1) KSA Economic Review for the year 2018
Following the announcement of the Kingdom's Vision 2030, The local economy has been going through a fundamental transition stage in all fields and moving forward towards a viable and sustainable structural transformation in line with the Kingdom's Vision 2030. According to the General Authority for Statistics (GASTAT), the Kingdom's gross domestic product (GDP) is expected to increase by 2.2% in 2018 compared to 2017, reaching SR 2,625 billion at constant prices. This is driven by the improvement in oil prices in 2018 as the average price of OPEC basket rose by 32%. In addition to the non-oil sector growth of 2.05% at constant prices, contributing to 56.23% of GDP. This is due to the improvement of some sectors such as non-oil manufacturing activity, finance, insurance and business activity, and non-oil mining activity which are expected to grow by 3.9%, 3.8% and 2.7% respectively.
As for inflation level, it is expected to increase by 2.4% at the end of 2018, according to GASTAT. Non-oil GDP deflator, an indicator of change in price levels of all consumption, investment and governmental sectors, is expected to grow by 3.6%. The relative increase in inflation levels is due to several factors, including primarily: reforming energy prices, introducing value added tax (VAT), citizen account, disbursing cost of living allowance and other financial and economic reforms.
The preliminary estimates of Saudi Arabian Monetary Agency (SAMA) show that the current account of the balance of payments is expected to achieve a surplus of SR 271 billion in 2018, Six folds the surplus achieved in 2017 amounted to SR 39.2 billion. This is attributed to the huge improvement of the trade balance which is expected to achieve a surplus of SR 639 billion with a growth rate of 73%. Commodity exports are expected to reach SR 1,104 billion in 2018, as a result of the increase of oil and non-oil commodity exports by 36% and 22% to SR 868 billion and SR 234 billion, respectively, compared to 2017. Moreover, Commodity imports have grown by 0.5% to around SR 465 billion, compared to the preceding year.
As for financial and monetary developments, 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 achieved good results in 2018, increasing by 29% to SR 895 billion, compared to 2017. The expenditure also increased by 10.8% to SR 1,030 billion. The fiscal control of the state budget has helped in reducing the deficit by 43% from the previous year. The public debt to GDP ratio remained at an acceptable level, reaching 19.1% compared to 17.2% in 2017, which is considered among the lowest public debt ratios in the world. The money supply, in its broad definition, has also grown by 2.8% to SR 1,841 billion at the end of 2018 compared to the end of 2017.
With reference to the banking sector, capital and reserves of commercial banks declined by 4.4% to SR 303.8 billion at the end of 2018. On the other hand, their total claims on public and private sectors increased by 5.4% to SR 1,786 billion, and their annual deposits increased by 2.6% compared to the preceding year. Moreover, credit provided by commercial banks to support different economic activities increased by 2.6% to approximately SR 1,425 billion in 2018. Commercial credit also increased for most of the sub-sectors. The largest increase was for mining and quarrying sector by 30%, followed by agriculture and fishery by 20%, then for construction sector by 9% and industry and production by 6%. On the other hand, credit declined for other subsectors such as trade and transport & telecommunication which fell by 10% each.
In the same context, the performance of the Saudi Industrial Development Fund in 2018 was outstanding as 134 loans were extended to set up 110 new projects and expand 24 ones with a total loan amount of SR 9,440 million.
These projects will have a significant impact on the growth of the local economy as they are expected to add SR 11 billion to GDP on an annual basis, create more than 11,000 jobs with a nationalization level not less than 22%, satisfy local demand by at least SR 8.8 billion and increase annual exports by SR 17 billion.
Tadawul All Share Index (TASI) rose by 8.3% at the end of 2018 registering 7,826 points, compared to 7,226 points at the end of 2017. The value of traded stocks increased by 4.1% to SR 871 billion in 2018, compared to SR 836 billion in 2017. Moreover, Tadawul witnessed an increase in investment channels and in credit and growth opportunities for companies. New 11 companies were listed and 9 companies, involved in real estate investment traded funds and consumer services, were partially put up for public offering in 2018, increasing the number of listed companies to 190 by the end of year. The market value of the newly listed companies reached SR 9.88 billion. New initiatives were implemented to strengthen the role of the Saudi stock in the local economy, including: listing and trading government debt instruments and reducing the minimum assets which foreign investors are required to own in order to invest in Tadawul. MSCI and S&P DJI, two leading providers of global equity indexes, have announced upgrading the Saudi Stock Exchange to "Emerging Market" from its previous "Standalone Market" status in their annual classification reviews. This is an indication of Tadawul's significant development in line with global standards.
