How Sound Is The Saudi Arabia Economy? – OpEd
By Arab News
By Abdullah Al Alami
A senior official appeared on stage last week to “assure” the crowds with a faint smile that “our economy is strong”, that the Kingdom has a strong record of fiscal responsibility and economic diversification at a time when the whole world is suffering from global economic crises.
The Saudi market index is not doing any better than it did a year or two ago. Actually, thousands of investors were severely afflicted by a magnitude 9 market earthquake. More than three million people lost their properties and their confidence in the market as a result of what another official called “market correction.”
Although most investors are going through a stage of psychological withdrawal, the official seems confident that banks’ performance is perfect and that our money is in good hands. This misleading PR job aims at polishing the apple to secure specific interests for specific individuals. Nevertheless, those individuals failed to appear on stage last week due to the possibility of a reshuffle in major positions in investment institutions.
I still remember the days when another official gave us his definition of “market correction” while the market actually lost more than 50 percent of its value within weeks, and more than a trillion and a half trillion rials quickly evaporated in thin air! We can now reformulate the meaning of “market forces”, the end result were millions of Saudis who have lost everything they owned in the stock market.
Sometimes we fail to recognize that Saudi Arabia is an oil-based economy, but that by itself does not necessarily make it a strong economy. Although we possess about 25 percent of the world’s proven petroleum reserves and we rank as the largest exporter of petroleum, we should not be complacent and believe that this is the criterion of sound economic growth. Having become an important provider of petrochemicals and financial services in our region is good, but we still need to focus on other issues such as social security, production of goods and services, unemployment, and housing. Even though we are the world’s top oil exporter, we are also a major gasoline importer. As a matter of fact, it was announced last week that Saudi Aramco will buy three to four cargoes of gasoline per month in a term contract for delivery during the next few months.
Although Saudi Arabia encourages the growth of the private sector, we still lack the ability to diversify our economy and to employ more Saudis. We need to place more emphasis on diversifications, especially in the areas of power generation, telecommunications, natural gas exploration, and petrochemical sectors. In addition, there are almost 6 million foreign workers in the country and we are unable to solve the unemployment of hundreds of thousands of qualified Saudis.
Where do we go from here? If you do not know where you are going, then any road will do. Various international economic reports indicate that the wholesale and retail sector is predicted to slump following the 40 percent rise in point of sale transactions in 2011. The rise is attributed to the two-month salary bonus paid to state employees last year, which the reports anticipated will not be repeated in 2012. In addition, it is predicted that economic growth in Saudi Arabia is forecast to fall to 3.1 percent in 2012, from 6.8 percent in 2011. This sharp decline is because oil production is expected to drop after a large rise in 2011.
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