Kingdom of Saudi Arabia’s Miraculous Transformation

Mehmood ul Hassan Khan

The Kingdom of Saudi Arabia plays a crucial role in global and regional economic development. It is a leading player in strengthening partnerships with Arab bilateral and multilateral partners for development assistance and scaling up support for countries in transition in many parts of the world. Despite weak global economic conditions and ongoing financial crunch, it is one of the fastest and most stable economic growth patterns in the world. Undoubtedly it holds a spiritual, economic, and political position that is rarely seen, and is respected all over the world.

Nominal GDP and Real Growth Rates (2008-2014)

Saudi Arabia is the largest economy in the Gulf Cooperation Council (GCC) and Middle East and North Africa (MENA) and of course an active member of the G-20. It has been one of the major shareholders in so many generous humanitarian programs in the world which has successfully turned tears into smiles. Moreover, it also plays an important role in regional and global economic development as a major source of energy, overseas development assistance, foreign direct investment and remittances.

Its miraculous socio-economic, massive geo-political and geo-strategic transformations are a result of the strategies that have been implemented since the rule of its founder King Abdulaziz Al Saud until today under the rule of the Custodian of the Two Holy Mosques His Majesty King Abdullah ibn Abdulaziz.

According to International Monetary Agency (IMF) latest report (May, 2014), economic growth in Saudi Arabia would be above 4 percent during 2014-15 because of government spending and robust private sector activity. Furthermore, inflationary pressure would be subdued.

It also progresses to further reform the annual budget, introduce a medium-term budget framework, and develop tools to manage the volatility of oil revenues during 2014-15.

Economic Diversification

The government of Saudi Arabia has diversified its macro-economy through power generation, telecommunications, natural gas exploration and petrochemical sectors. To attract foreign direct investment, the country acceded to WTO in 2005. It is carrying a multi-billion dollar development strategy to build six Greenfield economic cities and industrial zones in the country. By 2020, the industrial cities will generate USD 150 billion in GDP and create 1.3 million jobs. Its sincere efforts to shift from an oil-based economy to a knowledge-based economy are substantiated by the record non-oil exports in 2013. Export oriented policies achieved current account surplus.

It is derived economic diversification to shift away from a volatile oil-centric economy. Now, it has the potential to reduce the impact of any future international financial crises, and is also creating significant investment and financing opportunities. Recent announcements such as increase in the use of unconventional gas supplies, solar energy adoption, and introduction of nuclear and renewable energy are value-addition. The diversification of its economy has increased the net foreign assets by nearly $166 billion in 2012 and the funds are set to surpass $one trillion in 2015 for the first time in the Kingdom’s history.

The IMF projected the assets, controlled by the Saudi Arabian Monetary Agency (SAMA), central bank, to smash the $one trillion barrier for the first time to peak at an all-time high of $1,058 trillion at the end of 2015. It is expected for the assets to further swell to $1,128 trillion at the end of 2016 and break another record of $1,213 trillion at the end of 2017.

Dividends of 10^th Development Plan (2013-14)

Saudi Arabia controls about 17 percent of the world’s proven petroleum reserves.  Since 1970s, the government sponsored five-year development plans control the economic policy framework of the country, with fiscal policy taking a central role, and thereby creating a strong link between fiscal spending and economic activity.

The government’s fiscal policy is geared towards development objectives: investment in social and economic infrastructure, economic diversification, and achieving macroeconomic stability.

Saudi Arabian 10^th development plan concentrated more on the quality of the spending, the quality of the deliverables and the quality of the services that are provided to its people. It took new qualitative measures to improve its economic development, signaling a potential shift of emphasis in its drive to raise living standards by spending tens of billions of dollars on welfare.

According to a latest report by International Data Corporation (IDC), Saudi Arabia’s healthcare IT market is forecast to rise by 11 percent annually and is one of the fastest growing markets in the world. IT spending in Saudi Arabia is due to modernization and expansion of hospitals and clinics as the country looks to increase its bed capacity to 30,000. Due to which healthcare is also the second fastest growing sector after government in terms of IT spending. The report also predicts that IT support services will be the fastest growing service areas in the country.

Saudi Budget 2014

Saudi Arabia announced its 2014 budget which is a balanced budget of $228 billion. This is the sixth budget since the global financial crisis. It adopted the expansionary path. Education, health and infrastructure received major allocations of the budget. Government expenditure rose in 2013 to $247 billion, an increase of 15 percent over 2012. Spending went over budgeted outlay by about 13 percent.

Saudi gross domestic product (GDP) registered a record level of $745 billion in 2013, by far the largest GCC and Arab economy, making it the 19^th economy in the world in GDP size, ahead of Switzerland, Sweden, Norway and Iran.

Due to rigorous diversification of economy, oil GDP in fact declined in 2013 by nearly four percent, while non-oil sector grew by over 9 percent. The healthy growth in the private sector moderated the impact of the oil sector decline, pointing again to the significance of economic diversification and the need for encouraging the private sector to have a larger share in the GDP. When that happens, the private sector would be able to better cushion the impact of volatile oil prices.

Over the past eight years (2006-2013), Saudi Arabia has spent over $1.36 trillion in its general budgets, plus scores of billions more in special additional programs. It is planning to spend another $228 billion during 2014. During those years, it launched thousands of projects. In 2013 alone, the Ministry of Finance reviewed 2,330 projects valued at $48 billion.

With so many projects started, administrative and technical capacities of both government agencies and the private sector have been stretched to the limit and beyond. As a result, hundreds, perhaps thousands, of project are running behind schedule.

Source: SAMA

Concluding Remarks

The Kingdom of Saudi Arabia, largest economy in the GCC and MENA always plays a very important role in the peace, harmony and stability of the region and world alike.  It is seriously advocating having GCC joint security shield, energy cooperation, food security, joint strategy against terrorism, extremism.

It is also an active member of G-20 and plays its supportive role through international assistance and easy and smooth supply of oil. Now, Saudi Arabia is one of the fastest growing markets in built-assets among the world’s 30 highest grossing countries in the world.

News Desk

Economic Affairs Editor