In its continuing effort to achieve the objectives of Vision 2030, the Kingdom implemented many structural and organizational reforms in 2018 such as the creation of the Ministry of Culture, Royal Commission for Makkah City and Holy Sites, Saudi Space Agency and General Exhibition and Conferences Authority. Such reforms also included the reorganization and transformation of Saudi Customs into the General Customs Authority as well as the approval of real-estate mortgage law. Moreover, a number of initiatives, including the launch of the National Industrial Development and Logistics Program and signing of privatization contracts, were launched to improve business environment and increase investment opportunities. Many key development projects were inaugurated, such as the Haramain High-speed Railway, Qiddiyah, Red Sea and Neom projects. The Kingdom also laid the foundation stone for seven strategic projects in the fields of renewable and atomic energy, water desalination, genetic medicine and aircraft industry.
Many reputable international economic institutions and agencies have commended the strength of the Saudi economy. In 2018, 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, stressing that the continuity of such reforms will contribute to the achievement of the Kingdom's financial goals and growth of non-oil sector. The introduction of value added tax (VAT) and high employment rates of women were also praised by IMF. Standard & Poor's has rated the Kingdom in October 2018 at a good credit rating of (A-/A-2) with a stable outlook. Similarly, Fitch has rated the Kingdom for the same period at (A+) with a stable outlook due to the strong economy, large-scale economic reforms, high reserves and low public debt.
Overall, during the year 2018, the Saudi economy witnessed a continuation of the positive factors set by the directions of the 2030 Vision. It is expected that the Saudi economy will continue to pursue economic and structural reforms in order to strengthen the local economy in all sectors. This confirms the Kingdom's determination to have a diversified and sustainable economy in line with its Vision 2030.
2) Performance Indicators of The Local Industrial Sector
The non-oil manufacturing sector in the Kingdom continued its positive performance, in light of the ongoing structural reforms according to the Kingdom's Vision 2030, as it grew by 4% in 2018 in real terms according to the data of the General Authority for Statistics (GSTAT). The non-oil manufacturing sector has resumed its growth since 2017, growing by almost 1%. The following is a more detailed look at some performance indicators of the non-oil manufacturing sector, according to the main industrial activities for the year 2017.
In terms of industrial productivity indicators, the average value added per worker increased by nearly 3% in the non-oil manufacturing sector in 2017. Figure (1) shows that chemicals and plastics activity is ranked first in terms of average value added per worker SR 798,000, followed by paper and printing SR 368,000, machinery and equipment SR 356,000, food products SR 339,000 and base metals SR 307,000. The average value added per worker in non-oil industries approximates SR 278,000
Figure (1): Average Value Added per Worker by Industrial Sector in 2017 (SR'000)
Source: General Authority for Statistics
Non-oil industrial exports (excluding re-exports) increased by 9% to around SR 159 billion in 2017. Figure (2) shows industrial Exports ratio to total sales where chemicals and plastics activity is ranked first with 59% of sales as in term of exports, followed by base metals 35%, machinery and equipment 25%, and food products 14%. The average exports ratio to total sales in non-oil manufacturing sector is estimated at 30%.
Figure (2): Ratio of Industrial Exports to Total Sales by Industrial Sector in 2017
Source: General Authority for Statistics
The sector also attracted more national manpower, as the Saudi labor force in the non-oil manufacturing sector grew by nearly 4%. Figure (3) shows the ratio of Saudi labor to total labor force in the non-oil manufacturing sector in 2017. Chemicals and plastics sector was ahead of all sectors, with a Saudi employment ratio of 44%, followed by Base Metals sector at 36%, Machinery and Equipment sector 25%, Paper and Printing sector 24%, Non-Metals and Food Products sectors at 22% each. The percentage of Saudi labor to the total employment in the non-oil manufacturing sector remained at 24%. Labor policies adopted by Vision 2030 are expected to enhance employment of the national labor force in the industrial sector in terms of numbers and occupations.
Figure (3): Ratio of Saudi Labor to Total Labor Force by Industrial Sector in 2017
Source: General Authority for Statistics