Slowdown in hydrocarbon sector hits Saudi growth

Saudi Arabia's economy swelled by more than seven per cent in 2007 but the growth rate was far lower than 2006 because of a slow down in the hydrocarbon sector, according to figures.

From around SAR1.335 trillion (Dh1.32trn) in 2006, the Kingdom's gross domestic product grew by 7.1 per cent to SAR1.430trn in 2007, showed the figures by the Saudi Arabian Monetary Agency (Sama).

The growth in current prices last year was far lower than the rate in 2006, when the GDP raced by 12.9 per cent from SAR1.182trn.

The report showed the slowdown was mainly a result of lower growth in the hydrocarbon sector, which increased by around 8.1 per cent last year compared with 17.2 per cent in 2006.

But non-oil sectors maintained high growth in 2007 because of public overspending and strong private sector activity.

A breakdown showed most non-oil sectors recorded growth, with the manufacturing sector surging by 10.5 per cent to SAR136 billion. The construction sector grew by around 10.1 per cent, while growth stood at nearly 9.7 per cent in transport and communication, 12.7 per cent in electricity and water, 9.7 per cent in trade, and 5.7 per cent in business services.

Saudi Arabia's economy, which accounts for nearly a fifth of the total Arab GDP, has recorded high growth rates over the past five years due to strong oil prices.

But the boom was accompanied with accelerating inflation rates mainly because of a surge in rents, food prices and a nominal decline in the riyal against major currencies as a result of its peg to the ailing US dollar.

Inflation picked up from 2.2 per cent in 2006 to 4.1 per cent in 2007 and is expected to more than double this year.

Sama's data showed that the inflation rate surged to 6.5 per cent in the first quarter of 2008 and the bulk of the increase came from higher rents and prices of foodstuffs, most of which are imported by the Kingdom.

High oil prices have allowed the government to sharply boost expenditure on infrastructure and other development projects. This has allied with a surge in foreign capital and private sector investment to expand the non-oil sector.

Independent estimates showed budgetary spending hit a record SAR443bn in 2007 and could soar to SAR532bn this year as oil prices are heading to their highest annual average.

Despite the surge in expenditure, Saudi Arabia has recorded massive budget surpluses in the past few years as growth in revenues far outpaced the increase in spending. The surplus hit a record SAR280bn in 2006 before sliding to nearly SAR179bn last year.

Forecasts by the Abu Dhabi-based Arab Monetary Fund showed the surplus could peak again at SAR300bn this year due to an expected sharp rise in the country's oil income. The GDP growth in 2007 boosted the Kingdom's per capita income to SAR59,016 from SAR56,401 in 2006 although the population grew to nearly 24.24 million from 23.68 million in the same period.

But the Kingdom's per capita income remained a fraction of that in neighbouring Qatar or the UAE, where it was estimated at more than $70,000 (Dh256,000) and $45,000 respectively.

Despite a sharp expansion in the non-oil sector over the past decade, oil sales still account for more than two thirds of Saudi Arabia's revenues. The Kingdom, which controls over a quarter of the world's proven crude deposits, pumped in excess of nine million barrels per day of oil last year and production is projected to pick up in the medium and long term given its massive projects to expand its sustainable capacity to nearly 12.5 million bpd at the end of 2009.

Figures released by showed the Kingdom has sharply boosted investment in its oil sector, pumping a record SAR50.7bn last year compared to nearly SAR44.3bn in 2006 and SAR22.2bn in 2005.

The numbers

7.1%: From around SAR 1.335 trillion in 2006, the Kingdom's gross domestic product grew by 7.1 per cent to SAR1.430 trn in 2007, according to official figures.

59,016: GDP growth in 2007 boosted the Kingdom's per capita income to SAR59,016 from SAR56,401 in 2006 although the population rose to 24.24 million.

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