King Fahd's vision led to Saudi economic boom

ABU DHABI — The solid foundations of Saudi Arabian economy was laid by the late King Fahd bin Abdul Aziz, a visionary statesman, who long ago had chalked-out a detailed road map for economic development and present economic boom the kingdom is passing through is the outcome of that planning.

By Haseeb Haider

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Published: Tue 2 Aug 2005, 10:30 AM

Last updated: Thu 2 Apr 2015, 4:11 PM

It was Fahd's vision to involve the private sector in the economic development, giving it greater share in the economy. Privatisation of large public sector companies, which was one of his first major initiatives and which offered ownership to the common man, will go a long way in boosting the economic growth and expansion of the Kingdom. It did not only spur productivity, efficiency but also added jobs to the economy.

It was also a bold initiative to allow foreign investors to own 60 per cent of the banking companies raising the bar from earlier level of 49 per cent giving them ownership, which will pave the way for foreign investment in the kingdom.

The vision of the late King Fahd was very clear and focused, as he wanted his country to capitalise on the oil wealth by massively raising its daily out put to 9.346 million barrel per day to meet the fast growing need for energy across of the world.

The kingdom has plans to increase its oil production capacity by 2.2 million barrels per day, investing $20 billion in the hydrocarbon sector.

The bold economic policies of the early mid 80's onwards has resulted in the GDP growing remarkably. This year it is likely to grow by 6.5 percent, reflecting over 7 percent output expansion in both the oil and private sectors, and a more modest growth of under 4 percent in government sector. The growth in GDP is likely to be 26 percent in nominal terms with insignificant domestic inflation.

Oil revenues, the government budget surplus, and the current account surplus will all register all-time highs because of exceptional oil prices and high oil production levels so this upswing is just beginning and will be sustainable for many years.

With heavy investment in the oil sector oil revenues have been increasing and this year country will earn $157 billion, a 48 per cent increase over the $106 billion earned in 2004, which was itself a strong year, adding a current account surplus to reach $96 billion, or 30 per cent of GDP.

The high oil price is not crisis-driven, but driven by strong underlying demand growth and tight supply in the global oil market. These conditions are likely to continue for years and to be of specific benefit to Saudi Arabia.

So far, however, oil revenues have not been the source of growth in domestic liquidity through 2004 and thus far in 2005.

The domestic banks’ expansion of lending to both consumers and businesses has been responsible for about 75 per cent of the money growth in Saudi Arabia, while the excess oil revenues are accumulating as foreign assets in the central bank.

According to economists, the combination of strong consumer spending, strong business investment, likely sustained high oil prices, growing Saudi oil production, improved government finances, and likely substantial fiscal stimulus in 2006 and beyond, all combined to lay the groundwork for sustained economic growth for several years.

Government debt will stand at 51 per cent of GDP, down from a peak of 119 per cent six years ago. All of the debt is domestic, riyal-denominated, and about 75 per cent held by government institutions.

Business investment is now growing strongly, after remaining flat for several years, which created pent up demand.

Much of this is mega-project in size and scope, with timelines that extend to 2010 and beyond.

Wealth creation, through the stock market, real estate market, corporate profitability, and consumers’ new access to borrowing, is fuelling increased levels of consumer spending. Illustrative of the wealth creation, growth in the market capitalisation of the Saudi stock market over the past three years has been $435 billion — almost double of the total oil export revenues of $234 billion during the same period.

The policy to give nationality to foreign expatriates was also the continuation of the bold policies to integrate professionals into the Saudi society and better utilise their experience for the good of the economy.

The population of the Kingdom stood at 22.6 million including 6.1 million expatriates bringing the per capita GDP at year-end 2005 to $13,603.

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