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A production facility of Sharq, an affiliate of Sabic

A production facility of Sharq, an affiliate of Sabic



Ambitious vision for industrial growth

Confidence in the outlook for Saudi Arabia’s industrial sector is gaining momentum as recent data signals the fastest rate of non-oil sector expansion in the last three months

October 2017

As Saudi Arabia awaits a turnaround in its economy, it is earnestly implementing the kingdom’s boldest, most innovative, and farthest-reaching modernisation and development plan in the country’s history, the Saudi Arabia Vision 2030.

As part of Vision 2030 Saudi Arabia plans to more than triple its non-oil revenues to SR530 billion in 2020 from SR163.5 billion currently as part of efforts to move away from its heavy reliance on oil. The National Transformation Program (NTP), established as part of Vision 2030, aims to boost exports of non-oil commodities from SR 185 billion to SR 330 billion by 2020 as well as creating more than 450,000 jobs in the non-governmental sector.

Analysts point out that the Saudi industry is benefiting from the transformation, albeit slowly. Confidence in the outlook for Saudi Arabia’s industrial sector appears to be gaining momentum as recent data points out that income from non-oil revenues has increased over the last year, signaling the fastest rate of non-oil sector expansion in the last three months.

Khatija Haque, head of Mena Research at Emirates NBD, said: “faster growth in output and new orders helped the headline PMI in Saudi Arabia rise in July, signaling the fastest rate of non-oil sector expansion in three months. Firms were more optimistic last month, and this likely contributed to increased buying activity and inventory accumulation.”

The Purchasing Managers’ Index (PMI) sponsored by Emirates NBD and produced by IHS Markit rose from June’s eight-month low of 54.3 to 55.7 in July, indicating expansion in business activity in the non-oil producing private sector.

July’s print reflected stronger growth in new orders and output on the back of healthy underlying demand and construction activity. As a result, firms’ purchasing activity increased and companies were encouraged to create more jobs.

FocusEconomics Consensus Forecast panelists see fixed investment rising 0.5 per cent in 2017. For 2018, the panel expects fixed investment to increase 3.6 per cent.

Going forward analysts expect to see a gradual but steady increase in non-oil revenues starting from 2018 onwards as fiscal reforms kick in. In the first half of this year non-oil revenues stood at about 45 per cent of the budget target.

 

MANUFACTURING GDP RISES

In addition, increased GDP from manufacturing is set to further brighten the outlook of the oil-based economy, which is fastening its pace of diversification.

GDP from manufacturing in Saudi Arabia increased to SR81,393 million in the first quarter of 2017 from SR77,718 million in the fourth quarter of 2016, according to Trading Economics global macro models and analysts expectations.

GDP from manufacturing in Saudi Arabia averaged SR66354.83 million from 2010 until 2017, reaching an all time high of SR81,393 million in the first quarter of 2017 and a record low of SR53,468 million in the second quarter of 2010, it showed.

Further, spending discipline and higher oil revenues are also believed to be helping the country’s finances, reining in capital spending and gradually phasing out subsidies.

 

FDI, SME BOOST

Another aim is to boost foreign direct investment (FDI) so that it contributes as much as 5.7 per cent to GDP, up from the current 3.8 per cent. This would call for 21 per cent growth in FDI into the country, taking it to $1 trillion in the next 15 years.

According to a study by Oxford Strategic Consulting, Control Risks and Oxford Economics, as much as $1 trillion in foreign direct investment could flow into Saudi Arabia over the coming 15 years, as the oil-rich nation seeks to diversify its economy and boost its private sector.

Among the targets Saudi Arabia has set is to boost its GDP growth and double it by 2030, creating up to 6 million new jobs in the process. Also, while the country’s private sector output currently makes up 40 per cent of its GDP, it is looking to raise this to a 65 per cent stake by 2030. Oxford Strategic Consulting expects that the country would have to boost growth in its private sector by 5 percentage points a year to achieve this goal. Saudi Arabia is looking to promote its small and medium business sector, so that 2.5 million more Saudi Arabian workers are employed in these enterprises, taking the total to 4.1 million workers by 2030, to aid private sector growth.

 




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