Saudi Arabia, being one of the major oil exporters, continues to enjoy positive trade balance. But being dependent on energy exports make it dependent on oil prices and production levels, which have been a boon for the economy, in recent past. Since 2003, the trade balance has recorded strong growth as the oil price went up and the country was operating at near-100% capacity. Oil exports as proportion of total export of the country has remained in the range of 89%-90% in the last five years.
Although the country is looking to diversify its economy, it also has plans to increase the oil production capacity from its current 11mn bpd to 12.5mn bpd in 2009 to meet demand. We believe that this will most likely keep oil exports a dominant portion of total exports.
According to Central Department of Statistics and information, total exports of goods and services are expected to grow by 15.1% reaching US$215.5bn in 2006. Non-oil exports of goods are expected to grow by 10.8% amounting to US$21bn, representing 10.1% of total goods exported. The total imports of goods and services are expected to grow by 27.2% in 2006 amounting to US$104bn, while goods imported are expected to grow by 9.4% reaching US$64.9bn.
Strong growth in imports….
The trade balance is estimated to record a surplus of US$147.6bn in 2006, registering an increase of 17.5%. The current account balance increased to US$102.7bn in 2006 as compared to US$90bn recorded in the previous year. One thing that emerges out of the picture is the strong growth in the imports which is indicative of the strong economic activity in the country. The current account balance is lower as compared to balance of trade as it includes outflow of funds on account of services and repatriation of funds by expatriate workers. We believe that current account balance is going to show strong growth on account of increased exports and lesser remittances as the native population replaces expatriates with Saudization being implemented in many industries.
Oil dominates the exports….
Although the economy is diversifying and non-oil sector recording strong growth, we believe that oil sector will continue to dominate the exports. However, in terms of sector, the off-shoots of the oil sector such as chemical products and plastic products have registered strong growth as the new capacities came on-stream. Chemical products registered a yearly growth of 30% as their exports in 2005 amounted to US$6.5bn. We expect allied sector to show more than 25% growth in the next couple of years as new plants and capacity expansion get completed by the major players.
Composition of Exports
(US$ bn) 2001 2002 2003 2004 2005
Mineral Products 59.9 64.0 82.4 108.0 132.0
Foodstuff 0.4 0.5 0.8 0.9 1.2
Chemical Products 3.6 3.7 4.3 5.0 6.5
Plastic Products 1.6 1.5 1.9 3.4 4.7
Base Metal and Products 0.5 0.7 1.0 1.2 1.3
Electrical Machines & Equipment 0.3 0.3 0.4 0.6 0.7
Others 0.6 0.7 1.2 1.7 1.6
Re-Export 1.0 1.1 1.3 2.4 2.9
The major portion of imports consists of machinery, electrical and transport equipments, transport equipment and base metals. We believe that with the growing industrialization of the economy and investment in the infrastructure sector, import of capital goods is expected to show strong growth in the next couple of years. Also the transportation equipment imports are expected to grow further as both the intra and inter-regional trade increases, which will warrant increase in the transportation equipment.
