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 Economic trends and indicators

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1) KSA Economic Review for The Year 2017:

The Kingdom of Saudi Arabia has been going through a fundamental transition stage in all social, economic and other fields. The local economy has been improving recently and it is expected to flourish in the future despite the global economic challenges. In 2017, the local economy underwent several structural reforms to make it solid and diversified in line with the Saudi Arabia's Vision for 2030. The rise of average OPEC basket oil price by 29% compared to the preceding year also contributed to the stability of the local economy. The Kingdom will continue its economic reforms in the coming years, as envisaged by Vision 2030 and its programs.

According to the General Authority for Statistics (GASTAT), the Kingdom's gross domestic product (GDP) is expected to reach SR 2,569 billion at constant prices in 2017, decreasing slightly from the previous fiscal year by 0.74%. The non-oil sector is expected to grow relatively by 1% thanks to the improvement of some sectors such as Transformative Industries which is expected to grow by 1.30%, and finance, insurance, real estate and business sector which is expected to grow by 2.20%.

Inflation stabilized in 2017 as the cost of living index went down by 0.29%, compared to its increasing by 3.5% in 2016 according to (GASTAT). Non-oil GDP deflator, a key economic indicator for calculating inflation of the whole economy, is expected to increase slightly in 2017 by 0.03% compared to the preceding year.

The preliminary estimates of Saudi Arabian Monetary Agency (SAMA) shows that the current account of the balance of payments is expected to achieve a surplus of SR 57.1 billion, compared to a deficit of SR 89.4 billion in 2016. Commodity exports are expected to reach 827 billion in 2017, and non-oil commodity exports are expected to grow by 7.8% to SR 188.5 billion compared to the preceding year. On the other hand, commodity imports are expected to decline by 7% to SR 439 billion.

As for financial and monetary developments and considering the national and global economic changes, the Kingdom continued its stable monetary and financial policy with the aim of achieving a suitable level of liquidity to satisfy the requirements of the national economy. The state revenues increased in 2017 by 34% to SR 696 billion, compared to SR 519 billion in 2016. The expenditure also increased by 11.5% to SR 926 billion causing a deficit of SR 230 billion (8.9% of GDP), compared to the deficit in 2016 of 12.8%. This indicates that the financial policy has been moving in the right direction and towards the desired goals. The public debt is estimated to reach SR 438 billion at the end of 2017 (17% of GDP). The money supply, in its broad definition, has grown by SR 3.8 billion (0.2%) compared to 2016 due to the higher government spending and cash flows generated by the improved oil prices.

As for the banking sector, commercial banks continued to strengthen their financial position in 2017 as capital and reserves rose by SR 317.6 billion (0.2%). Their total claims on public and private sectors and deposits also increased by 3.8% and 0.1% respectively

compared with the preceding year. Moreover, commercial banks continued to play their vital role in supporting and expanding the private sector's activities. Credit provided by commercial banks to support such activities decreased by 1% to approximately SR 1.386 billion in 2017. Commercial loans, on the other hand, increased for certain subsectors such as water, electricity, gas and health services by 23.6%, transport and telecommunication (17.8%) and financing (11.4%), whereas they declined for other subsectors such as mining and quarrying (23.6%), construction (14.9%) and industry and production (8.8%). This has slowed down the growth of bank credit.

Likewise, the performance of the Saudi Industrial Development Fund in 2017 was outstanding as 137 loans were extended to set up 120 new projects and expand 17 ones with a total loan amount of SR 10,571 million. This is an increase of 33% compared with the preceding year and the second highest amount approved in one year since SIDF inception.

These projects will have a significant impact on the growth of the local economy as they are expected to add SR 28 billion to GDP, create about 8,000 direct jobs with a nationalization level not less than 26%, satisfy local demand by around SR 10 billion and increase exports by approximately SR 50 billion.

