10/9/2014 Saudi Arabia / Economic Studies - Coface

http://www.coface.com/Economic-Studies-and-Country-Risks/Saudi-Arabia 1/2
HOME ECONOMIC STUDIES SAUDI ARABIA
STRENGTHS
A quarter of world oil reserves and leading
OPEC producer
Dominant regional political and economic role
Economy undergoing diversification and more
open since joining the WTO in late 2005
Strong financial position
Robust banking system
WEAKNESSES
Heavily dependent on the hydrocarbon sector,
which creates few jobs, and growing domestic
energy consumption
Inadequate education and training system
leading to high unemployment, particularly
among the young
Weak governance looming over the business
climate
Unstable geopolitical environment
SYNTHESIS
MAJOR MACRO ECONOMIC INDICATORS
2011 2012 2013 2014(f)
GDP growth (%) 8.6 5.1 3.7 4.5
Inflation (yearly average) (%) 3.9 2.9 3.7 3.2
Budget balance (% GDP) 11.6 12.8 7.5 5.0
Current account balance (% GDP) 23.7 24.5 19.0 16.5
Public debt (% GDP) 7.5 6.0 7.0 6.0
(f) Forecast
RISK ASSESSMENT


The economy will continue to grow slowly in 2014 driven by sustained hydrocarbon prices. Moreover, activity will
remain driven by the public investment programme nearing completion - of $386bn over 5 years (2010 -2014), as
POPULATION
29.632 MILLION
GDP
718.472 US$ BILLION COUNTRY RISK
ASSESSMENT
BUSINESS
CLIMATE
A4 B
SAUDI ARABIA
10/9/2014 Saudi Arabia / Economic Studies - Coface
http://www.coface.com/Economic-Studies-and-Country-Risks/Saudi-Arabia 2/2
well as the package of measures costing $130bn (a little under 20% of GDP) launched in 2011 to defuse social
tensions. These measures continue to boost household consumption.

Further, private and foreign investment is stimulated by on-going or planned projects: three refineries, three new gas
fields, the enormous Sadara petrochemical complex at Jubail, an aluminium factory at Ras al-Khair, the extension of
the rail network and the Riyadh metro.
Inflation the highest in the Gulf countries is mainly due to housing bottlenecks. However, the pressure on prices
is easing with the construction of new social housing and the maintenance of subsidies on the price of basic
commodities.

The public accounts remain dependent on hydrocarbon revenues (over 90% of fiscal revenues). In 2014, despite the
scale of spending, particularly on the construction of social housing, schools and hospitals, maintenance of a
comfortable surplus is expected, although lower compared to 2013.

Hydrocarbon and petrochemical export revenues will remain high and the trade balance will post a strong surplus,
despite higher imports due to strong domestic demand. This will largely offset the persistent deficit in services and
transfers resulting in a substantial current account surplus, although lower than that of 2013.

In this context, the Saudi Arabia Monetary Agency continues to accumulate very extensive financial assets abroad,
which are set to exceed $800bn at the end of 2014, or the equivalent of three years of imports. Accordingly, the
country is very largely a net external creditor, which, despite the growing size of corporate short-term debt, gives it
great capacity to resist any unlikely foreign exchange crisis, especially since the Saudi riyal is pegged to the US
dollar.

Social and political weaknesses, business environment in need of improvement
Oil revenues enables Saudi Arabia to alleviate the tensions linked to big inequalities and high youth
unemployment. Besides, in 2014, private sector growth is expected to be similar to that of the overall economy and
the financial health of companies will be fairly satisfactory with improving profitability, even though payment defaults
cannot be ruled out, particularly because SMEs still find it hard to access bank credit, despite government incentives.
This is because the banks favour consumer credit. The Saudi banking system, highly concentrated and the largest
in the Middle East and in the world for Islamic finance, is well capitalised, liquid, profitable and it already applies
Basel III rules.

However, modernisation of the Kingdom is impeded by limited institutional capacity and burdensome bureaucracy.
Moreover, despite efforts to improve the business climate, the Saudi-isation of the workforce (nitaqat) introduced at
the end of 2011 could hamper foreign investment. Further, the judicial system does not provide all the guarantees
needed to enforce creditors rights and company accounts are often opaque, which complicates the assessment of
risk. Nevertheless, the payment behaviour of private businesses is expected to remain better than Cofaces
observed world average.