Economic Trends

The Oil and Gas Sector
Saudi Arabia has 264.2 billion barrels of proven oil reserves (more than one-fourth of the world total) and up to 1 trillion barrels of ultimately recoverable oil.  Saudi Arabia is the world's leading oil exporter and maintains production capacity of around 10 – 10.5 million barrels per day.  Saudi Arabia maintains an excess production capacity of approximately two million barrels per day, a vital contribution to oil market stability in the event of unanticipated supply disruptions.  Record oil revenues in 2003 have helped the Saudi Government close the year with a surplus of over $12 billion.  Throughout 2003, oil prices have remained high in the upper end of the $22-28 OPEC band.  Oil represents 90-95 percent of total Saudi export earnings, 75 percent of state revenues, and about 35-40 percent of GDP.

The Saudi Arabian Gas sector has considerable untapped potential, with proven natural gas reserves estimated at 224.7 trillion cubic feet.

Overall, Saudi Arabia aims to triple natural gas output to 15 Bcf/d by 2009.  Domestic demand is driving a $4.5 billion expansion of Saudi Arabia's Master Gas System (MGS).  The MGS feeds gas to the industrial cities of Yanbu and Jubail. 

The Saudi private sector is expected to continue its growth in the years ahead.  Since the establishment of the Saudi Arabian General Investment Authority (SAGIA) in April 2000, SAGIA has approved more than $15 billion in foreign investment projects, including joint foreign-Saudi ventures, although actual new investment has been significantly less.  Total banks lending to the manufacturing sector increased by more than nine percent in 2003, from $6.49 billion in 2002 to $7.09 billion in 2004.  Banking sources expect a better performance in the few coming years with continued low interest rates and low inflation to enhance consumer confidence and investments.

The Saudi Government is implementing various structural reforms to attract more foreign direct investments.  The latest Government figures revealed that the number of operating industrial plants reached 3,468, with capital investments of more than $64.1 billion.  The Saudi petrochemical sector tops the list of new industrial investments especially in the industrial cities of Jubail and Yanbu.

The jump in crude oil prices in 2003 has sparked strong construction activity, especially in the government sector.  Budgetary surplus has enabled the government to move ahead with previously postponed projects.  The Saudi Government was expected to spend close to $4.8 billion on various infrastructure and urban development projects in 2003.  By the same token, Saudi banks lending to the building and construction sector rose by 4.8 percent in 2003, reaching its highest level ever of $5.87 billion.

In 2004, the Saudi Government allocated $11.2 billion for various projects in its 2004 budget, double the 2003 figure.  The budget outlays included projects in the healthcare sector, water projects, and highways and roads.

The Saudi banking system remains one of the strongest and most profitable in the region.  With high liquidity and profits, the banking sector did as well as the rest of the Saudi economy in the past few years.  11 majority Saudi-owned banks and five GCC banks are licensed to operate in Saudi Arabia, lately the Saudi Arabian Monetary Agency (SAMA) granted four licenses to foreign banks

The new Capital Markets Law, promulgated in June 2003, calls for the transformation of the informal interbank bourse into a privatized stock market with an independent regulator and allows for non-bank financial advisors.  The law creates a market oversight body, the Capital Market Authority, and an independent, publicly held stock exchange.  Foreigners, with the exception of GCC citizens, may only invest in the stock market through mutual funds.

Greater privatization in the Saudi economy, including the creation of partial savings accounts in the country's two major pension systems, would greatly boost stock exchange capitalization, and make it a more important engine for economic growth.

The telecommunications sector remains one of the most dynamic sectors in Saudi Arabia.  Since its privatization in 1998, Saudi Telecommunications Company (STC) has carried out major telecommunications projects kingdom-wide, gradually taking over this role from the Ministry of Post, Telephone and Telegraph (PTT).  To echo the concurrent change, the PTT Ministry was renamed the Ministry of Telecommunications and Information Technology.  Saudi Telecommunications Company has ambitious plans to expand and upgrade its telecommunication services based on the latest broadband technologies.  These services include fast Internet services and digital subscriber lines (DSL).  Broadband technologies are characterized by high speed and bandwidth high capacity.

It is anticipated that revenues from Saudi Arabia's GSM market will soar to $7.9 billion by 2007.