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 Economic trends and indicators


 

(1)  KSA Economic Review for the Year 2016:

The Saudi economy continued to grow in 2016 despite the economic and geopolitical challenges that included a global economic slowdown and decline in oil prices by more than 17.8% on average compared to their levels in 2015. However, the Kingdom's experience in properly dealing with the oil market challenges together with ongoing structural and regulatory reforms have been effective in enabling the Saudi economy to successfully overcome such challenges. According to the Ministry of Finance's statement accompanying the announcement of the state budget, the Kingdom's gross domestic product (GDP) is expected by the General Authority for Statistics to reach SR 2,581 billion in 2016, an increase of 1.4% at constant prices compared to the previous fiscal year. The non-oil sector is expected to grow steadily by 0.23%, thanks to the good results of activities like home ownership and transportation, warehousing and telecommunication which are expected to grow by 3.6% and 2.6% respectively.

Inflation levels increased in 2016 as the cost of living index is estimated by the General Authority for Statistics to go up by 3.4%, compared to 2.2% in 2015 (calculated on the base year of 2007). Non-oil GDP deflator, a key economic indicator for calculating inflation for the whole economy, is expected to increase slightly by 0.99% in 2016 compared to the preceding year.

According to the preliminary estimates of the Saudi Arabian Monetary Agency (SAMA), the current account deficit in the balance of payments is expected to decline to SR 92.3 billion until the third quarter of 2016, compared to a deficit of SR 212.7 billion in 2015. Likewise, the trade balance in 2016 is expected to record a deficit of SR 13.4 billion until the third quarter of 2016, compared to the preceding year's deficit of SR 110 billion. Commodity exports are expected to reach 673.4 billion whereas non-oil commodity exports are expected to approximate SR 169.5 billion, a decrease of 10.71% compared to the preceding year. On the other hand, commodity imports are expected to reach SR 492.9 billion in 2016, a decrease of 24.76% compared to the preceding year.

As for financial and monetary developments, and in light of the developments encountered by the national and global economy, the Kingdom continued its stable monetary and financial policy with the aim of achieving a suitable level of liquidity to satisfy the requirements of its national economy. The measures taken against expenditure helped reduce the deficit below budgeted levels as it is expected to fall to SR 297 billion, and the public debt is estimated to reach SR 316.5 billion at the end of 2016 (12.3% of GDP at constant prices). The money supply, in its broad definition term, achieved a growth rate of 0.75% in comparison with the same period in the preceding year.

With reference to the banking sector, commercial banks continued to strengthen their financial position in 2016. Capital and reserves of the commercial banks rose by 10.3% to SR 298.9 billion while their total claims on public and private sectors increased by 9.1% in the same year. Bank deposits, on an annual basis, grew by 0.8%, compared to the preceding year.

Moreover, commercial banks continued to play a vital role in supporting and expanding the private sector's economic activities. Credit provided by commercial banks to various economic activities of the private sector increased by 3% to approximately SR 1400 billion in 2016. Commercial bank financing grew for certain subsectors such as agriculture and fishery (15.3%), commercial subsector (5%), industry and production (2.2%) and water, electricity, gas and health services (1.5%). On the other hand, financing declined for some subsectors such as mining and quarrying which fell by 8.4%.

Similarly, the Saudi Industrial Development Fund continued its vital role in the support of all local industrialization activities in the Kingdom. SIDF's loan approvals in the fiscal year 2016 increased to 155 loans totaling SR 7.9 billion.

The Saudi General Share Index increased by 4.3% at the end of 2016 registering 7,210 points, compared to 6,912 points at the end of 2015. The value of traded stocks decreased by 30.3% to SR 1,156 billion in 2016, compared to SR 1,660 billion in 2015. The Capital Market Authority (CMA) worked on expanding the market base by enhancing credit and growth opportunities for companies and opening up channels for investment. An additional five companies were put up for public offering while three retail and construction companies opted for a partial public offering, increasing the number of listed companies to 176 by the end of 2016 with a total value of SR 9.16 billion. In addition, the Capital Market Authority Board of Directors has approved parallel market listing rules, which is an alternative platform for companies wishing to be listed with more flexible terms in comparison to the main market. It aims to help expansion, growth, and sustainability of SMEs by diversifying financing sources.

In the area of structural and organizational reforms aimed at strengthening the national economy, the Vision of the Kingdom of Saudi Arabia 2030 was adopted as an approach and roadmap for the economic development of the Kingdom.

A number of executive programs have been announced to achieve the vision such as the National Transition Program 2020, which includes strategic objectives linked to interim targets until 2020 through 24 government agencies relevant to the economic and development sectors. An amount of SR 286 billion was allocated for the initiatives of the National Transition Program 2020. Moreover, the Fiscal Balance Program was launched to strengthen financial management, restructure the Kingdom's financial situation and introduce various mechanisms to review and approve revenues, expenditures, and projects.

