasonally adjusted Emirates NBD Saudi Arabia Purchasing Managers’ Index rose to 57.3 in May from 56.8 in April, well above the 50 mark indicating expansion.
Saudi Arabia’s private sector was subdued last year as it felt the impact of fuel price hikes, the introduction of a 5 percent value-added tax and the higher cost of hiring foreign workers.
But it has rebounded this year, with the index for purchasing managers averaging 56.8 points so far against last year’s average of 53.8.
“The gradual rise in the headline PMI this year suggests that growth in the Kingdom’s non-oil private sector is recovering after a relatively soft 2018,” said Khatija Haque, head of MENA research at Emirates NBD.
Job creation accelerated slightly to 50.5 in May from 50.1 a month earlier. Though still weak, May’s rise in employment was the biggest jump since January.
Output prices for goods and services rose for the first time in seven months after a significant drop in April.
Output rose in May for the fifth month in a row, with the subindex climbing to 61.4 from 61.2 in April. This largely reflected improved demand conditions, according to the survey’s authors.
Meanwhile, growth in the UAE’s non-oil private sector rose in May at its fastest pace since October 2014, although job creation was largely stagnant, the PMI survey showed.
The index for the UAE rose to 59.4 in May from 57.6 a month earlier.
Stronger demand, marketing activity and the start of new projects all reportedly contributed to the increases, with companies largely expecting growth to continue over the coming year, the survey’s authors said.
External demand rose at the fastest pace in the index’s nearly 10-year history as new work from Saudi Arabia and Oman in particular pushed the rate of growth in new export orders, according to survey respondents.
“While the rise in the headline PMI indicates faster GDP growth in the UAE’s non-oil private sector, the environment remains a challenging one for businesses,” said Haque.
Output and new order growth has come on the back of price discounting and new export orders, with job creation and wages remaining stagnant, Haque said.
“When the headline PMI was last at a similar level (in October 2014 and January 2015) the survey showed solid growth in private sector jobs, which is not the case this time.”
The employment sub-index nudged down to 50.1, however, with non-oil companies still showing reluctance to hire additional staff.
The UAE economy grew about 1.7 percent in 2018, slower than projected despite a boost from higher oil prices, preliminary data showed in March. The economy is projected to grow 3.5 percent in 2019, helped by strong non-oil activity, the central bank said in a quarterly report.
IMD’s chief economist noted the efficiency of public-sector finance and the stability of Saudi Arabia’s tax regime as factors in the improved ranking. (Reuters)
The Kingdom rose 13 places in the latest edition of IMD’s annual survey, jumping to 26th in the world
IMD’s Christos Cabolis: Saudi Arabia spends 8.8 percent of its gross domestic product on education, against a global average of 4.6 percent
DUBAI: Business competitiveness in Saudi Arabia has improved more than any other country in the world, according to a new survey by Switzerland-based business school and think tank the International Institute for Management Development (IMD).
The Kingdom rose 13 places in the latest edition of the annual survey, jumping to 26th in the world. IMD highlighted Saudi investment in education, where the country achieved the highest ranking in the world, as well as the quality of public and business finance, as factors behind the improvement.
Christos Cabolis, chief economist and head of operations at IMD’s World Competitiveness Center, said the Kingdom invested nearly double the global average on education. “Saudi Arabia spends 8.8 percent of its gross domestic product on education, against a global average of 4.6 percent.”
He also noted the efficiency of public-sector finance and the stability of Saudi Arabia’s tax regime as factors in the improved ranking. “The message is to keep up the good reforms and attempt to be more transparent.”
The UAE was the highest-ranked regional performer in the survey, becoming the first Middle East country to break into the top five, with particular praise for its business efficiency.
Cabolis said that the improvement for both Saudi Arabia and the UAE came despite challenges in the economic performance of their oil-dominated economies. But non-oil exporters in the Middle East, such as Turkey and Jordan, suffered because of inflationary and other fiscal challenges.
Singapore emerged as the most competitive economy in the world, replacing the third-placed US, last year’s top economy. Hong Kong was ranked second.
“Singapore’s rise to the top was driven by its advanced technological infrastructure, the availability of skilled labor, favorable immigration laws, and efficient ways to set up new businesses. Hong Kong SAR held on to second place, helped by a benign tax and business environment and access to business finance,” IMD said.
“The initial boost to confidence from President Donald Trump’s first wave of tax policies appears to have faded in the US, according to the ranking. While still setting the pace globally for levels of infrastructure and economic performance, the competitiveness of the world’s biggest economy was hit by higher fuel prices, weaker hi-tech exports and fluctuations in the value of the dollar,” it added.
