Saudi counts on private sector for targeted growth

Saudi Arabia is counting on the private sector to attain annual growth of more than six per cent targeted in its ninth five-year development plan which started this year, according to a well-known economist in the Gulf Kingdom.

The plan, involving investment of nearly SR1.44 trillion (Dh1.42 trillion) until 2014, also aims to raise the country’s GDP per capita income but it faces the tough task of tackling festering unemployment, said John Sfakiankis, Chief Economist at Banque Saudi Fransi (BSF).

In a study published in the Saudi Arabic language daily Alriyadh, Sfakianakis said the government is targeting high private sector GDP growth of 6.6 per cent in the ninth plan, describing such a target as “difficult and challenging.”

He also warned that if the plan succeeded in expanding the GDP per capita income, this could have an upward impact on inflation, a resurging problem in Saudi Arabia because of high rents and food prices.

“Saudi Arabia is counting on the private sector to grow by 6.6 per cent annually during the ninth development plan…achieving this target is difficult and constitutes a big challenge because the Kingdom’s economy has not recorded such growth rates since 2006, when it grew by 6.1 per cent,” he said.

His figures showed growth in the non-oil private sector stood at around 5.1 per cent during the eighth development plan.

“Although achieving the private sector growth target in the current development plan is not easy, setting this target is important because it could constitute a motivation for this sector to expand and improve its performance,” he said.

Sfakianakis said another tackling unemployment in Saudi Arabia, the largest Arab economy and the world’s top oil exporter, poses another major challenge.

“"We should recall that the eighth development plan targeted the reduction of the joblessness rate from eight to four per cent…but it has climbed to 10 per cent…to achieve the target in the ninth plan, the Kingdom needs to create 300,000-350,000 jobs annually for the citizens,” Sfakiankis said.

“To be able to create this number of jobs, the private sector should grow by around 6.5 per cent annually…so there is a close relationship between the performance of the private sector and job creation in Saudi Arabia since the public sector can not provide this huge number of jobs.”

Citing government figures, Sfakianakis said nearly 50.6 per cent of the investments in the ninth five-year plan would be allocated to development of human resources, including around 19 per cent for education and training.

The plan also earmarks nearly 15.7 per cent to economic development.

“The plan expects to boost the GDP per capita income from around SR46,200 in 2009 to nearly SR53,200 in 2014… this should prompt the government to keep a close eye on inflation because higher income could stoke inflation,” he said.

Sfakianakis’ remarks followed a similar warning by a Saudi investment firm that the ninth development plan faces challenges of achieving its targets on the grounds many previous five-year plans lagged behind their stated targets.

NCB Capital, an affiliate of Saudi Arabia’s largest bank, National Commercial Bank, described the ninth plan as a major step in the Kingdom’s efforts to further intensify key trends of economic and social development.

But it noted that while the plan increased the overall financial resources available for spending by a staggering 67 per cent over the previous development blueprint, it contains little by way of new priorities.

“The ninth five-year plan marks a new milestone in terms of the growing financial resources being channeled into economic and social development.

Few governments can now rival Saudi Arabia in terms of its ambitions. The key challenge, however, remains ensuring maximum returns from the investment.

Educating a person or creating world-class infrastructure are necessary but not sufficient conditions for sustained growth,” NCBC said.

“It is essential to make sure that educated Saudis find a bridge to the labor force in a way that properly and sustainably matches the needs of the economy.
The growing magnitude of the resources committed represents growing risks and, especially in the current environment of uncertainty, ongoing efforts are needed to vet large projects for their economic viability and results.”

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