 |
Industry News
|
| |
|
| |
| Saudi Arabia set for strong long-term growth: report |
| |
With its large and closed domestic market, Saudi Arabia presents the strongest long-term growth story in GCC, according to a new report.
High savings, a big demographic bonus and the pressing need for infrastructure spending are strong drivers for the economy, says the report by Bank of America/Merrill Lynch.
However, it is clear that change is taking place only gradually in the kingdom, it said. The main drivers of the transformation such as opening-up the financial market to foreign investors, introducing a mortgage law, and developing the economic cities are still in baby steps.
Besides the government spending on infrastructure, telecom, retail and construction sectors suggest strong secular growth stories even in the short-term thanks to favorable demographics, it said.
The lack of mortgage financing, as well as potentially high land acquisition costs, were seen as significant barriers to growth in the real estate sector, while demand is likely to be concentrated in the low-mid range segments, the report said.
“One of the biggest long-term drivers for Saudi economy is developing the economic cities. Given Saudi Arabia’s massive excess savings, young population and need for a competitive non-oil economy that will generate jobs, the vision for building economic cities are well justified. However, these projects rely more on private sector involvement than government spending. We believe that there are not enough incentives yet for the private sector to push forward these projects once the basic infrastructure is completed. Given the huge scale of these projects (King Abdullah Economic City is as big as Dubai), we believe the involvement of private sector depends on the long-awaited economic cities act, which will clarify the uncertainties regarding cities’ governance, jurisdiction and the life standards,” the report said.
The four cities under construction (King Abdullah Economic City, Hail Economic City, Madinah Knowledge Economic City, and Jazan Economic City) are expected to host some 5 million people, generate 1.3 million jobs and almost double the per capita income in the Kingdom.
The King Abdullah Economic City is the most developed among the four. The first phase of the project (3 per cent of total) that supplies basic amenities and services is expected to be completed by 2012. The infrastructure for all economic cities is expected to be completed by 2025, with private developers / contractors taking the lead from 2014-15 onwards.
Retail and construction sectors
Despite a slowdown, the non-oil economy grew 3.6% in 2009, offsetting the sharp decline in oil production. The healthy consumer sector and the construction activity supported by generous budget spending have been the main drivers and the demographic trends will keep those sectors well supported in the medium-term as well.
“Our meetings with the corporates confirmed that 2009 was a year of consolidation, and also deleveraging to some extent. The sharp contraction in nominal GDP due to lower oil prices worked similar to a monetary tightening in Saudi, despite government’s successful counter-cyclical policies,” the report said.
Lagging credit growth
The Al Gosaibi default and the Dubai debt restructuring caused the credit crunch to reach Saudi Arabia despite the healthy balance sheets and abundant cash in the banking sector. “While we like the secular consumer and investment driven growth story in Saudi Arabia in the medium-term, we believe that the recovery in domestic economic activity will be relatively muted in the short-term until the credit growth recovers, possibly later in H2 2010,” the report said.
|
| |
| 04 Mar 2010 - Back |
|
|
|
| |
|
|
| |
|
|
|
|
|