Tadawul All Share Index (TASI) increased slightly by 0.22% at the end of 2017 registering 7,226 points, compared to 7,210 points at the end of 2016. The value of traded stocks decreased by 27.7% to SR 836 billion in 2017, compared to SR 1.156 billion in 2016. Capital Market Authority (CMA) has been expanding the market base by enhancing credit and growth opportunities for companies while opening new investment channels. An additional 10 companies were partially put up for public offering out of which 7 companies have been listed with a total market value of SR 3.96 billion (0.23%), increasing the number of listed companies to 179 by the end of 2017. The Global Industry Classification Standard (GICS) has been adopted in Tadawul since January 2017 to restructure sectors, enhance transparency and provide accurate information on their performance. In addition, the parallel market (Nomu) has launched in 2017 and closed at 3140 points with a total market value of SR 1,805 billion. Nomu is an alternative platform for companies wishing to be listed with lighter requirements than the main market in line with the Vision 2030 which aims to facilitate expansion, growth and sustainability for SMEs by diversifying financing sources and expanding support activities.

To achieve the Vision 2030, several programs were launched in 2017 including the National Industrial Development and Logistics Program. Structural reforms have been put in place to strengthen the national economy including creation of several government institutions such as General Property Authority, General Authority for Military Industries, Industrial Energy City in the Eastern Region and National Atomic Energy Project. In addition, the Zakat and Income Authority has been reorganized. The GCC unified VAT and selective tax agreements have been approved and became effective as of 2017. Moreover, the National Development Fund and the Anti-Corruption High Commission have been created while an Anti-Money Laundering Law has been brought in.

Many reputable international economic institutions and agencies have commended the strength of the Saudi economy. International Monetary Fund (IMF), in its Article IV Consultation, praised the strong performance of the Saudi economy and emphasized that it is one of the best growing economies among the G20 countries. IMF also praised the Vision-based reforms particularly economic, financial control and other reforms aimed at enhancing business environment and transparency. Privatization and partnership between the public and private sectors were also praised by IMF. Despite economic challenges and structural reforms, Standard & Poor's has rated the Kingdom in November 2017 at a good credit rating of (A-/A-2) with a stable outlook and expected improved finance in the coming two years. Similarly, Fitch has rated the Kingdom for the same period at (A+) with a stable outlook due to the strong economy, effective reforms, high foreign reserves and robust assets and budget.

In conclusion, the performance of the Saudi economy in 2017 was still positive despite the global economic challenges. This highlights the strength of the local economy and success of the economic and structural reforms aimed to accelerate economic growth, diversify income sources and actualize Saudi Arabia's Vision for 2030.

2) Performance Indicators of The Industrial Sector:

In parallel with the recovering global economy and improving oil prices in 2017, the non-oil manufacturing sector in the Kingdom grew by 0.86% (at constant prices for 2010) according to "GASTAT".

The non-oil manufacturing sector indicators are detailed below in figures 1,2 and 3. (N.B. These indicators are for 2016 as 2017 data are still unavailable by "GASTAT").

In terms of industrial productivity indicators, Figure (1) shows the average value added per worker in the main industrial activities in 2016. It is noted that chemicals and plastics activity is ranked first in terms of average value added per worker (SR 751,000), followed by paper and printing (SR 377,000), machinery and equipment (SR 309,000), food products (SR 276,000) and base metals (SR 275,000). The average value added per worker in non-oil industries approximates SR 269,000.

 

Figure (1)

Average value added per worker by industrial activity in 2016 (SAR thousand)


 

Source: GASTAT

 

Among the indicators that have gained increasing significance in the past few years is the industrial exports index. Vision 2030 attaches great importance to non-oil exports, especially industrial exports, as a strategic objective to reduce dependence on oil exports. Figure (2) shows industrial Exports ratio to total sales where chemicals and plastics ranked first (58%), followed by base metals (39%), machinery and equipment (29%), food products (15%), fabrication (11%), paper and printing (10%) and textile products (9%). The average exports ratio to total sales in non-oil manufacturing sector is estimated at 30%.

Ratio of industrial exports to total sales by industrial activity in 2016

Figure (2)

 Source: GASTAT

 

Figure (3) shows the key ratio of Saudi labor to total labor force in the non-oil manufacturing sector in 2016. Chemicals and plastics ranked first (44%), followed by base metals (36%), paper and printing and machinery and equipment (24% each), non-metals and food products (22% each), furniture and textile products (15% each) and fabrication (13%). The percentage of Saudi labor falls short of ambitions as it does not exceed 24% of total employment in the non-oil manufacturing sector. This emphasizes the importance of enhancing employment of the national labor force in the industrial sector by developing the industrial structure to create more rewarding employment opportunities for citizens. 

Figure (3)​

Ratio of Saudi labor to total labor force by industrial activity in 2016

 Source: GASTAT​​