Samba revises Saudi forecasts upwards

'The Saudi Economy: Mid-Year 2001 Update' published by the Saudi American Bank at the end of July contained a significant upward revision of its forecast for GDP growth in the Kingdom.

Respected Samba chief economist Brad Bourland has removed his previous negative growth scenario for 2001, and now predicts 1% growth in real and nominal GDP. Mr Bourland had previously believed that the Kingdom would enjoy a healthy income from oil in 2001, but fall short of repeating 2000's high GDP outcome. Last year, real GDP grew by 4.5%, according to new official figures, and nominal GDP surged by 21.3%.

Mr Bourland's conversion to a positive outlook for 2001 is the result of a combination of favourable factors. Quite apart from an average oil price of $24 per barrel in the first half of the year, there have been 'deep tariff reductions, lower local interest rates and the potential of the Saudi Gas Initiative'.

He is also impressed by the 'quality of growth' which has become a more broad based, encompassing a 3.5% growth in the non-oil private sector. Samba's chief economist also notes the large number of new licenses for foreign investment granted by the Saudi Arabian General Investment Authority, and the wide-ranging economic reform legislation that is now pending. The latter ranges from capital markets to labour, tax and insurance affairs.

However, the $25 billion Saudi Gas Initiative gets special praise. 'The benefits and contribution to growth of the Saudi Gas Initiative will continue to be felt over many years,' says the report. 'Particularly from the businesses created that take advantage of the availability of abundant, inexpensive gas and electricity'.

Tariff rates fell from 12% to 5% in May, a move that Samba believes will at first reduce income but be more than compensated by increased trade in future years.

Overall, the prospects of the non-oil private sector have improved significantly, and Samba sees this compensating for a 3.6% decline in oil GDP this year. And so it seems the economic reformers are winning in Saudi Arabia in their efforts to boost the Saudi economy, and the good times are still rolling forward.