Saudi Arabia Business Forecast Report Q3 2009

Publication Date	June 2009
Publisher	Business Monitor
Product Type	Report
Pages	58
ISBN Number	1745-0683
Product Code	BMI03960

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Summary

For the first time in several quarters, we begin this Business Forecast Report on a (qualified) optimistic note. Since we became bullish on the Tadawul All-Share Index on March 18, the index has risen by 38.7% (as of the time of writing, on May 12th), and oil prices had ticked up somewhat.

Our financial market views are constantly being updated, and we do not necessarily expect this view to hold throughout the coming months. However, we note that Saudi was an outperformer in the GCC region, in line with our overall growth view. In other positive developments, Riyadh was chosen to host the GCC central bank, and the succession process looks somewhat clearer with the appointment of Prince Nayef as second deputy prime minister suggesting he could be next in line to the throne.

Saudi Arabia faces a host of political challenges over the coming year or so, with the economic downturn likely to increase dissatisfaction and inter-communal tensions. The violent clashes between protesting Shi'a Muslims and the security forces in February and March illustrated the resentment that continues to simmer below the surface. For Saudis to protest in this manner, given the reputation of the security services and jails, suggests that dissatisfaction is running deep, in spite of King Abdullah's attempts to reach out to the community. Meanwhile, its pro-US attitude remains a potential threat among some constituents.

Oil prices are up, and we have revised our average forecasts up slightly, but 2009 will still be a very difficult year for the Saudi government. The US$49/bbl level we now project for average Brent crude prices may be a welcome rise now, but would have seemed horrifyingly low to Saudi policymakers this time last year. Our new projections fall just around the breakeven price in terms of the budget - based on ceteris paribus assumptions - allowing the budget to register a very manageable deficit of just SAR150mn (US$40mn or 0.01% of GDP) in 2009, and return to surplus (to the tune of SAR11.5bn (US$3.1bn or 0.9% of GDP) in 2010.

The financial picture is very stable in Saudi Arabia, boosting the appeal of its business environment.

Not only can the Saudi government be relied upon to step in to rescue troubled lenders for political reasons - it has announced a number of measures, including guaranteeing all deposits in the Kingdom - but, crucially, it can also afford to do so. The central bank has US$32.6bn in hard foreign exchange, and a total of US$440bn in assets (mostly held in foreign securities). Ratings agency S&P recently echoed BMI's view that Saudi Arabia's banking sector is less exposed to the financial crisis than many of its neighbours, and will be among the first to recover, and indeed, as early as February 2009, there were positive signs. The decision to locate the GCC central bank in Riyadh will also boost investor perceptions.

Content

Executive Summary
- Green Shoots Of Hope For Regional Outperformer
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Royal Succession Question: A Closer Look
- Prince Nayef looks likely to be appointed crown prince, signalling a potentially more conservative and hawkish direction over the coming years
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Why Growth Can Still Be Positive In 2009
- We still see positive growth, on the back of very strong finances, good domestic demand dynamics, early indications of a pick-up in sentiment, and the government's bold monetary and fiscal policy stimuli
- Balance Of Payments
- Current Account Surplus, Financial Deficit To Narrow
- The current account will shrink drastically this year, but our slightly higher oil price forecast will relieve some pressure, as will the more conducive market environment it exemplifies
- Fiscal Policy
- Oil Price Forecasts Revised Up: So Where Are We Now?
- Slightly higher oil prices will make it easier for the Saudi government to push ahead with infrastructure depending, creating jobs and maintaining living standards
- Investment Climate
- Central Bank Of The Gulf: Key Implications
- The Gulf single currency may now have a central bank location, but we still think it will be some years before the member states are ready to take the plunge
Chapter 3: 10-Year Forecast
- The Saudi Arabian Economy To 2018
- Politics Main Risk To Long-Term Outlook
- Assuming the survival of the current form of government into the medium term, we see ongoing strong growth and asset accumulation via real expansion in investment and exports, amid still historically high oil prices
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Retail
- Executive Summary
- BMI estimates that in 2007, retail sales will have accounted for 16.5% of nominal GDP (on a US dollar basis)
- Consumer Electronics
- Executive Summary
- Saudi Arabia's domestic consumer electronics devices market, defined as including computing devices, mobile handsets, and video audio and gaming products, was estimated to be worth around US$3.6bn in 2008
Chapter 7: BMI Global Assumptions
- Global Assumptions
List of Tables
- Table: Political Overview
- Table: ECONOMIC ACTIVITY
- Table: BALANCE OF PAYMENTS
- Table: FISCAL POLICY
- Table: Long-Term Macroeconomic Forecasts
- Table: LOAN-TO-DEPOSIT RATIOS, Selected St ates
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected St ates
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: Middle East & Africa Annual FDI Inflow s
- Table: BMI TRADE RATINGS
- Table: Top Export Destinations
- Table: Key Retail Indicators
- Table: Consumer Electronics Overview
- Table: GLOBAL ASSUMPTIONS
- Table: GLOBAL & REGIONAL REAL GDP GROWTH
- Table: EMERGING MARKETS
- Table: COMMODITIES