Saudi Arabia is the largest economy in the MENA region. The Kingdom remains the world’s largest producer of crude oil and has employed its spare capacity to help stabilize global markets. The associated increase in oil revenues was reflected in large external and fiscal surpluses and has provided room to increase government spending to support domestic economic activity against the backdrop of weaker global demand. A massive public investment program of around USD400 billion focusing on infrastructure and human capital development is underway (2009-2014).This is in addition to two fiscal stimulus packages launched in 2011, amounting to USD110 billion, to address social issues, including improving access to housing, increasing employment, and private sector development.
Official external reserves in excess of USD600 billion and low public debt of around 6.3% of GDP will enable the government to maintain its expansionary stance and mitigate the impact of adverse oil shocks in the near term.
The Saudi economy is highly dependent on oil for export and government revenue compared to other GCC countries. Large government spending in recent years has raised the breakeven price of oil from around USD40/barrel in 2008 to USD90/barrel in 2012. Policymakers will therefore need to consider options to slow the pace of government spending or increase non-oil revenues to ensure fiscal sustainability over the longer run. High unemployment among nationals remains a major challenge. The authorities will have to seek ways to accelerate labor market reforms and modernize education to increase employment in the private sector rather than tightening Saudization quotas. Political succession is another key risk for the continuity of economic and social reforms, given the elderly age of the King and key heads of government.
The Saudi market has performed positively during 2012, with foreigners being net buyers during the year. The Tadawul All Share Index (TASI), appreciated by c.7.0% during 2012, the fourth best performing market in the MENA region after Egypt, Dubai, and Abu Dhabi. Most sectors in Saudi Arabia witnessed positive performances during the year, with the transport sector outperforming all others, growing by over 70%. The energy and utilities, petrochemical industries, and building and construction sectors were the only three negative performers during the year. By the end of 2012, Saudi Arabia traded at 12.2x P/E for 2012e below its five-year median P/E of 13.4x, and below the emerging market average of 14.0x for 2012e. We assign Saudi Arabia an overweight outlook for 2013 as political instability is muted and limited to the Eastern Province. Also, news on opening up for foreigners, besides news announced in July 2012 on starting cross-listing foreign, mainly GCC, companies on the Saudi exchange within a year, act as key triggers for the market as a whole.
|Key Indicators (2011)|
|Nominal GDP (USD bn)||577.6||Population (mn)||28.4|
|Real GDP growth (%)||6.8||Population growth (%)||2.9|
|GDP per capita (USD)||20,355||Inflation (y-o-y %)||5.0|
|Sectors||M3 growth (y-o-y %)||13.3|
|Services||21.6||Exchange rate (USD/SAR)||3.7|
|Industry||23.9||Current account (% of GDP)||27.5|
|Agriculture||2.0||Net Foreign Assets (USD bn)||571.5|
|Oil & Gas||52.5|