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Saudi Arabia Business Forecast Report Q2 2011
Description:
Robust Growth, But Politics Could Raise Risks
We continue to highlight further growth potential for Saudi Arabia, underpinned by the prospects of
increasing oil production combined with the positive outlook for oil prices over 2011. On top of that, Riyadh’s
spending drive aimed at strengthening non-oil sector growth will also contribute to overall economic
progress. This strong growth story will boost the country’s investment climate and help attract further
foreign investment.
However, a shadow has been cast over Saudi Arabia’s political profile, with the recent social unrest in North
Africa increasing risk aversion towards the entire region. Furthermore, uncertainty over King Adbullah’s
health, and more importantly, potential succession scenarios also poses a downside risk to our growth
outlook. A lthough some protests against the regime emerged at the start of 2011, a scenario in which social
unrest degenerates to a similar extent as that seen in Egypt or Tunisia remains unlikely. Higher living
standards, the lack of any significant organized opposition, and a stronger military apparatus are some of
the major differences that set Saudi Arabia apart, limiting the risks of contagion from North Africa.
However, despite the apparent stability of the autocratic regime, the uncertain state of health of King
Abdullah poses some risks to the political stability outlook. While we do not expect any major changes in the
country’s political trajectory, the unclear succession situation leads us to caution that some instability could
arise over the medium term. We hold to our positive economic growth outlook for Saudi Arabia and project
real GDP to expand 3.9% in 2011, up from an estimated 3.0% in 2010. Saudi Arabia’s non-oil sector will play
an increasingly vital role for the economy, as the government’s initiative to diversify the economy away from
the hydrocarbon sector will bolster private consumption and gross fixed capital formation (GFCF ). As a
result, we forecast GFCF growth to outperform all other expenditure components of GDP from 2011
onwards.
Indeed, as part of a longer-term spending plan, the government plans to spend US $155bn in 2011 alone,
investing in education and infrastructure. However, until the mortgage law is passed we caution that
persisting weak credit growth will pose risks to the country’s growth potential. Over the longer term we
pencil in GDP growth of 3.5% in real terms between 2012 and 2015. S audi Arabia’s investment climate
remains one of our favourites in the Middle East and North Africa. Relative political stability, great scope for
growth in capital extensive sectors like infrastructure, impressive oil reserves and production capacity are
the key factors underpinning our favourable outlook. Over the next five years, investors will be particularly
attracted by the government’s impressive spending plan, which aims to invest US $1.3trn primarily in the
non-oil sector. Not only will these projects employment opportunities and thus limit social, but it will also
attract both local and foreign investors interested in tapping into the country’s growth story.
Contents:
Executive Summary
Robust Growth, But Politics Could Raise Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics l
Unlikely Contagion, But Risks Remain
Although Saudi Arabia shares several socio-economic conditions with the North African states, we believe
that the risks of contagion of political unrest to the kingdom are low, owing to fundamental differences that
will prevent this from happening
Table: Saudi Arabia & North Af rica – Key Indicators
Domestic Politics ll
Succession To Remain Uncertain
Increasing signs of King Abdullah’s deteriorating health could rush the decision regarding his succession
Long-Term Political Outlook
Political Scenarios For The 2010s
The Saudi royal family depends on steady oil revenues and Western support to maintain its tight grip on the
population
Table: Saudi Arabia Political Overview
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Growing Contribution Of Non-Oil Sector To Growth
We hold to our positive economic growth outlook for Saudi Arabia and project real GDP growth to come in at
3.9% in 2011 up from an estimated 3.0% in 2010, driven by stronger growth in gross fixed capital formation
Table: ECONO MIC ACTIVITY
Fiscal Policy
Spending Shifting Towards Human Capital
We maintain our view that Saudi Arabia will continue to increase spending, with massive investment plans
focusing primarily on improving the education and healthcare sectors
Table: FISCA L PO LICY
Monetary Policy
Inflation To Remain High In 2
Saudi Arabia’s consumer price inflation will remain relatively high (among the highest in the Gulf
Cooperation Council), estimated at 5.8% y-o-y in 2010 and forecast to tick up to 6.0% in 2011
Table: MONETARY PO LICY
Banking Sector
Banking Sector: Time For Recovery
Despite the weak performance of Saudi Arabia’s banking sector in 2010, we are confident that a recovery will
occur throughout 2011, and forecast asset growth to pick up and come in at 8.0%, from a modest 2.5% in
2010
Table: BAN KIN G – Q310 data
Chapter 3: 10-Year Forecast
The Saudi Arabian Economy To 2020
Politics Main Risk To Long-Term Outlook
Assuming the survival of the current form of government into the medium term, we see ongoing strong
growth and asset accumulation via real expansion in investment and exports, amid still historically high oil
prices
Table: SAU DI ARA BIA Long-Term Macroeconomic Forecasts
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
Table: BMI Business And Operation Risk Ratings
Table: BMI Legal Framework Rating
Infrastructure
Table: Labour Force Quality
Market Orientation
Table: Middl e East and Af rica – Annual FDI Infl ows
Operational Risk
Table: Trade And Investment Ratings
TABLE: TOP EXPORT DESTINATIONS
Chapter 5: Key Sectors
Retail
Table: Saudi Arabia’s Retail Sales Forecast, 2007-2015
Water
Table: Key Data, Water Industry
Table: Water Data by City (‘000 cubic metres)
Chapter 6: BMI Global Assumptions
Global Outlook
Growth Solidifies, But Inflation Poses A Threat
Table: Global Assumptions
TABLE: GLOBAL & RE GIONA L REAL GDP GROWTH % CH G Y-O-Y
TABLE: CONSENSUS FORECASTS
Chapter 7: Sector Forecast Appendix
Table: Autos Sector Key Indicators
Table: Food and Drink Sector Key Indicators
Table: Infrastructure Sector Key Indicators
Table: Oil and Gas Sector Key Indicators
Table: Pharmaceutical Sector Key Indicators
Table: Telecoms Sector Key Indicators
Table: Defence and Security Sector Key Indicators
Table: Freight Key Indicators
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