Ireland rose five places to rank 7th, while the UK — partly as a result of Brexit uncertainty — slipped to 23rd. In Saudi Arabia, Cabolis said that the strategy of economic diversification under the Vision 2030 plan was “slow but noticeable” and had contributed to the Kingdom’s rise.
However, the Kingdom performed comparatively poorly in some categories, notably international trade, technology and infrastructure, health and environment.
Challenges remain for Saudi competitiveness, IMD said. Policymakers have to continue government efforts to boost the non-oil economy, as well as to increase employment opportunities for young Saudi men and women under the human capability development program.
They should also continue reforms to restructure and streamline procedures and fees for licensing activities, and increase efforts to attract foreign direct investment.
“Economists regard competitiveness as vital for the long-term health of a country’s economy as it empowers businesses to achieve sustainable growth, generate jobs and, ultimately, enhance the welfare of citizens,” IMD said.
Saudi Arabia is currently undergoing a broad program of reforms with the aim of making it easier to invest and grow a business in the Kingdom.
At the center of these reforms, our aim is to enable the private sector to play a larger role in the economy and for innovative global businesses and entrepreneurs to come to Saudi Arabia and drive greater productivity and efficiency.
So we were very pleased to see that the International Monetary Fund (IMF) argued last week that economic reforms in Saudi Arabia “have started to yield positive results.”
Following their visit to the Kingdom as part of the Article IV mission, they noted that “non-oil growth has picked-up, female labor force participation and employment have increased, the successful introduction of the value-added tax has underpinned an increase in non-oil fiscal revenues, energy price reforms have helped reduce per capita consumption of gasoline and electricity, measures have been introduced to compensate low and middle-income households for the higher costs resulting from reforms, and fiscal transparency has increased. Reforms to the capital markets, legal framework, and business environment are progressing well.”
Of course, while we are pleased with the rapid progress we have made in a short space of time, we also know it is important not to become complacent.
With that in mind, we have continued to pursue reforms in order to enhance the investment environment in a number of different areas.
For example, one area we have been keen to enhance is how easy it is for international expatriates to move to Saudi Arabia and build a long-term foundation and a network, rather than just come for a short period.
With this in mind, last week, Saudi Arabia’s Council of Ministers approved the creation of a residency permit scheme for qualified international expatriates. This scheme will provide international expatriates with a range of additional rights, including enabling them to request visas for their families and own real estate. There will be two separate forms of the program, one acting as a residency permit, and one which is renewable on an annual basis.
Likewise, when we looked at some of the key barriers that companies were facing, one of the most important was the level of red tape around business licensing.
In order to address this, we created the National Licensing and Reform Program (NLRP) — which was established by “Tayseer,” a cross-government entity that helps to drive economic reform.
Through the program, the number of licensing requirements in Saudi Arabia has been reduced by more than half and the NLRP has already successfully eliminated or modified more than 60 percent of over 5,500 licenses selected for reform.
Furthermore, we have enabled 100 percent foreign ownership in a wide range of new sectors from courier services, to education, to health care and life sciences. To give you a sense of the impact of this on investors, 70 percent of the new international investment licenses issued in 1Q 2019 were for entities with 100 percent foreign ownership.
Finally, we are not just looking to attract large multinationals, we are also looking to encourage entrepreneurs to develop their ideas and their businesses in Saudi Arabia. This past year, SAGIA also launched a specialized Entrepreneur License, which allows international entrepreneurs to launch a fully foreign-owned startup company in Saudi Arabia. We have already seen more than 100 entrepreneur licenses issued since late 2017, with more than 45 issued in the first three months of this year alone.
As noted by the IMF, these reforms are beginning to have an impact. The number of new foreign business licenses issued by SAGIA in 1Q 2019 was 70 percent higher than the same period last year and the level of FDI in 2018 was 127 percent higher than in 2017.
This momentum has come because of the reforms we have implemented, but also because international investors and stakeholders have worked with us to identify the challenges they are facing and develop solutions to them.
We are keen to maintain this momentum throughout this year and we look forward to hearing more from investors about the opportunities they see in the Saudi market and what we can do to help them to access it.
• Ibrahim Al-Omar is governor of the Saudi Arabian General Investment Authority. This article was first published by Invest Saudi.
