Growth of 2.3 per cent projected for Saudi Arabian economy next year
The event ended with a total of 24 deals, including a $5bn agreement for the world’s largest entertainment and shopping complex
Saudi Arabia’s economy is projected to expand 2.3 per cent next year after growing an expected 0.9 per cent this year as the kingdom presses on with economic reforms and diversification.
These are intended to support its non-oil private sector, the finance minister said in a pre-budget statement for the 2020 fiscal year.
The kingdom expects nonoil GDP growth to accelerate next year after increasing 2.5 per cent in the first half of this year, Mohammed Al Jadaan said at a briefing. Overall GDP increased 1.1 per cent over the same period.
Saudi Arabia has been boosting alternative revenue lines such as construction and tourism following a three-year oil price slump that began in 2014. A key pillar of its Vision 2030 programme is increasing nonoil economic growth, which accelerated at the fastest pace in four years in the second quarter of this year.
The ratio of non-oil revenues to non-oil GDP is expected to increase to 16 per cent at the end of this year compared to only 7 per cent in 2012.
Spending is expected at 1.02 trillion riyals (Dh1tn) for 2020 compared with 1.04tn projected in 2019, the minister said before the final budget announcement to take place next month. The focus will be on “improving the efficiency of spending without any disruption to diversification and transformation plans”, the Ministry of Finance said.
Revenues are expected to reach 833bn riyals next year, in comparison to an estimated 917bn this year.
The budget deficit is expected to continue to decrease in 2019 to 4.7 per cent of GDP, compared to 5.9 per cent last year. However, the budget deficit will widen to 187 billion riyals next year, or 6.5 per cent of GDP, from a projected 131bn riyals for this year.
There are 22 support initiatives for the private sector, such as cash subsidies and financing guarantees, which aim to strengthen its role as the main driver of economic growth and job creation. Major projects across various sectors “will support non-oil GDP growth in 2020 and over the medium term”, a statement said.
At the Future Investment Initiative in Riyadh last week, Saudi Arabia closed 24 investment deals worth a total of $20bn. The largest deals included the $5bn mixed-use Arabian Dream real estate project and $11.45bn Air Products Qudra project.
“FDI has grown by 10 per cent and local investment is on the rise,” Mr Al Jadaan said at the conference. “Confidence is growing, and public-private partnerships are allowing us to ease the burden on government budgets.”
Saudi Arabia’s construction sector is growing for the first time in five years, increasing 3 per cent in the first half of 2019 compared to a decrease of 2.8 per cent a year earlier. Other sectors that have grown in the first half year-on-year include: wholesale, retail trade, restaurants and hotels by 3.8 per cent; finance, insurance and real estate by 5.1 per cent; transport, storage and communication by 5.6 per cent; and community and social activities, including arts and entertainment by 5.9 per cent.
“We want the Saudi economy to be immune to global and local challenges,” Mr Al Jadaan said at the FII. “This is what we are trying to do to improve sectors, take care of the digital transformation of the government sector and take fundamental structural reform measures that I believe have put us on the right track.”
According to the IMF’s latest projection last month, economies of Gulf countries are projected to grow 0.7 per cent in 2019, down from 2 per cent last year, before rebounding to 2.5 per cent in 2020. The nonoil sector in the GCC will grow from 1.9 per cent last year to 2.4 per cent in 2019 and 2.8 per cent in 2020, according to the lender.
Saudi Arabia closed the third Future Investment Initiative (FII) on Thursday with 24 investment deals worth $20 billion (Dh73.4bn) as the Arab world’s biggest economy continues to institute reforms, opening the kingdom further for foreign investments.
The kingdom announced 23 deals across energy, transport, oil and gas, petrochemicals and manufacturing sectors worth $15bn on day one of FII in Riyadh.
The final day involved the closing of a $5bn investment agreement between Saudi Real Estate Company (Al Akaria) and Triple 5 – the owner and developer of three of the largest commercial malls in North America – to develop the Arabian Dream project, Saudi Arabian General Investment Authority (Sagia) said.
The development will be the world’s largest mixed-use entertainment and shopping complex, at Al Akaria’s Widyan site in Riyadh, the developer said in a separate statement to the Saudi stock exchange Tadawul, where its shares trade.
The mega-scheme is expected to attract more than 70 million visitors annually and employ in excess of 25,000 Saudis, the statement said.
The deals build on the positive momentum Saudi Arabia has experienced so far this year in terms of inward investments. “As Saudi Arabia welcomes investors and decision-makers from across the globe to this annual global investment platform, the agreements exchanged here reflect the strength and diversity of the economy,” said Ibrahim Al Omar, governor of Sagia.
“Under Saudi Vision 2030, Saudi Arabia is undergoing an ambitious programme of economic reform, and the world is taking notice. The indicators are clear: Saudi Arabia is not only open for business, it’s the economy of the future,” he said.
Saudi Arabia has been going through a transformation of its economy under Vision 2030, an overarching social and economic agenda driven by Crown Prince Mohammed bin Salman. Weaning its economy off oil, part-privatising state entities and opening its non-oil sector for investment are among the key pillars of the kingdom’s reform programme.
This month, Saudi Arabia climbed 30 places in the World Bank’s Doing Business 2020 report, becoming the most improved economy globally.
Sagia announced a slew of deals including a $700 million investment by Modular Middle East to set up a prefabricated building facility in the kingdom, a $300m investment from Chinese shopping platform OneDeal for a new distribution hub and a $200m deal with the UK’s Shiloh Minerals to develop production capacity.
Saudi Aramco signed deals with APQ for a $600m joint venture, with Dassault for a $200m collaboration around data analytics and smart systems, and with GE-owned Baker Hughes for $230m worth of co-investments and developments around artificial intelligence and digital transformation.
The kingdom’s Industrial Clusters authority agreed on feasibility studies into a $250m local vaccine production plant with Instituto Butanan, a $110m pharmaceutical plant with Eurofarma and a $100m wind energy facility with Aeris.
The largest deal was between Acwa Power and Air Products for the $11.45bn Air Products Qudra project.
This month, Saudi Arabia climbed 30 places in the World Bank’s Doing Business 2020 report