The National Center for Public Agencies Performance Measurement was established to measure the performance of public agencies through unified and binding models, approaches and tools to support their adequacy and effectiveness, as well as preparation of periodic reports on its performance results. The Fund was established in the name of "Fund of Funds" with a capital of SR 4 billion. It aims at activating the role of the private sector and increasing its contribution to GDP by stimulating investments related to bold capital and private ownership and approving the executive regulations of the white land tax.

In their assessment of the national economy, a number of reputable international economic institutions and agencies have commended the strength of the Saudi economy. The International Monetary Fund (IMF), in its latest 2016 advisory report, has appraised the consistently strong performance of the Saudi economy emphasizing that the Kingdom has been among the best performers in the G20 economies. IMF officials also praised Saudi Arabia's Vision 2030 and the National Transition Program 2020, as well as the Kingdom's policy to counter the decline in oil prices and diversify the economy. They also praised the strength of the Saudi banking sector and supported continued efforts to strengthen regulation and oversight in the financial sector. The report also highlighted the strong position of the Saudi banking sector. Despite economic challenges and structural reforms, Standard & Poor's has maintained the sovereign rating of the Kingdom at a high credit rating of (A-) with a stable outlook. Similarly, Fitch has also maintained its sovereign rating of the Kingdom at (AA-) on the long term.

In conclusion, despite low oil prices and slow pace of the global economic growth, the Saudi economy continued to perform satisfactorily in 2016. This attests to the Saudi economy's strength and consolidation, the government's successful economic and structural reforms implemented in pursuit of economic growth and diversification of income sources.

(2)  Local Industrial Sector's Performance Indicators:

The slowdown in the global economy and the sharp fluctuations in oil prices in 2016 have negatively impacted the demand for industrial products. Consequently, the value of the Kingdom's non-oil exports, which are mainly industrial exports, has declined, contributing to a slowdown in the growth of the local industries sector from 6.6% in 2015 to 3.3% in 2016 (as per constant prices of 2010), based on the General Authority for Statistics data. Figures 1, 2, and 3 below illustrate some of the performance indicators of the main non-oil industrial sectors in 2016.

As for the industrial productivity indicator, (figure 1) shows the average value added per worker in the major Saudi manufacturing sectors in 2016. It can be noted that Chemical and Plastic products rank first in terms of average value added per worker, which valued at SR 751 thousand per worker, followed by Paper products at SR 377 thousand per worker, then Machinery and Equipment at SR 309 thousand per worker, Food Products at SR 276 thousand and Basic Metals at SR 275 thousand per worker. The average value added per worker in the total non-oil manufacturing sector is estimated at SR 269 thousand.

Figure (1) Value Added Per Worker in Thousand Riyals by Industrial Sector in 2016

 

 Source: General Authority for Statistics

 

 

The industrial exports performance indicator has gained more importance in the last few years. Saudi Vision 2030 emphasizes more on promoting non-oil exports, especially industrial exports, as a strategic objective of the national economy to reduce dependence on oil exports. Figure 2 below shows the percentage of industrial exports to total sales by sector in 2016. The chemical and plastic products sector leads other sectors as exports of this sector represent 58% of the total sales. Base Metals sector comes second as exports represent 39% of the total sales, followed by machinery and equipment sector where exports represent 29% of the total sales. Food products sector exports account for about 15% of total sales, followed by metal products sector as exports account for only 11% of total sales, while the export sales of paper products sector, textile and clothing products sector amounted to 10% and 9%, respectively. The average ratio of exports to total sales in the non-oil transforming industries sector is estimated at 30%.

Figure (2): Ratio of Industrial Exports to Total Sales by Industrial sector in 2016

 Source: General Authority for Statistics

 

The ratio of Saudi labor to total labor in the Saudi manufacturing sector has been gaining increasing importance at the national level. (Figure 3) shows the Saudi labor ratio to total labor in the major industrial sectors in 2016. Chemical and Plastic Products sector was ahead of all other sectors, with a Saudi employment ratio of 44%, followed by Basic Metals sector at 36%, then Paper & Printing, and Machinery & Equipment at 24% each, other Non-Metallic Minerals as well as Food Products at 22%, Furniture, Textiles, and Wearing Apparel at 15% each, Fabricated Metals at 13%, and Wood Products at 11%. However, Saudi employment ratio in the manufacturing sector remains below ambitions, as they only represent about 24% of the total employment in the non-oil manufacturing sector, which emphasizes the importance of enhancing the nationalization of opportunities in the industrial sector by developing the structure of the local industry to make it able to create more rewarding employment opportunities for citizens.

Figure (3): Ratio of Saudi labor to total workers in the industrial sector in 2016

 Source: General Authority for Statistics