Reasons to be optimistic about Saudi Arabia

Reading the economic commentary about Saudi Arabia from veteran local analyst Brad Bourland, now chief economist at the Samba Group, used to be a pretty depressing exercise, and it could not have been much fun for Mr. Bourland to write either.

Yet his February 2005 report is upbeat and positive despite the well-publicized battle against terrorism in the Kingdom.

'We expect 2005 to be another exceptional year,' writes Mr. Bourland. 'Much of the private sector, such as major infrastructure projects and capital markets activity, is just gaining momentum. In addition, the oil revenues of 2004 are likely to be felt more strongly in 2005 as government spending grows.'

Samba Group, formerly Saudi American Bank but no longer with a Citigroup shareholding, predicts 4.25% real GDP growth in 2005. Most notably, private sector growth of 6% is forecast to outpace oil sector growth of just 2%.

That might prove a little pessimistic in the light of the resurgence of oil prices above $50 last week, after this report was written. However, the significance of the growth of private sector activity in the Kingdom is a very healthy sign and an indication that economic reform is going more than skin deep.

The $74.7 billion 2005 Saudi budget also represents an increase of 40% over 2004, a larger increase than in recent years, laying the ground for a strong fiscal stimulus to the economy in 2005, explains Mr. Bourland, who notes that the budget assumes an average price for Saudi oil of $25 which seems conservative and should allow scope for additional spending.

What Mr. Bourland does not say in his report is that the flow of investment in the post-9/11 era has also had a positive impact on the Saudi domestic economy. Funds that would have flowed abroad have been invested at home, and other money has been pulled out of the global capital markets and repatriated.

So perhaps even the aspects of Saudi society that have attracted negative criticism have had at least some positive effects. There is also the broader view that one way to stabilize a society is to make its people richer, and this seems at least part of the explanation of what is happening in Saudi Arabia today.

Economists at least have much to be cheerful about in the Kindgom, and these are not the sort of folk that are easily impressed.