Category: Saudi Arabia

Saudi Arabia’s Economic Comeback

 

The economy of Saudi Arabia has definitely had its fair share of hits, most notably the drop in oil prices.  But it seems that this is not stopping the region as we look at the recent governmental statement comprising the budget for this year, including its plan to significantly decrease its (record) budget deficit.  We learn more in this interview with Azhar Sukri.

 

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Saudi Arabia Businesses: Oil V Non-Oil

oilSaudi Arabia’s non-oil business activity witnessed a notable growth in August 2014 – its most substantial in over three years. In July, the SAAB HSBC Saudi Arabia Purchasing Managers Index was 60.7 points (highest since July 2011). (Expansion is when the number is over 50). In addition, employment figures are up – the highest they have been in over a year.

Foreign markets are leading to an increase in new orders. There was however, less of an increase in input prices, a drop from 54.7 points in August to 56.4 points in July, which could have been a result of purchasing costs.

So that’s good news for Saudi Arabia’s economy. However, oil businesses are not faring as well. The shale boom is leaving American refiners with enough supplies of cheap domestic oil. This is negatively impacting oil businesses in Saudi Arabia. For example, in August, the price in America of Arab Light Crude was around 48 cents a barrel less than Light Louisiana Sweet. As well, America imported 878,000 barrels of Saudi crude daily throughout most of August, being the least since 2009.

In addition, the region has lost a substantial niche in the market, especially in the Mediterranean and Asia. Iraq and Iran are taking over as they are offering cheaper prices. Kuwait and the UAE have joined the competition. Particularly significant for Saudi Arabia is the low prices Opec producers are offering. In addition, refineries are using cheaper domestic oil to make fuel faster.

So at the end of the day, while the non-oil market in Saudi Arabia is doing well, the same cannot be said for its oil industry.

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No Oil Problems Here, Says Saudi Arabia

Saudi Arabia, the top oil exporter in the Middle East wants to reassure everyone. They have recently explained that they are ready to supply Asia with more oil. Oil Minister Ali Al Naimi explained in his remarks that were carried by the state news agency that their spare output capacity allows them to counter any issues with supply or demand.

Oil Ministry

As the Oil Minister explained, they are ready to help South Korea, Asia and other countries with “volumes needed as it has huge spare capacity to meet any rise in global oil demand or a decline in supplies.” They did not offer any solid figures about their spare capacity or about exactly how much oil the kingdom has. But they did explain that they have raised their output to about nine million barrels per day to help to compensate from the shortfalls in Libya.

Taking Over the Shortfall

With the unrest in Libya, Saudi Arabia is stepping in to take over the shortfall. It has already sold approximately 2 million barrels to European buyers.

Oil prices have recently surged, with the highest prices so far that they’ve had in the last few weeks. Brent jumped $4 a barrel, creating a 32 month high.

Naimi explained that the oil prices were not actually driven by a lack of oil, but by speculation and fear about supply and demand due to the upheaval in the Middle East.

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Middle East Golfing Amidst the Turmoil

Certainly, the Middle East is in turmoil in many ways; one way that they are rising above the rest, however, is in golf.  The new KPMG Golf Benchmark Survey showed that rounds and revenues around the world were down last year – but that the Middle East is leading the way in golf profits.

Golfing Statistics

Less than half (49%) of the golf courses in Europe, the Middle East and Africa were profitable in 2010 – but for those in the MENA region, the figure was 73%.  The report showed, as well, that one out of every 12 owners was considering selling their facility. The survey included 350 golf courses.  33% of the courses in Eastern Europe reported that they performed poorly, while 73% of those in the Middle East and North Africa reported good results.

A Great Game

The study explained that the Middle East facilities were mostly aligned with resorts and residential communities and that their performance levels remained high.

Report from KPMG

As Andrea Sartori, the head of the KPMG’s Golf Advisory Practice said, “Undeniably, the effects of the economic downturn remain evident in the business performance of golf courses across Europe, the Middle East and Africa. However, there are some positive signs and the performance of courses in both Central Europe, as well as the Middle East and North Africa, lead the way.”

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Keeping All Eyes on Saudi Arabia

If you’re looking to relocate somewhere in the Middle East, Saudi Arabia might be just the right locale.

Certainly, while most of the Middle East is experience upheaval at the moment, there’s one locale that seems to be constantly moving in the right direction, at least financially. Saudi Arabia is heading towards the title of “Richest Middle East Economy” in terms of their GDP per capita. Citibank, in a recent forecast, reports that by the year 2050, Saudi Arabia will have an average wealth per family of $98, 311. This is almost four times the current rate of GDP per capital, according to figures from the CIA World Factbook.

It’s Not All About the Oil

While the figures for Saudi Arabia are impressive, they don’t place it at the top of the global list. Singapore is set to stay on top of this economic list with an estimate of $137,710 per family in 2050. Next are Hong Kong, Taiwan, South Korea, and then the U.S. Saudi Arabia is set to come in sixth, right after the United States.

More Immediate Growth

With these figures in the future, Saudi Arabia is also set to see economic growth for 2011 by 3.9%. This, from a country that holds approximately 20% of the world’s proven petroleum reserves and gets 45% of its GDP from this sector.
Interestingly enough, the report showed that Saudi Arabia’s non-oil sector will become more of an important role for the economy. As the report said, “The government’s initiative to diversify the economy away from the hydrocarbon sector will bolster private consumption and gross fixed capital formation [GFCF].”

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