The annual declines in the consumer price index in Saudi Arabia are partly a consequence of a base effect that raised prices last year after the introduction in January 2018 of a 5% value-added tax. (Shutterstock)
Economists still expect deflation in 2019 after prices rose throughout 2018
The International Monetary Fund projects GDP growth of 1.9 percent
DUBAI: Saudi Arabian consumer prices fell 1.9 percent year-on-year in April for the fourth month in a row but were unchanged from March, data from the General Authority for Statistics showed.
The annual declines in the consumer price index are partly a consequence of a base effect that raised prices last year after the introduction in January 2018 of a 5% value-added tax (VAT), economists have said.
The annual fall in the CPI index, however, narrowed from March when the index had dropped 2.1 percent. Some economists see the narrowing of deflation as a sign that Saudi Arabia is having some success in boosting its non-oil sector, while global oil prices have remained under pressure in recent years.
“The further easing of deflation in Saudi Arabia in April suggests that stronger activity in the non-oil sector at the start of this year is (finally) feeding through to a pick-up in price pressures,” said Jason Tuvey, senior emerging markets economist at Capital Economics in a note.
Economists still expect deflation in 2019 after prices rose throughout 2018 following the introduction of the VAT, which was imposed to boost non-oil revenue in response to a long-term drop in oil prices.
Capital Economics expect Saudi CPI to fall 1.3 percent in 2019, while Abu Dhabi Commercial Bank’s projects the CPI index to decline 0.9 percent this year.
“The big picture remains that the unwinding impact of tax and administered price hikes implemented in early 2018 has revealed the weakness of underlying inflation in the kingdom,” Tuvey said.
After contracting in 2017, the economy grew 2.2 percent last year, but is forecast to grow more modestly this year.
The International Monetary Fund projects GDP growth of 1.9 percent, buoyed by an expansion of the non-oil economy as the government steps up spending. Y
The central bank chief said in February, when asked if he expected deflation this year, that he expected consumer demand and real estate loans would stave it off.
Credit grew in the first quarter by more than 3 percent, its fastest pace in more than two years, fueled by a jump in mortgages and in loans to small- and medium-sized enterprises.
Tuesday’s data showed the sub-index for housing, water, electricity, gas and fuel prices down 7.8 percent from a year earlier. The sub-index had fallen 8.1 percent in March.
Prices for food and drinks, however, rose 1 percent and prices for education rose 1.3 percent.
IMF Managing Director Christine Lagarde sits alongside Ahmed Alkholifey, Governor of the Saudi Arabian Monetary Authority (SAMA), during the G20 Finance Ministers and Central Bank Governors Meeting in Washington, DC. (File/AFP)
LONDON: Economic reforms underway in Saudi Arabia have started to yield “positive results,” the IMF said on Wednesday — although the fund cautioned that challenges, notably the level of government spending, remain.
The International Monetary Fund (IMF) issued its preliminary findings on the Kingdom’s economy following an official staff visit to the country, prior to the preparation of a final report.
It found that reforms under the Vision 2030 program — the ambitious plan to diversify Saudi Arabia’s economy set out three years ago — were paying off.
“Reforms to the capital markets, legal framework, and business environment are progressing well,” the IMF said.
“Non-oil growth has picked-up, female labor force participation and employment have increased.”
Other factors the IMF cited include the “successful introduction” of value-added tax (VAT), energy price reforms, and an increase in fiscal transparency.
But several challenges remain, the IMF cautioned.
“Government spending has risen, supporting growth but raising medium-term fiscal vulnerabilities to lower oil prices. Fiscal consolidation is needed to reduce these vulnerabilities. More generally the economic footprint of the public sector is still large,” it said.
The IMF said unemployment among Saudi nationals remains high.
“To deliver a diversified, productive and competitive economy, reforms need to make Saudi nationals more competitive for private sector jobs, raise foreign direct investment, and increase the availability of finance for young and growing companies,” it said.
The fund said Saudi Arabia’s non-oil sector is expected to grow at a faster rate this year, at 2.9 percent.
Yet the IMF said it expects Saudi Arabia’s fiscal deficit — the difference between government spending and revenues — to rise to 7 percent of GDP in 2019, from 5.9 percent last year.
It urged fiscal consolidation to reduce the impact of “medium-term” vulnerabilities.
“If oil prices are lower than assumed in the government’s budget plan, the country would face large fiscal deficits unless spending was reduced,” it said.
The fund said lowering the government wage bill and considering increasing the VAT rate should be considered.
“A reduction in the government wage bill, a more measured increase in capital spending, and the better targeting of social benefits will all yield fiscal savings. The introduction of the VAT has been very successful, and consideration should be given to raising the rate from 5 percent, which is low by global standards, in consultation with other GCC countries,” it said.